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

The Nunavut court has imposed a $170,000 fine against Baffinland Iron Mines Corp. for breaches of worker-safety legislation that led to the 2018 death of haul truck driver Tony Anker, 63, of Stoney Creek, Ont. (Photo courtesy of Baffinland Iron Mines Corp.)

By Ken Armstrong
President, NWT & Nunavut 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the OpenOil report, in which Baffinland correctly identifies a number of unusual assumptions, errors, and references to outdated reports in the OpenOil analysis.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.

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(7) Comments:

  1. Posted by Voice of reason on

    Thank you Ken for this rational piece. Anything commissioned by anti-development groups like Oceans North should be purely viewed as self-serving propaganda. This project, done right, can help raise the standard of living for the region and the territory. Hopefully NIRB can see through all the self-motivated posturing and make a well-informed decision for the people.

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    • Posted by open oil? on

      sorry, Open Oil is not an “anti-development group” is it? would it be fair to say QIA’s analysis was done by a “pro-development” firm? Let’s keep it clean here. Open oil looks like a pretty respectable firm. BIM has some pretty questionable asks here.

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  2. Posted by Northerner on

    Oh wow. For once something on this site thats not a propaganda lie.

    Anyone that knows anything about buisiness management knows Baffinland will not survive burning through money the way they are. Either they evolve and reduce cost or shut down.

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    • Posted by Marshall McLuhan on

      You have to cut NN some slack, the vast majority of journalists are not experts in anything except compressing bits of information. That distortions happen along the way is of little consequence to them. What really matters is clicks and views.

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    • Posted by whoopsie pie on

      did anyone clarify if when “Baffinland shows they have lost hundreds of millions over six years of operation” – that includes the $700 MILLION they have spent on Phase 2 without having gotten permission?? woulda been a better bet to keep it in their pants til they got approval i suppose, then they wouldn’t show such a huge loss.

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  3. Posted by Johnny West on

    Unfortunately, it’s clear Mr Armstrong has not read the OpenOil report, or if he has he has not understood it. If he had, he would have realised that the criticisms he repeats from Baffinland are inaccurate. We submitted a detailed response to NIRB, which he is welcome to download off our website: https://openoil.net/wp/wp-content/uploads/2016/12/OO_ca_MaryRiver_BaffinlandResponse_210128_1208EST_jw.pdf The single most significant misrepresentation is that the OpenOil model is built on current market prices. We have incorporated four different modalities of price scenario – three of them suggested by the Canadian Institute of Mining (which provides guidance to Canadian financial regulators) – the very authority quoted in the Baffinland response. The base scenario uses a three year moving average price (as recommended by CIM in similar circumstances) and then defaults to a constant price *half* the current spot price. Reasonable estimates of profitability for Mary River – using Baffinland’s own projections – hold for life of project under any inflation-adjusted price achieved in global spot markets since 2009. “Reasonable” here is again defined in accordance with CIM guidance, and as integrated into Canadian compliance reporting via the NI 43 101 instrument – a positive Net Present Value at a discount rate stipulated by the company (we have used the same rates as Baffinland). But there is also an issue which is bigger than rebutting any particular criticism made of the report. Mr Armstrong *cannot* know that Baffinland need to expand the railway, since the company has not submitted an economic model to any form of public scrutiny. It has, however, built such a model, and the results of it have been available on this newspaper’s website for the last year or more. Baffinland’s own estimates of profitability in its model, summarised for potential investors in 2018, are *twice as high* as the OpenOil model (when market prices were considerably lower). Baffinland are simultaneously a) claiming a railway expansion is necessary on grounds of commercial viability b) refusing to admit that any evaluation of commercial viability is relevant c) inaccurately alleging all kinds of errors and mistakes in our own modest attempt to remedy a deficit and place such analysis in public domain and d) declining to release any estimate of future profitability of their own, incluidng one they have already compiled which shows greater profitability than the model they are criticising. Genuinely disinterested readers will, I’m sure, draw their own conclusions. In our view, Inuit rightsholders have a right to know that, considered in the way most public authorities evaluate such projects, using techniques that are widely accepted across the industry, the central claim of the company that a railway expansion is necessary to guarantee commercial viability appears to be wrong. There may be many reasons to consider such an expansion. OpenOil takes no view on whether it is desirable or not, as we see that as a decision for the principal actors. We simply demonstrate that the basis of the key claim underlying the request appears, on best information available, to be technically incorrect. We invite Baffinland to do their stakeholders the courtesy of substantiating their claim, and to prove us wrong with their own *forward looking* analysis.

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  4. Posted by Rick Hodgson on

    People of the north look after yourselves because that what this mining company will do. When their done with Mary river, they move on and forget about Mary river as fast as they can. The Arctic is probably the most beautiful, unique place I have ever been , mining companies from other countries are their for profit that’s it

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