November 2010

Eye on Business

How will the recent B.C./First Nations agreement affect future negotiations?

By Josh Lewis and Bruce Harrison

Secwepemc drumming circle

Members of the Stk’emlupsemc of the Secwepemc Nation join for a drumming circle during the historic mining revenue-sharing agreement signing on August 24, 2010Photo courtesy of B.C. Ministry of Energy, Mines and Petroleum Resources

In August 2010, British Columbia became the first province to share royalties collected from specific mining projects with First Nations. It remains to be seen whether B.C.’s new approach to royalty sharing will be a one-off or if it will set the pattern for other B.C. mines and Canadian provinces.

The government of British Columbia announced two separate agreements with First Nations to share a portion of provincial mining royalties derived from the production of mining projects currently under development. The first agreement, with the Stk’emlupsemc of the Secwepemc Nation, pertains to the New Afton Mine near Kamloops. The government announcement indicates the agreement will allocate approximately $30 million, just under one-third of the total provincial royalties anticipated to be collected over the expected 12-year life of the project. The New Afton Mine, a copper-gold project owned by New Gold Inc., is located at the site of a historic open pit mine and involves new underground operations. Construction is underway in anticipation of production commencing in 2012.

The second agreement, with the McLeod Lake Indian Band, is in respect of the Mt. Milligan Mine west of MacKenzie. The government announcement says it involves a reported $35 to $38 million in provincial mining royalties, anticipated to be distributed to the band over the estimated 23-year life of the project. Minister of State for Mining Randy Hawes did not disclose what portion of provincial royalties this sum constituted, so it is not clear if a similar sharing formula was used for the two agreements, although he emphasized that each such agreement is a one-off, without a set template. The Mt. Milligan project has been developed to this stage by Terrane Metals Inc., which has been recently acquired by Thompson Creek Mining Ltd. The project obtained a provincial environmental assessment certificate in 2009 and anticipates copper/gold production to commence in 2012.

These agreements are the latest step in the development of the B.C. government’s Aboriginal relations policy resulting from the Haida decision in 2004, when the Supreme Court of Canada recognized that the government is under a duty to consult with First Nations and, where necessary, accommodate First Nation interests where Aboriginal rights and title are asserted. The province released its New Relationship policy in May 2005, which was followed in November 2005 by the Transformative Change Accord. Two objectives of the policies are to “reconcile Aboriginal rights and title with those of the Crown and establish a new relationship based on mutual respect and recognition,” and “to close the gap in economic opportunities by considering the implementation of revenue-sharing agreements.” This is the first major development since the ill-fated Recognition and Reconciliation Act, which was drafted in the spring of 2009 following consultation with First Nations, but never made it to the B.C. Legislature. It would have recognized both Aboriginal and Crown title to provincial land and reconciled the competing claims through benefit distribution structures such as royalty sharing agreements.

Mining companies with projects in British Columbia have historically borne the burden of consultation and accommodation with First Nations, often entering into Impact Benefit Agreements and Accommodation Agreements. It remains to be seen what effect provincial royalty sharing may have on that practice. However, some speculative observations can be made:

  • While the B.C. government appears intent on proceeding with a strategy of recognition and reconciliation, the firestorm of public, aboriginal and industry criticism surrounding the failed Recognition and Reconciliation Act has caused them, at least for the moment, to chart a different course — albeit to what will likely be a similar destination. It appears that the government may be pursuing the royalty-sharing aspect of the Recognition and Reconciliation Act on a case-by-case basis, rather than in a broadly sweeping legislative instrument.
  • It is not clear what effect a new practice of royalty-sharing agreements will have on a project proponent’s financial contribution to accommodation; however, royalty sharing will hopefully contribute to an alignment of interest between the proponent and the First Nations. Some First Nations have discovered that the value of negotiated accommodation regrettably is almost always dependant on the project being developed and is illusory if the project is abandoned, delayed or unable to be permitted. Uncertainty in negotiations can often stem from the parties’ inability to recognize each other’s interests and the potential impacts, both good and bad, of the project. Agreements like these would not eliminate that issue, but may alleviate a major sticking point by aligning the interests of those parties that stand to benefit from a producing mine and allowing negotiators to focus greater attention on the remaining issues.
  • Although promising in some respects, these agreements may be the low-hanging fruit on the royalty-sharing agreement tree. Both projects involve relatively amicable relationships and are at an advanced development stage. Locations that involve overlapping or disputed First Nation territorial claims, less conciliation or smaller royalties will not lend themselves to easy, predictable outcomes and agreements.

The B.C. government remains firm in its stance that these agreements do not constitute recognition of full aboriginal title. However, this initiative is the first of its kind in Canadian history and does constitute a constructive effort to attempt to reconcile the positions of First Nations and the provincial government. Whether it is successful and British Columbia’s lead is followed by other provinces remains to be seen, but First Nations’ pressure across Canada with respect to title is not expected to abate, and creative, progressive solutions must be found.

Josh Lewis and Bruce Harrison
Josh Lewis (left) and Bruce Harrison are Vancouver members of Fasken Martineau’s Global Mining Group. Having spent substantial portions of their lives living and working in the interior of British Columbia, they have a special interest in the developing relationship between resource companies and First Nations, both in B.C. and across Canada.

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