HOMEWORK #3: BENEFITS TO GAIN FROM A DEAL

There are five major types of benefits in any deal. Training and jobs are short-term benefits of particular importance to individuals. Profits and management are long-term benefits that the whole community can use to build its assets and capacity. CompensationCompensation: something (such as money) given or received as payment or reparation (as for a service or loss or injury). may be either short- or long-term in its effect, depending on how the community puts this money to work. These five types of benefit are available both in the mine’s upstreamUpstream: the actual mining operations owned and controlled by a mining company. and downstreamDownstream: downstream business refer to suppliers of products and services such as exploration, production, processing, product development, technical services, marketing and sales that supply the mine but are not owned by the mine.. (See Module 1, p. 1-16.)

The benefits that Aboriginal communities capture in an agreement can be diverse. In the case of the Raglan Mine (see *Case Study #2, p. Intro-21), Makivik managed to secure profits and compensation payments, a seat on the board (that is, influence in the mine’s management), training, and job opportunities. In the case of the NWT Diamond Mines (see *Case Study #1, p. Intro-10), the Aboriginal communities involved did not have on hand the capacity of a regional organization like Makivik. The revenue and compensation paid to the Lutsel K’e Dene have been very small compared to the success of Raglan and other mines profiled in this publication.²

To negotiate effectively, however, Aboriginal communities need more details about these potential benefits. Research is necessary into the particular ore and the mining methods involved, and the skills, goods, services, and numbers of people they require at different stages.

The profit that the proposed mine could generate is vitally important information. Projected profits help the community to get realistic about the jobs, training, business contracts, and revenues for which to negotiate. They are also an indication of how eager the mining company might be to make a deal.

This information is difficult to get. You may have to deduce it from other data, like the mine’s expected output, life, and the current and projected value of the commodities it extracts.

Generally, the greater the time and effort a company devotes to negotiating a deal, the greater the profit the mine is expected to make. Alexco put a lot of effort into its negotiations with NaCho Nyäk Dun over the Keno Hill Silver District (see *Case Study #5, p. Intro-45). Small wonder. Just before negotiations broke down in 2008, an assessment projected for Bellekeno a large annual production of silver, lead, and zince over five years. That told Alexco that an agreement with NaCho Nyäk Dun was well worth the trouble.

The benefits a mine or Joint VentureJoint Venture: commonly, a business to which two or more parties contribute the essential land, capitalCapital: cash, property, equipment, services, and contracts or leases., and services, in return for a share in its ownership and control. (Note: the Joint Venture is very strictly defined under Canadian law.) might deliver are one thing. Whether or not the company you are dealing with can actually deliver those benefits is another matter. That must be resolved through much more detailed examination during Due DiligenceDue Diligence: a financial and technical investigation to determine whether an investmentInvestment: the purchase of a financial product or other item of value with an expectation of favourable future returns. Generally, “investment” means the deliberate use of money in order to make more money. is sound. Each party to a business agreement uses Due Diligence to ascertain the actual quantity and quality of the assets which the others claim they can contribute. and during the actual negotiations. (See Homework #4: Assess the Mining Company, p. 4-12 below.)

Interests, Risks, and Benefits

When mining companies decide they have a feasible project in hand, they have three major concerns. They wish to 1) minimize the project’s risk, 2) secure financing to undertake it, and 3) maximize the financial return it brings to their shareholders. These are the company’s primary interests as they approach negotiations with an Aboriginal community.

Mining is a risky venture. A lot of money can be made at it. A lot of money can be lost at it, too. Anything mining companies can do to reduce risk is very important to them. Aboriginal communities are a potential risk and a potential benefit to a mining company, and mining companies know it.

The primary interests of Aboriginal communities are generally broader than those of mining companies. First, impactsImpacts: the effect or impression of one thing on another such as the impact of a mining project on the life of an Aboriginal community. as well as benefits are of concern to Aboriginal communities. They are the ones, not mining companies, who will have to live with the impact that a mine might have on the local environment and way of life. Second, Aboriginal communities must deal with diverse interests and perspectives among their members. It may be difficult for a community to arrive at a common understanding of what it wants from a mine. For a mining company, that understanding is pretty simple: the mine should make the highest possible return for the shareholders.

When an Aboriginal community thinks about the benefits it wants to gain from an agreement, there are three major questions to answer. Which of the benefits a mine makes available are most important to our community? When do they become available in the life of the mine? By what means can we capture them?

