Commentary: Poor information allowed to be tabled on Mary River economics
Report commissioned by Oceans North downplays challenges faced by Baffinland, says chamber of mines
I write in reference to the Jan. 30 Nunatsiaq News story, “Despite Baffinland’s claims, truck route still makes money, expert says,” discussing the findings of a report commissioned by Oceans North and prepared by a Berlin-based third-party consultant, OpenOil, that was submitted to the Nunavut Impact Review Board public registry.
Stepping back for a moment, the purpose of the current NIRB hearing is to facilitate informed decision-making by the board with respect to Baffinland’s Mary River phase-two proposal. Under the Nunavut Agreement, the primary functions of the NIRB include review of environmental and socio-economic impacts of project proposals in order to make a determination about whether the project should proceed for subsequent consideration by the minister. It is also important to note that the Mary River deposit is located entirely on Inuit owned land.
With this context in mind, I would point out that “making money” at current high iron ore prices is very different from long term, responsible operation of a viable mine capable of providing good jobs, education and training, along with billions of dollars of royalty payments to Inuit organizations and public governments.
Baffinland has submitted to the NIRB a public critique of the OpenOil report, in which Baffinland correctly identifies a number of unusual assumptions, errors, and references to outdated reports in the OpenOil analysis. The OpenOil analysis paints an overly optimistic outlook for the current trucking operation and fails to address the risks, costs and uncertainties that mines face and are typically accounted for in financial analyses of proposed mining operations in Canada.
And it is not just Baffinland that says the current trucking operation at the Mary River project is not financially stable. This was also the conclusion of an independent study done for the QIA by the respected international audit firm PricewaterhouseCoopers.
Good decisions are supported by good information. Public mining companies in Canada are required to retain the services of a “qualified person” using a standard process to assess the financial prospects of a project. The OpenOil report is overly simplistic in its assumptions, and therefore cannot support well-informed decision making by the NIRB. Key weaknesses with this report include:
- Using current (near peak) iron ore pricing, which can overstate the real longer term value of mineral resources
- Assuming constant high premium prices for the mine’s iron ore, which is not supported in practice
- Failing to account for moisture content in the ore
- Failing to include financing costs in its analysis
The OpenOil report states that Mary River can continue to be viable under the current operational arrangement when, in fact, Baffinland shows they have lost hundreds of millions over six years of operation.
Nunavut has the tremendous advantage of some large and potentially multi-generational mining opportunities, including Mary River. However, if a mine is to be responsibly developed and operated successfully over the long term — to the benefit of local stakeholders, the company and government – it is critically important that it be strong and healthy enough to survive unpredictable market prices. Boom and bust mining will not serve Nunavut well.
If the OpenOil report’s logic is accepted, it will not represent informed decision making. So here’s hoping Baffinland, QIA and the impacted communities keep this in mind as they address the matter at hand.