Miners defend royalty rates

The Yukon Chamber of Mines is trying to bury the NDP's royalty proposal. The territory isn't getting its "fair share" of mining profits, said NDP Leader Liz Hanson. Not so, said Claire Derome, the chamber's president.

The Yukon Chamber of Mines is trying to bury the NDP’s royalty proposal.

The territory isn’t getting its “fair share” of mining profits, said NDP Leader Liz Hanson.

Not so, said Claire Derome, the chamber’s president.

She cites a Natural Resources Canada study from June that shows the Yukon charges hardrock miners more than any Canadian jurisdiction.

Yukon’s hardrock royalties are based on a sliding scale that’s middling compared to other Canadian jurisdictions.

But mines don’t simply pay royalties. They’re also taxed – and the Yukon’s combined corporate income tax rate is higher than elsewhere, according to the study.

Put taxes and royalties together, and the report shows the territory charging a marginal mine slightly more than elsewhere in Canada. Its take from a highly profitable mine would be second only to Quebec.

“I think someone at the NDP is not getting the point,” said Derome.

Conservationists question the chamber’s interpretation of the federal report.

The bulletin’s models focused on base metals, rather than silver and gold, notes the Yukon Conservation Society’s Lewis Rifkind. And it’s unclear whether the report uses the territory’s recently revamped quartz mining regulations, he said.

And the chamber overlooks the many generous tax and royalty breaks offered Yukon mines, said the NDP.

The New Democrats want mine profits socked away in a legacy fund. Derome wonders how this would work, when a portion of royalties collected by the territory are to be shared with First Nations.

“Are they going to reopen the final agreements?” asked Derome.

Capstone’s Minto mine paid $5.9 million in royalties last year. But that money flowed to the Selkirk First Nation, because the mine sits on its land.

Selkirk has a more advantageous agreement with Capstone than the territory enjoys with its mining companies, said Hanson this week. The Yukon Conservation Society is making the same claim.

Not so, said Derome: the methods of charging royalties are exactly alike. Minto pays the same royalty rate, and is entitled to the same breaks as the rest of the industry.

Jesse Devost, a spokesperson for Energy, Mines and Resources, confirms that’s the case. The territorial government collects Minto’s royalties, then pays them to Selkirk.

The NDP notes the territory hasn’t kept hardrock royalties since it took control over its natural resources in 1993. But that’s because there had been no hardrock mine operating on Crown land until last year, when Alexco’s Bellekeno and Yukon Zinc’s Wolverine mines opened.

Derome doesn’t expect these mines to pay royalties until 2013. That’s because only profitable mines pay royalties, and the territory allows mining companies to writeoff their development costs.

Take this perk away, and mines with marginal profitability may never open, said Derome.

She’s also concerned about the NDP’s promise to raise placer royalties. The Yukon charges just 37.5 cents per ounce of gold, thanks to a royalty rate that hasn’t changed since 1906, when an ounce of gold was worth $15.

Today, an ounce of gold is valued at around $1,700.

The territory collected $19,500 in placer royalties for 2010-11. The government received more from campground fees during that period, as the NDP is fond of noting.

The territorial government justifies this incredibly low rate as a jobs generator. By Derome’s estimate, the placer mining industry creates 650 seasonal jobs.

And those jobs, in turn, produce income and business taxes.

Cranking up placer royalties would be “regressive,” said Derome. That’s because these royalties are paid out whether a placer mine turns a profit or not.

Only several years ago, many placer operations weren’t profitable, said Derome.

“Until gold rose to $1,000 per ounce, they weren’t making any money. The fuel prices were so high, everyone was losing money. There was no investment – they were all running old gear. Now there’s reinvestment.”

Many placer outfits didn’t have new ground prepared when gold prices skyrocketed, said Derome. That means they’ve been slow to capitalize on today’s gold prices.

“They weren’t ready,” she said. “That shows you the industry wasn’t in great shape.”

Raise royalties now, and later, when gold prices slump, many outfits will be hurt, warned Derome. “You can put the industry out of business very easily.”

The Conference Board of Canada forecasts mining will become an increasingly important part of the Yukon’s economy in the coming decade.

But the board predicts royalties will only generate a trickle of cash, between $1-1.5 million annually. Corporate taxes, which in the board’s view are “extremely low,” will similarly pull in little.

“I wouldn’t conclude anything out of that,” said Derome. She expects mines will pay far more than the board predicts.

Revenues generated by the territorial government have risen from $62 million 2007-8 to $282 million in 2010-11. “That comes from mining,” said Derome. “There’s nothing else that can explain that.”

Derome suspects the territory didn’t disclose to the board taxes paid by mining companies, “for confidentiality reasons,” because the only producing mine was, until recently, Minto.

Devost at Energy, Mines and Resources wouldn’t corroborate that, for fear of wading into a territorial election issue.

Contact John Thompson at

johnt@yukon-news.com.

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