Which benefits fit the strategic vision? Which opportunities might have a life long after the mine has closed? Which job opportunities meet the interests, skills and capacities of community members? Which business opportunities will likely generate the most profit or suitable jobs? Which training investments will be most cost-effective? What are the risks?

These questions are essential to negotiating from a CED Perspective (see Module 1, p. 1-7). They enable you to create a menu of opportunities and benefits that will build the community’s capacity and self-relianceSelf-Reliance: the capacity of a community to plan and build an economic future that suits the values, priorities, and needs of its members..

When are the benefits available?

Generally, all five types of benefit become available during a mine’s Construction and Operation stages. Even during the Exploration StageExploration Stage: the whole range of activity from searching for and developing mineralMineral: A naturally-occurring, homogeneous substance that has a definite chemical composition and (usually) a crystalline structure. deposits., however, there are downstream opportunities for generating revenue. (See Module 2, p. 2-14 for information about the Webequie and Cyr DrillingDrilling: the primary means of bringing rock samples to the surface. Often called “diamond drilling” since the bit used is made of diamond. Drilling is a major expense, costing $50 or more per metre. Joint Venture.) There are also significant benefits that parties can earmark during the Exploration Stage in the event that a mine proves feasible and proceeds to the Construction StageConstruction Stage: the stage in which all facilities, buildings, roads etc. necessary for the operation of a mine are built..

NaCho Nyäk Dun and Alexco Resources negotiated an Exploration Cooperation Benefits AgreementExploration Cooperation Benefits Agreement: an agreement struck between an Aboriginal group and a mining company which outlines benefits that each party may realize during the Exploration Stage. Benefits for the mining company may include the ability to explore for minerals with the support of the Aboriginal community. Benefits for the Aboriginal community may be jobs, financial compensation, business opportunities, etc. over the Bellekeno East Deposit in Yukon’s Keno Hill Silver District (*Case Study #5, p. Intro-45). The agreement is limited to exploration. Nonetheless, the parties built into the agreement a promise to conclude a Comprehensive Cooperation Benefits AgreementComprehensive Cooperation Benefits Agreement: this may be the name of an agreement that is essentially the same as a Socio-Economic Participation Agreement. (CBA) if a mine goes ahead. Both parties agreed that the mine’s opportunities should be developed in such a way that the benefits to NaCho Nyäk Dun might outlive the mine. (It is only projected to have a life of 5-7 years). Businesses started while the mine is active should make some money and build capacity. They may be able to carry on after the mine closes.

NaCho Nyäk Dun wanted to see profit-sharing built into future CBAs as well. But it is understandable why this benefit was more than the company could provide. No one yet knows if the mine will go ahead, nor does anyone know how profitable it might be. Moreover, such a clauseClause: a subdivision (often numbered) of a document, that clarifies, defines, or explains the subject matter. Often called a provision. might have scared investors away. Building the relationship has required building trust. It was reasonable and appropriate for NaCho Nyäk Dun not to insist on a share of the profits from a mine that is still just a possibility.

How might we capture these benefits?

When determining which benefits a community wants from a deal, remember also that there may be more than one way to capture a benefit. The capture of profit upstream, or through annual payments from the mine, may be difficult to negotiate, but not impossible. (See *Case Study #2: Raglan Mine, p. Intro-21.) But almost every case study describes the significant benefits that Aboriginal communities won downstream, in business opportunities. Benefits were captured both upstream and downstream by the Aboriginal interests in the Voisey mine.

The Innu Nation and the Labrador Inuit Association have IBAs with Inco in regard to the Voisey’s Bay Nickel Mine. (See *Case Study #4: Voisey’s Bay Mine, p. Intro-39.) Both these agreements guarantee the Aboriginal communities the first opportunity to meet the mine’s supply and service needs. The company also encouraged Aboriginal businesses to Joint Venture as necessary in order to get enough capacity to fulfill these contracts. As a result, most of the contracts are with businesses wholly or partly owned by Aboriginal people. They provide site services, security, air transport, medical services, catering and housekeeping, equipment maintenance, and shipping support.

The IBAs also explain how the Innu and Inuit are to share in the mine’s revenues. Nunatsiavut Government and Innu Nation are guaranteed specified annual payments over the life of the mine. Additional payments may be payable, depending on how great the mine’s profits are. While this sounds encouraging, it is difficult to predict how big (or how small) these payments may be. That makes them a difficult basis on which to keep building community capacity.

The downstream benefits, by contrast, are consistent and concrete. For example, contracts worth $515 million were awarded to Aboriginal companies during the project’s Construction Stage alone.