Tribunal rules Inuit org should receive back pay from iron mine

Baffinland’s Milne Inlet port which services the Mary River iron mine, about 100 km inland. (FILE PHOTO)

Baffinland Iron Mines Corp. owes the Qikiqtani Inuit Association more than $7 million in back pay after an arbitration tribunal ruled that the corporation breached the spirit of its agreement with the regional Inuit group over advance payouts from its Mary River iron ore mine.

The ruling, dated June 30, said Baffinland was in default of its 2013 Inuit Impact and Benefits Agreement signed with the QIA to operate the mine, including advance payments owed to the Inuit organization prior to Mary River reaching commercial levels of production.

In total, the arbitration panel said Baffinland owes QIA more than $7.2 million, a figure that includes interest on an outstanding $6.9 million in missed payments.

“I am pleased that the panel affirmed our interpretation of the IIBA, agreements with Inuit should be honoured by companies that want to work with us,” QIA President, P.J. Akeeagok, said in a July 6 QIA media release.

The dispute between the two entities rested on the definition of “commercial production levels” at Mary River.

QIA argued that its IIBA defined that level at 18 million tonnes of iron ore per year, while Baffinland declared commercial production levels at the mine were reached in 2015 at a much lower 3.5 million tonnes per year.

Under the IIBA, the QIA was to be given advance payments—to a maximum sum of $75 million—until the mine reached commercial production levels, at which point payments from the mine would shift to royalties.

Since Baffinland calculated its commercial production level to be much lower than QIA, it switched from the more expensive $1.25 million quarterly dividends to what amounted to lower royalty payments derived from 1.19 per cent of the mine’s net sale revenue.

QIA argued that the spirit of the IIBA had always been to reach the 18 million tonne-per-year mark, and since “commercial production” in the IIBA does not begin until the mine reaches 60 per cent of that goal, then the advance payments should continue until that point.

The tribunal agreed with QIA and ordered Baffinland to continue advance payments to the Inuit body until the project reaches 60 per cent of its intended capacity, or QIA reaches its $75 million advance payment ceiling—accounting for inflation.

QIA has already received more than $20 million in payouts from Baffinland—$5 million on the date the IIBA was signed, $5 million after the water license was received, and $10 million after making their final construction decision at Mary River.

But global demand for iron ore has plummeted since the IIBA was first signed, falling from $125 USD per tonne in 2013 to about $60 USD per tonne this year.

The resulting market instability forced Baffinland to expand the size of its operation at Mary River in an attempt to increase profits.

Late last year, the Nunavut Impact Review Board deferred on a proposal by Baffinland for a “Phase 2” expansion of the mine, which would include a railway and expanded shipping into the winter season.

At the time, the NIRB stated that the layout of the mine had changed so dramatically that Baffinland would have to reapply for land clearance from the Nunavut Planning Commission before submitting again to NIRB.

The scope of the Phase 2 proposal was also different enough to warrant another IIBA, if it ever goes ahead, the QIA states.