Attawapiskat chief concerned with Ontario's new diamond tax levy
Native community decries 'tax grab' at diamond mine - Ontario's new 13-per-cent levy 'lose-lose' for first nations, Chief tells government
ANDY HOFFMAN - MINING REPORTER - POSTED ON 10/04/07
A first nations community located near Ontario's pioneer diamond mine has slammed the provincial government's new diamond royalty, calling it a tax grab that will negatively affect aboriginal residents.
In a letter sent to Ontario Premier Dalton McGuinty, Chief Mike Carpenter of the Attawapiskat First Nation said the provincial Liberals' 13-per-cent levy on diamond mining revenue, unveiled in the budget last month, is a "win-win" for the government and a "lose-lose" for first nations.
De Beers Canada Inc.'s $1-billion Victor project is about 90 kilometres west of the Attawapiskat First Nations community on James Bay. The company, a subsidiary of diamond giant De Beers SA of South Africa, has negotiated an "impact benefit agreement" with the Attawapiskat peoples, agreeing to provide the struggling community with training and education, employment and business opportunities, environmental management and financial compensation from the mine.
Under Ontario's previous tax regime, the Victor project, under construction and expected to begin production in the second half of 2008, would have been subjected to a 5-per-cent tax on revenue under the province's "remote mine" rules. Non-remote mines are subject to a 10-per-cent tax.
Now Victor, expected to generate annual revenue of between $280-million and $290-million at full capacity, will be subject to a 13-per-cent royalty.
"You and your officials are well aware that the only diamond mine in Ontario, and thus the only one to be immediately impacted by your decision, is located in the traditional territory of the Attawapiskat First Nation. Given the obvious importance of this project to our community and to future exploration in our lands, we should have been consulted," Chief Carpenter wrote in an April 4 letter to the Premier.
"This increase constitutes little more than a tax grab by your government that will not benefit our first nation or others," he said.
Although the Victor project is the first Ontario diamond mine, projects in other provinces and territories are producing enough diamonds to place Canada among the top five producers in the world. Some diamond consumers even seek out Canadian gems because they are mined under more ethical conditions than those from some areas of Africa.
Jim Gowans, the president and chief executive officer of De Beers Canada, is scheduled to meet today with Ontario Finance Minister Greg Sorbara in hopes of convincing the government to withdraw the royalty or to at least "grandfather" the Victor project, which he said could generate $7-billion for the province.
"The diamond royalty doesn't meet what I call the smell test for fairness. It's a bit surprising because that's one of the theme songs for McGuinty's government," Mr. Gowans said in an interview.
The executive, who has worked for a number of other Canadian mining companies including Inco Ltd., Placer Dome Inc. and Teck Cominco Ltd., said the royalty unfairly singles out diamond mining, and De Beers' Victor project in particular.
"It's very commodity-specific and Canada has had a history of being very measured in its tax regimes around resource development, very predictable and very collaborative," he said.
Mr. Gowans said that under the impact benefit agreement, the Attawapiskat have the potential to participate in the "financial upside" from the Victor project once its capital costs of $982-million are paid off, which is expected to occur during the second half of the mine's 12-year life.
He warned that the new royalty will cut into that benefit.
"This, in effect, transfers the upside from that isolated community back into the government's coffers. The amount of tax they make on one diamond mine in Ontario is not very significant. It is hugely significant to a single isolated first nations community," he said.
If the royalty remains in place, De Beers is likely to redirect much of the $15-million it spends annually on exploration away from Ontario, Mr. Gowans said.
The Ontario budget, which was tabled March 22, said the diamond royalty was needed to make the province competitive with other diamond mining jurisdictions. Indeed, the measure would bring Ontario into line with the Northwest Territories, where the bulk of Canada's diamond industry operates.
The budget said diamonds are different from other commodities because they are not traded on the open market and "require a unique and separate system for determining their value."
Officials from the Premier's and Finance Minister's offices did not return calls seeking comment.