Mining royalty scheme is “sick”

The Yukon government hasn’t collected a mining royalty since the Faro mine closed in 1997, said the mining co-ordinator for the Yukon…

The Yukon government hasn’t collected a mining royalty since the Faro mine closed in 1997, said the mining co-ordinator for the Yukon Conservation Society.

“Not even one of the most successful mines in the Yukon, Brewery Creek, paid royalties,” said Gerry Couture.

The Yukon’s profit-based royalty scheme hasn’t added anything to territorial coffers because companies can use government mandated deductions to reduce that profit to zero.

And now the territory plans to add even more deductions.

A consultation paper suggests the government plans to amend the Quartz Mining Act, but it won’t increase the royalty rates applied to hardrock miners, said Couture.

“That’s the system we’ve had, and from everything we can see they are planning to introduce some amendments to a new profit royalty system, clean it up a little bit and say it’s a new system, but it really isn’t,” he said.

One of the changes is called the community development deduction, which would allow a company to write off any financial assistance it provided to a community as a cost, further offsetting any profits and thus lowering or eliminating any royalty payments.

There are many incentives provided by the government for mining companies, but nothing is received by the government in return, said Couture.

“We build roads for them,” he said. “We build power lines for them. We have a prospector allowance. We have fuel-tax reduction for them. And the public taxpayer of Yukon gets nothing.”

Mining lobbyists wanted the royalty system reformed because there were some glaring problems in the scheme.

“(The mining industry) fastened on royalties because there were some aberrations in the old royalty regime,” said Couture.

For example, the system was set up on an escalating scale that, eventually, would force a very profitable mine to hand over all its profits to a government to cover royalty payments.

“It was ridiculous, but it was developed in a time when there was no thought that a mine could ever be that big or that profitable,” said Couture.

But the industry has taken advantage of those reforms.

“Those sort of things had to go,” he said.

There was no thought given to what the government should receive in return for its considerable service to the industry.

Or to what the mine should pay the citizens of the territory for the publicly owned resource.

The government has decided to continue using a profit royalty, instead of reforming the system further with a net smelter royalty, he said.

“(Net smelter) is a royalty based on the value of the metal produced, minus the costs of getting (the metal) to market and reasonable costs for insurance and mill treatment to get it in shape to get it to market,” he said.

“We would suggest that a (net smelter royalty) should then be blended with a net profit royalty. So when the profits are there and they are high, the public gets a piece of those profits too,” added Couture.

Even mines pay each other using a net smelter return royalty, he noted.

“Any other business doesn’t do (a profit royalty scheme). Mining companies don’t use profit royalties, they use net smelter return. They know what works.”

And the Yukon’s Selkirk First Nation negotiated a .5 per cent net smelter return royalty when Sherwood Copper wanted to open the Minto mine on its traditional territory.

The Yukon Quartz Mining Act deals with hardrock mining, including precious, semiprecious and base metals.

The Yukon Placer Mining Act is the Yukon’s other law dealing with mining, which specifically deals with getting precious metals from gravel, according to the Yukon Mines, Minerals and Resources website.

“And that system is sick too,” said Couture.

The current royalty system has been blatantly pointless and reforms have favoured the mining industry without looking out for the public, he said.

“There is nothing unreasonable about the public of Yukon asking for a minimal share guaranteed out of the production of a mine,” said Couture.