By Peter Fenwick
AIMS’ voice on Newfoundland & Labrador

It took six years of off-and-on negotiations to come to a deal that was acceptable to Inco, the Newfoundland government, the Inuit and the Innu. In the end the province and Inco agreed to a deal that would commit Inco to the processing of Voisey’s Bay concentrate in the province, be that through a new hydrometallurgical facility, or through a nickel matte processing plant.

Although Inco did not post the performance bond demanded by the opposition parties, its mining permit is dependent on its processing of concentrate in the province. Failure to proceed in a timely manner gives the province the right to stop the shipment of ore from the mine site.

Assessing the deal is difficult. The government claims it has met its commitment to process all ore concentrates in the province, and has repeatedly said so in saturation advertising that started the day the announcement was made. Official Opposition leader Danny Williams calls it a bad deal, objecting to the exporting of ore in the first years of development, and to some of the loopholes his legal mind sees in the wording of the basic principles.

Indeed it is this borrowing of ore that is the most controversial. Ore concentrate from the mine/mill on the coast of Labrador will be shipped to Thompson Manitoba and Sudbury Ontario as the hydrometallurgic concentrator is being built in Argentia, a south coast port on the island of Newfoundland. As the Voisey’s Bay reserves begin to decline, Inco commits itself to shipping ore into the Argentia facility to replace the ore shipped out.

Instead of a performance bond, the province has imposed strict time lines on the company. No ore concentrate can be shipped out until the experimental hydrometallurgical pilot plant is ready to process ore in Argentia, and there is a fixed deadline for Inco to commit to a full scale processing facility, or if the hydrometallurgical process fails, to a facility that would do the final processing of already smelted nickel.

At first blush the deal appears to be well received by the electorate. A St. John’s Telegram poll conducted in the days following the announcement found 90% of the respondents in favor of the deal. Support was highest among Liberal government supporters, but a majority of Tory and NDP supporters also approved. Opposition Tory leader Danny Williams finds the numbers high, in his door-to-door canvassing he claims that most people have concerns about the deal, concerns he will raise in the special debate in the House of Assembly.

While the opposition politicians have concerns, the native leaders who were part of parallel discussions, and are voting on their own industrial benefits package, are highly supportive. They appear to be the biggest winners with commitments to preferential job hiring, to royalties, and to an ownership role in the companies that will do business with Inco in the development of the mine. If the promises bear fruit, the coastal Labrador communities will be transformed overnight.

The various groups representing the mining industry are also supportive of the deal. Some industry observers are surprised that Inco committed so much to the deal. The commitment to returning ore even before the reserves at Voisey’s Bay run out was an innovation that surprised industry and financial analysts alike. Some industry people expect the hydrometallurgical facility at Argentia to be the major Canadian refiner of nickel ore in ten or twenty years when both the Thompson and Sudbury facilities are but a faint memory. If so, the tidewater port of Argentia might have an extremely bright future.

The mining industry is also thankful that the six years of acrimony between the province and the company has come to an end. The province had imposed some draconian provisions in its mining act to force all mining companies to get specific cabinet approval before developing any new mine. While the provision was designed to put pressure on Inco, it frightened away other investors and made the job of the junior mining companies that much more difficult. The Fraser Institute’s survey of investor’s intentions had Newfoundland and Labrador as one of the least desirable places in Canada to invest in mining exploration. With a done Voisey’s Bay deal industry insiders expect the mining act to be amended.

Despite the initial high approval ratings, Newfoundlanders are still skeptical. They remember the Churchill Falls deal, and lament the meager royalties that the province receives from Hibernia after the federal government claws back much of the tax revenue. Indeed the net amount from specific provincial taxes from Voisey’s Bay is less than 5%. The Inuit get that much alone from their tentative land deal. The opposition parties argue that the royalties are much too lean, even though the culpability for that rests with the federal government’s inclusion of resource revenue in the equalization clawback formula. Ever since AIMS authors advocated the removal of natural resource royalties from the equalization formula, that concept has gained favor in the province.
Some critics want the province to leave the “ore in the ground” until that change is made.

Given the enormous approval rating for the deal, one wonders if a similar deal would have been politically possible several years ago. When former premier Brian Tobin rejected the last deal, most of the final deal was on the table. One exception was the commitment by Inco to return ore during the life of the Voisey’s Bay mine. Rather remarkably, Tobin’s election promise that not one spoonful of ore be exported unprocessed became an almost insurmountable barrier to a deal. In the words of radio open line host Bill Rowe, “Tobin had raised the bar much too high.” Now “not one spoonful” has become the clarion call of the opposition parties. Whether that will erode the high level of approval remains to be seen.

Gauging the damage done to the Newfoundland mining industry is difficult. What exploration programs were canceled, or what promising finds were not developed, is impossible to say. Newfoundland’s billion dollar mining industry is essentially the Labrador iron ore mines, a few quarries and one or two small gold mines. Voisey’s Bay will expand mining GDP by up to 40%, and will spark renewed exploration interest in other parts of the province.

While the deal itself is important, the long suffering mining industry needed its shackles removed and in the long run the fact the deal was done at all is as important as the deal itself. A province with 16% unemployment and with a continuing exodus of its population cannot afford to be the pariah of mining investment in Canada. Given the high public acceptance, the real question is whether a similar deal could have been concluded long ago.