Goodwill and Valuations: Commissioner of State Revenue v Placer Dome Inc

By Barry Diamond

How is a mining company valued? Does it have goodwill? How does the goodwill analysis impact the valuation of the company’s land? What role do the facts, evidence and relevant taxing statute (the context) have to play in the analysis? These were the key questions to be answered by the High Court  in Commissioner of State Revenue v Placer Dome Inc [2018] HCA 59. The decision arose from a Western Australian stamp duty dispute, but it has implications far beyond stamp duty. It is significant for what it says about approaches to valuation methodology and evidence, the nature of goodwill and the contexts in which each of these things are  considered. Placer Dome Inc was a substantial gold mining company with land and mining tenements around the world, including in WA. Barrick Gold Corporation was one of the largest gold mining companies in the world. Barrick led a hostile takeover of Placer. The acquisition was the largest of its kind in the gold industry. The amalgamated entity was to become the world’s largest gold mining business.

The decision concerned the ‘land rich’ rules in the former Stamp Act 1921 (WA) (and which have since been replaced with ‘landholder’ rules). Under these rules, a corporation was land rich if 60 per cent or more of the corporation’s total property (by value) comprised land (situated anywhere in the world). The land rich ratio was therefore total land (the numerator) divided by total property (less certain property excluded by the Stamp Act) (the denominator). If a person acquired a controlling interest in a land rich corporation, stamp duty was payable on the value of the corporation’s landholdings in WA.

Was Placer Dome ‘land rich’?

The Commissioner of State Revenue assessed Barrick’s acquisition for duty of $55 million on the basis Placer was a land rich corporation. Was this correct?  The answer to this question required a closer examination of the numerator and denominator of the land rich ratio. Was the land (numerator) correctly valued? Was the total property (denominator) correctly identified and valued, and, in particular, was there goodwill (of substantial value) which could be included as property in the denominator? Continue reading