Arbitration hearing on QIA-Baffinland royalties dispute starts April 18

The port at Milne Inlet through which Baffinland Iron Mines Corp. is now shipping ore to market during the ice-free months of summer. Does that constitute “commercial production” under the Inuit Impact and Benefit Agreement between Baffinland and QIA? A three-person arbitration panel that started hearing evidence on the issue in Vancouver on April 18 is expected to rule on the issue. (FILE PHOTO)

A long awaited arbitration hearing aimed at resolving a complex dispute between Baffinland Iron Mines Corp. and the Qikiqtani Inuit Association over advance royalty payments for the Mary River project got started April 18 in Vancouver before a three-person panel, the QIA has announced in a release.

In a statement of claim filed Aug. 26, 2016, the QIA alleged that Baffinland, under their Inuit Impact and Benefit Agreement for Mary River, owed them, at that time, at least $6.25 million in advance payments.

Under the Mary River IIBA, Baffinland has already made advance payments to QIA—against future royalties— worth a total of $20 million: $5 million on the date the IIBA was signed, $5 million after the water licence was received, and $10 million after making their final construction decision.

After that, Baffinland was to have paid QIA advance payments of $1.25 million each quarter-year until the start of “commercial production.”

And at the commercial production stage, those advance payments were to be replaced by quarterly royalty payments, calculated at 1.9 per cent of Baffinland’s net sales revenue, minus permitted deductions.

At the same time, Baffinland would claw back the advance payments from the royalty payments through deductions of up to 25 per cent for the first 36 quarters and up to 50 per cent thereafter.

But the QIA’s big problem right now is that—in their opinion—Baffinland stopped making those advance payments too early, and is paying royalties instead.

That’s because the two sides disagree over the meaning of “intended commercial production.”

The QIA’s position is that “commercial production” is intended to mean a level of production equal to 60 per cent of 18 million tonnes a year—the level allowed in Baffinland’s original 2012 project certificate, which included a railway to a port at Steensby Inlet.

But Baffinland’s position is that “commercial production” is intended to mean 60 per cent of 4.2 million tonnes a year, the amount allowed in the amended project certificate that covers shipping over a tote road to Milne Inlet

In dispute right now are advance payments for part of 2015 and all of 2016.

The QIA and Baffinland tried and failed to resolve the spat through negotiations, so QIA last year asked the arbitration panel, set up under the dispute resolution section of their IIBA, for two things:

• a ruling on whether Baffinland has breached its obligation to make advance payments; and,

• a ruling that will define the meaning of “intended capacity” for the purpose of carrying out Article 5 of the Mary River IIBA, which sets out Baffinland’s financial obligations.

“The answers will determine whether QIA will continue to receive advance payments of $1.25 million per quarter until production levels of the Mary River project increase to a certain point, or whether QIA will be receiving royalty payments based on current production levels,” QIA said in its release.

The three-person panel is made up of the QIA appointee Thomas Berger, Baffinland appointee Jim McCartney and chaiperson Murray Smith.

The panel’s decision will be binding on both parties and will likely come when the hearing wraps up April 20. The panel will likely start its work each day at 10 a.m. Pacific time.

You can view a live webstream of the hearing at this URL: www.webstream.ca/qia/.

Statement of Claim by QIA Filed Aug.26, 2016 by NunatsiaqNews on Scribd