Qikiqtani Inuit org reveals Baffinland IIBA financial info
‘’The board of directors strongly believes in transparency between QIA and all of the beneficiaries”
(Updated May 20, 2:45 p.m., with clarifications)
The Qikiqtani Inuit Association has decided to help its beneficiaries follow the money.
To that end, they’ve published a new, unredacted version of the Inuit Impact and Benefit Agreement that they signed with the Baffinland Iron Mines Corp. on Sept. 6, 2013.
And, unlike the first version of the IIBA released in 2013, this version contains a full description of the royalties that Baffinland agreed to pay the QIA through the agreement. It’s now available on the QIA website at www.qia.ca.
Those royalty arrangements are described in Article 5 of the IIBA. At a meeting May 19 in Clyde River, the QIA’s board of directors decided to publish the unredacted version of Article 5 so that beneficiaries have full access to the information.
‘’The board of directors strongly believes in transparency between QIA and all of the beneficiaries, it is crucial for beneficiaries to have access to information from their organization to be well informed,’’ P.J. Akeeagok, the QIA’s president, said in a news release.
The unredacted version reveals the following:
• Baffinland will pay the QIA a royalty equal to 1.19 per cent of its net sales revenue;
• the royalty payments are to be paid at the end of each quarter of each calendar year following the start of commercial production;
• Baffinland was to have made advance payments to the QIA prior to the start of commercial production equal to the following: $5 million on the date of signing of the IIBA, $5 million within five days of receiving a water licence, $10 million within five days of the date of its construction decision, and $1.25 million for each calendar quarter between the construction decision and the start of commercial production;
• after the start of commercial production, those advance payments are to be deducted up to a rate of 25 per cent of each quarterly royalty payment over the first nine years (36 calendar quarters);
• after 36 calendar quarters, the advance payments may be deducted from quarterly royalty payments at a rate of up to 50 per cent, until the advance payments are repaid in full;
• after 30 years, or the production of one billion tonnes of iron, whichever comes earlier, either party can re-open the agreement to re-negotiate the royalty percentage.
The 1.19 per cent royalty is calculated from Baffinland’s net sales revenue, which is defined as “sales revenue” — minus permissible deductions.
Those deductions include:
• all taxes paid on production of products at Mary River, including mining taxes, but excluding income tax;
• all costs of loading, unloading, insuring, transporting and storing products that Baffinland sends to the purchaser of iron ore products, as well as the cost of shipping, freight, handling, port fees and other costs.
After those deductions are made, the “net sales revenue” left over is multiplied by 1.19 per cent to calculate the amount of royalty that Baffinland is required to pay.
The advance payment arrangements in the IIBA confirm the QIA received at least $20 million from Baffinland prior to the start of commercial production at Mary River.
QIA reported those revenues in October 2014, when they revealed an $18.7 million surplus that year.
But the terms of the IIBA mean the advanced payment amounts are credited against future royalty payments, through deductions of up to 25 per cent for the first 36 quarters and up to 50 per cent thereafter.
“This structure allows for QIA to receive guaranteed upfront payments and to smooth the annual royalty payments received through production,” a QIA employee said in an electronic communication.
Right now, Baffinland is allowed to ship between 3.5 million and 4.2 million tonnes of iron ore per year.
The current price of iron ore per tonne as of May 2016, according to the Index Mundi price tracker, is just under $60 per tonne.
An earlier version of this story contained a different explanation of the arrangement for crediting advance payments against future royalty payments. Also, although Baffinland is producing iron ore for shipping to markets, that is not the same thing as “commercial production” as defined in the IIBA.