Arbitration panel rules Baffinland owes QIA $7.3M in missed royalty payments

An arbitration panel has concluded that Baffinland Iron Mines owes the Qikiqtani Inuit Association (QIA) $7.3 million in advance royalty payments, and interest, on what could ultimately amount to $75 million in the coming years.

• QIA says Baffinland Iron Mines owes it millions in advance royalty payments

PJ Akeeagok, QIA president, said clarifying the agreement was a priority for the organization.

"It means a great deal," Akeeagok said. "We're here to ensure Inuit rights are protected in agreements we sign."

Akeeagok said in the big picture, it's a matter of Inuit protecting their interests after "ceding and surrendering our Aboriginal title to these lands in exchange for these impact benefit agreements."

"It impacts us greatly," he said. "We don't take these things lightly."

Commercial production clarified

The company stopped making quarterly advance royalty payments of $1.25 million — and reverted to smaller production-based royalty payments — late in 2015 when the company said it had achieved commercial production in the early revenue stage of the Mary River iron ore mine.

The original project plan allowed for Baffinland to cease advance payments and switch to production-based royalty payments once it had achieved 60 per cent of commercial production.

But annual production is defined as 18 million tonnes of ore per year in the approved Mary River project plan. Baffinland had not reached production anywhere near that quantity when it ended advance payments.

The QIA disagreed with Baffinland's decision to stop the quarterly advance payments and make production-based royalty payments instead.

The QIA claimed Baffinland hadn't reached the agreed upon commercial production threshold that would allow it to cease advance payments and switch to royalty payments.

The three member tribunal ultimately agreed — unanimously — and ruled in the QIA's favour.

The Inuit association argued that because that threshold has not yet been met, the company owes continued advance royalty payments of $1.25 million per quarter — $5 million per year —  up to a maximum of $75 million in advance payments.

The company has already made more than $20 million in payments. All advance payments count against future royalty payments, and contribute to a QIA legacy fund.

According to the arbitration ruling, the advance payments were designed to ensure benefits would flow to Inuit whether or not full commercial production was ever reached. This is because the region would face "negative impacts on the environment … as well as … social and cultural disruption" regardless of the mine's ultimate commercial success.

Ultimately, the $75 million was interpreted by the arbitration board as being "minimum payment" to the QIA.

"Advance payments are to be objectively seen as the minimum payment to be made in any event of project size or the length of delays in project construction," the document states. "The very large cap on advance payments is an assurance that the consideration under the IIBA will be sufficient to ensure remediation of Inuit lands, environmental harm and socio-economic impacts."

'Merely aspirational'

According to the arbitration document, Baffinland argued that its proposed 18 million tonnes of production per year was "merely aspirational," and so the company shouldn't be held to it in light of current market conditions which do not justify the project in its full scale.

In 2013, Baffinland said market conditions did not warrant full scale mine construction and proposed what it called an early revenue phase of the Mary River project. It was a scaled down version that proposed reaching 3.5 million tonnes of annual iron ore production, and left some expensive infrastructure investment  —  like a rail line — for the future.

When the early revenue phase of the project went into production, the company began making royalty payments based on actual production.

But iron ore commodity prices have plummeted since Baffinland conceived the Mary River iron ore mine. This means the company's royalty payments, based on early revenue phase production, are less than the $1.25 million in quarterly advance royalty payments the QIA would otherwise be receiving.

Baffinland welcomes decision

Todd Burlingame, vice president of sustainable development for Baffinland Iron Mines, said the company welcomes the arbitration panel's decision.

"It's a good thing to have this over and behind us," Burlingame said. "Now we can move forward with other matters and give them our full attention, like employment and training for Inuit."

"The important thing for us is that we honoured the terms and conditions of the IIBA, the process worked, we have a decision, and now we're both moving forward."

The arbitration panel found that $10 million in advanced royalty payments was owed as of June 30. The $7.3 million awarded represents the difference between that $10 million owed, and royalty payments made, plus interest.