Sept/Oct 2012

Pride of ownership

First Nation takes equity stake in Avalon Rare Metals

By Vivian Danielson

A recently signed accommodation agreement bet­ween Avalon Rare Metals Inc. and the Deninu K’ue First Nation (DKFN) has raised the industry bar on Aboriginal engagement. Ava­lon’s agreement with the DKFN provides for business, em­ploy­ment and training op­portunities, but it also goes beyond these typical comp­onents of Impact Benefit Agre­ements (IBAs) by proposing a limited partnership. The DKFN will acquire a 3.3 per cent limited partnership stake in the company. Along with the ac­­­­­­com­modation ag­re­ement, Avalon has agreed to transfer 10,000 of its com­­mon shares and 50,000 share purchase warrants to the DKFN, subject to various con­trac­tual and statutory restrictions.

“This type of agreement is an ad­vancement of the IBA model as it offers equity ownership rather than just cash transfers,” said Avalon president Donald Bubar. “It’s new to the Northwest Territories [NWT], and while there are other examples in Canada, not many of them are in mining.”

The formal signing ceremony in July attracted local and federal politicians, including federal cabinet minister Tony Clement and NWT Premier Bob McLeod.

Bubar says Avalon hopes to finalize accommodation agreements soon with two other First Nations (Yellowknives Dene and Lutsel K’e Dene) near its Nechalacho project, situated about 100 kilometres southeast of Yellowknife. These efforts are assisted by the Vancouver office of Fasken Martineau (previously Fasken Martineau and Du­­Moulin). The law firm has helped apply the equity-based Aboriginal partnership model, used more widely in the energy sector, to mineral projects. The firm’s Aboriginal practice group was strengthened by its 2000 merger with Vancouver-based Russell & DuMoulin, as many Aboriginal rights cases affecting resource development originated in British Columbia.

Avalon’s new accommodation agreement builds on the experience of Vancouver-based Polaris Minerals Corp., which invited First Nations to participate in the development of its Orca sand and gravel project on Vancouver Island in 2005. Fasken Martineau DuMoulin was involved in the development of a groundbreaking limited partnership which resulted in the Namgis First Nation holding 12 per cent of the project and Polaris holding the balance. The Kwakiutl First Nation participates in the Orca project through a traditional IBA.

Many Aboriginal groups are seeking direct partnership roles in resource projects within their traditional lands, as recently articulated by Shawn Atleo, chief of the Assembly of First Nations. But the promise of equity-based participation is no guarantee of future Aboriginal support, as proponents of some high-profile energy and pipeline projects have found.

In the case of Nechalacho, Chief Louis Balsillie insists that development will not come at the expense of the traditional lands where the DKFN continue to hunt and trap. He publicly stated in July, “The mitigation of the environmental impacts and provision for environmental monitoring on these lands are crucial to our members.”

For Avalon, the DKFN agreement and the potential of others to follow are critical in the development of what is considered to be the world’s largest rare earth element deposit outside China. Bubar says Avalon is well-fund­ed to complete a bankable feasibility study by 2013. If all goes according to plan, construction would follow with a production start in late 2016.

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