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December 29, 1965


The opinion of the court was delivered by: Perry, District Judge.


This cause having been tried by the court without a jury, and the court having considered the pleadings, the stipulations of facts, together with exhibits attached thereto, the exhibits introduced at the trial, the testimony of witnesses and the oral arguments and briefs of counsel, finds the facts and states the conclusions of law as follows:


1.  Plaintiff, Santa Fe Pacific Railroad Company,
hereinafter referred to as the "taxpayer", is a corporation
organized and existing under and by virtue of an Act of
Congress, approved March 3, 1897, 29 Stat. 622, and maintains
its principal office and place of business at 80 East Jackson
Boulevard, Chicago 4, Illinois. Taxpayer's Federal income tax
returns for the calendar years 1951 to 1953, inclusive, were
filed with the Collector of Internal Revenue at Wichita,
Kansas, hereinafter referred to as the "Collector".
2.  At all times material to the issues herein, all of
Taxpayer's capital stock has been owned by The Atchison,
Topeka and Santa Fe Railway Company, hereinafter referred to
as "Atchison".
3.  During the taxable years in question, taxpayer owned
mineral rights in certain lands located in the States of
Arizona and New Mexico. Taxpayer, however, did not own the
surface rights to all such lands.

In the spring of 1950, uranium-bearing ores were found on Section 19, Township 13 North, Range 10 West, hereinafter referred to as Section 19 (Haystack), located in McKinley County, New Mexico. The mineral rights in Section 19 (Haystack) were owned by taxpayer. The surface rights were owned by one Berryhill.

4.  The mineralized outcropping on Section 19 (Haystack)
contained a yellow mineral, later identified as tyuyamunite.
It occurred in a dark gray limestone outcropping near the top
of a red sandstone mesa or bluff. The limestone formation,
known as Todilto limestone, dipped toward the north and was
covered by an overburden of earth varying in depth.
5.  In September, 1950, T.O. Evans, Chief Mining Engineer of
the Atchison, was assigned to investigate this occurrence.
During September and October, Evans found that the total
length of exposed limestone outcroppings extended about 12 1/2
miles, of which 8 1/2 miles occurred on lands in which the
mineral rights were owned by taxpayer. His investigation
disclosed that mineralized outcroppings were present not only
on Section 19 (Haystack) but also on Section 13, T. 13 N., R.
11 W., Section 23, T. 13, R. 10, Section 25, T. 13, R. 10, and
Section 31, T. 13, R. 9, hereinafter referred to as Sections
13, 23, 25, and 31, respectively.
6.  In the latter part of October, 1950, Evans reported that
his preliminary investigation warranted further exploration.
On November 13, 1950, F.G. Gurley, President of both the
Atchison and taxpayer, authorized Evans to proceed with
further exploration of the occurrences already found, and to
explore the entire Todilto formation from Cubero, New Mexico,
to Gallup, New Mexico, a distance of 90 miles, using geiger
counters. Prospecting with geiger counters disclosed that the
strongest showings of radioactivity occurred in six sections
approximately twenty miles northwest of Grants, New Mexico, in
the immediate area of the original occurrence. Geiger counter
and scintillometer readings disclosed the existence of
radioactive materials.
7.  On December 11, 1950, Gurley and members of his staff
met with Evans to decide upon a program of detailed
investigation of the uranium occurrences. The surface exposure
of radioactive tyuyamunite ore, the shallow overburden, and
the accessibility of Section 19 (Haystack) resulted in the
choice of that section for detailed exploration. Evans
recommended the adoption of the following program:
    (1) Establishment of horizontal and vertical
  control with reference stakes set on North,
  South, East and West lines at 100 foot centers.
    (2) Removal of overburden to top of Todilto
  limestone at 100 foot centers with bulldozers.
    (3) Vertical control on bedrock surface of
  Todilto limestone.
    (4) Test pitting through the Todilto limestone
  on 100 foot centers to the underlying Entrada
  sandstone, followed by crushing, sampling and
  assaying of all test pit material as obtained
  from each two feet of vertical section.
    (5) Drill, blast and sample entire rim outcrop
  four feet back of the rim at 10 foot intervals.
  (Secondary uranium mineral is soluble and this
  procedure was necessary to obtain an unweathered
  face back of the outcropping.)
    (6) Installation of laboratory equipment to
  furnish radiometric and chemical determinations
  of drill hole and test pit samples.

This program was approved by Gurley and his staff on December 11, 1950. Similar programs were subsequently adopted for Sections 13, 23, 25 and 31.

8.  At the same meeting Evans was directed to submit regular
reports to Gurley outlining the progress of the program which
had been authorized.
9.  On December 14, 1950, Gurley issued a report to Atchison
stockholders reviewing the investigation and exploration
accomplished to that date, outlining the program which had
been adopted for the future and explaining the economic
potential of uranium mining. Mr. Gurley's report stated, in

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