In 1996 Voisey’s Bay discoverers Al Chislett and Chris Verbiski were Canadian prospectors of the year; feted in their home province of Newfoundland, and given honourary degrees from Memorial University. They were the home-grown boys who would lead Newfoundland to prosperity.

But that most-favored-son status didn’t last long. Today their exploration company, Archean has the dubious distinction of being the highest taxed company in Canada. The two prospectors are now considering moving their company to a lower taxation province.

In total, federal and provincial taxes will take six out of every ten dollars the company gets in royalties from Inco’s huge Voisey’s Bay nickel mine. Over the life of the mine Archean’s 3% net smelter royalty will shrink from an estimated $300 million to a little more than $100 million.

Archean, and its owners, are caught by a 20% provincial mining royalties tax imposed a quarter of a century ago on fly by night mining promoters like John C. Doyle. When Doyle fled to Panama the Newfoundland government imposed a 20% gross tax on his royalty stream. That same tax was also imposed on royalties from the Iron Ore Company of Canada. Today royalty taxes on the two Labrador mines pump about $10 million a year into the government’s coffers.

But the wording of the act was, at least in Archean’s view, ambiguous. Income trusts that did little to earn their royalties should be taxed, but exploration companies like theirs that went out and found ore bodies, should be exempted. This fall the company was preparing to put its case to the Supreme Court of Canada when the province told the SCOC that they would change the law. Any judgement from them would then be moot. Tuesday that Bill was introduced into the Newfoundland House of Assembly.

The Newfoundland 20% royalty tax is unique in Canada. Only New Brunswick has a similar one, but at 16% it is less punitive, and has never been invoked. Royalty taxes on a Quebec or Ontario mine would be up to ten per cent lower.

The legislative fix infuriated the Newfoundland and Labrador exploration industry. They had already suffered considerable collateral damage in the prolonged six-year war between Inco and the province. In the late 1990s the province demanded all ore found be processed in province with the cabinet having final say on all new mines. Unique in Canada these provisions made the juniors fund-raising that much more difficult. Mining exploration that had peaked at $92 million in 1996 plummeted to $25 million in 2002.

To stifle criticism from the industry, the province provided two million dollars per year in grants to prospectors and junior mining companies. But exploration activity continued to slide. But few juniors criticized the hand that was now feeding them. To further split the industry, the government is exempting the first $100,000 of income from the royalty tax. Only the discoverers of the really big mines would see their royalties taxed.

Government officials point out that giving the junior mining companies an exemption undermines the general applicability of the act and well might lead to the Labrador Income Trust and others getting the same exemption.

The industry disagrees. They argue it is possible to differentiate between pure rent collectors and exploration companies that work for their royalties. In the final draft the Finance Department relented somewhat by allowing exploration expenses to be deducted before the tax is applied, but investments Archean may want to make in other sectors of the Newfoundland economy would not be deductible.

The official opposition was surprised by the high level of taxation on a local mining company, but they might be of little help. Their leader Danny Williams shares the common Newfoundland attitude that resource companies are getting away with murder. Speaking on the Inco resolution last June, he said “We have given away too much too often, Mr. Speaker. We have given away our hydro and the Upper Churchill to the tune of $1 billion a year. Our fish are gone to foreigners. Our iron ore has gone to Quebec. Our oil is going to the States. Now it is going to be our nickel.”

Newfoundlanders continue to label almost all natural resource developments as giveaways. A proposed deal to develop additional hydro-power in Labrador is being labeled a give away even before the details are made public. Given the political climate it is difficult for any Newfoundland politician to exempt junior exploration companies from the highest taxes in the country.

Which means the long slide in exploration activity will continue as company after company decides that exploring for minerals is greener in any other province or territory in Canada. Chris Verbiski and Al Chislett and their poor cash cow Archean will probably follow them.

It’s a heck of a way to treat your local heroes.