The Yukon News recently reported that the Tr’ondek Hwech’in First Nation’s 2016 royalty cheque was a whopping $69.
That’s not $69 million or even $69,000. Just $69.
I know how they feel. I recall when my double-digit royalty cheque for that quarter’s Aurore of the Yukon sales provoked chuckles around the family dinner table.
On the plus side, I can now tell my kids that Aurore generated more royalties last year than the entire Dawson-area mining industry did for the Tr’ondek Hwech’in.
Some have suggested dramatically improving the scheme for sharing resource royalties with First Nations, including Yukonomist as far back as 2012. Since the current scheme was negotiated, the landscape has shifted dramatically in terms of constitutional law and political reality. It is hard to imagine First Nations allowing a sizeable mine or gas development to go ahead in the Yukon without a much richer share of the benefits than today’s convoluted formulas allow.
Remember that the Selkirk First Nation only gets the big royalty cheques it does because the Minto mine is on Category A settlement land. Few future mines will be on Category A land, but will most likely be on regular public land.
The new Liberal government should fix this in its first 100 days. A draft deal is already on the shelf since the Yukon Party suggested sweetening the deal a few years ago. There is nothing stopping the new government from announcing a more generous sharing arrangement.
The NWT has already moved to sharing 25 per cent of resource revenues with First Nations.
While our new government is adjusting revenue sharing with First Nations, it should do the same for all Yukoners. Why not share another 25 per cent — or even all the rest — of the royalties from resources on public land with all Yukon citizens? First Nation Yukoners would benefit both as First Nation citizens and as Yukoners. This would give all Yukoners a bigger direct stake in the success of our resource industry, as is the case in Alaska with their oil dividend.
The resources are under public land after all, and it is not written in stone that royalty revenues are reserved for deputy ministers to play with.
At the end of the year, the Yukon government would send 25 per cent of its resource royalty revenues to First Nation governments, then divide the rest by the number of Yukoners and give a refundable tax credit to everyone and their children. It would be a relatively easy and cheap way to distribute the money.
The deputy ministers would still get the personal and corporate income tax and all the fees paid by resource companies and workers.
However, keep in mind that, although the Yukon government’s royalties are in the six-digit range, it is not like the territorial government is rolling in royalty cash. The 2016-17 budget estimated $233,000 in total royalty income, or 0.019 per cent of all revenues. That’s barely enough to pay the freight for a single assistant deputy minister.
J.K. Rowling would snort derisively at all of us. She’s sold an estimated 450 million books, which would generate an impressive ten digits in royalties. Hermione Granger, her lovable know-it-all sidekick character, would tell us you can’t have resource royalties without a resource industry.
Royalty revenues are a result of the royalty rate and the volume affected.
The rate is part of the reason for the Tr’ondek Hwech’in’s paltry cheque. Placer mining royalties are governed under a separate scheme from hard-rock mining. Placer miners pay just 37.5 cents per ounce, which is a fraction of a percent when gold is trading around US$1200 per ounce. The scheme was set up when the Placer Mining Act was passed in 1906, and the rate hasn’t been increased in ages.
The new Liberal government’s carbon tax will hit the diesel-intensive placer industry hard. If they want to flow more placer royalties to the Tr’ondek Hwech’in, they will have to hit it with royalty increases too. If they increased the royalty to 0.5 per cent, a rate seen in some other jurisdictions, that would boost the royalties payable to around $8 per ounce. Keep in mind that this is a percentage of gold sold, so it will be a much bigger percentage of the placer miner’s profits.
Yukon placer miners will likely produce around 70,000 ounces in 2016, according to speakers at The Yukon Geoscience Forum & Trade Show. At $8 per ounce, that works out to $560,000 in royalties. That would double the current Yukon intake, but still isn’t much to split among 11 self-governing First Nations and almost 40,000 Yukoners.
Oil, gas and hard rock mining are where the real royalty bucks are. Just the Kotaneelee gas field in the Southeastern Yukon, for example, generated over $2 million per year on average during its 20-year life. The Minto mine also paid more than $2 million per year on average during the first five years of its life.
At this point, Hermione would probably point out that closed mines don’t pay royalties. Nor do oil and gas companies whose projects are tied up in court with YESAB.
With Minto’s temporary closure coming up in 2017, the Yukon will have zero operating hard-rock mines and zero operating oil and gas wells. You don’t have to hire an expert tax lawyer to calculate how much royalty revenue zero mines and wells generate.
Despite the hard times, the Yukon government should announce it will be sharing more royalty revenue with First Nations and all Yukoners. This would increase support for the resource industry, and, one hopes, lead to royalties being a lot more than zero.
Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He won last year’s Ma Murray award for best columnist.