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Mining News: A taxing dilemma for Red Dog Northwest Arctic Borough levies steep tax hike that threatens longevity of world-class zinc mine; Teck pressures for negotiations Shane Lasley Mining News
The Red Dog Mine in Northwest Alaska is highly regarded as an example of a mining company and local aboriginal interests sitting down at the negotiating table and working out a deal that serves the economic and social interests of both.
A steep tax hike, however, threatens to shorten the life of the world-class zinc mine and thereby the partnership forged between Teck Resources Ltd. and NANA Regional Corp. The tax increase was introduced recently by the Northwest Arctic Borough, the regional government that blankets the area where Red Dog is located.
“This tax increase could impact the longevity of Red Dog and put the jobs, revenues and economic opportunity it creates in the region at risk,” said Red Dog General Manager Henri Letient.
The hefty tax burden for Red Dog comes alongside zinc prices that are at lows not seen since the market collapse of 2009.
“This massive tax hike could not come at a worse time, as the mining industry is in the midst of the biggest downturn in decades,” the mine manager added.
In a move aimed at getting Northwest Arctic Borough officials to the negotiating table, Teck Alaska has filed a complaint over the tax hike in Alaska Superior court.
“All we are asking is for the borough to come to the table and negotiate a reasonable payment that supports the region and the continued operation of Red Dog,” said Letient.
Economic generator Since 1989, the Red Dog Mine has been an important economic engine in Northwest Alaska – providing revenue for NANA, the Alaska Native regional corporation and the local government as well as providing jobs for many of the residents of the remote region.
“For more than 25 years Red Dog Mine and the Northwest Arctic Borough have cooperated in a unique way, working together to ensure that the benefits of mining reach borough residents and communities and allow for our continued operation,” Teck explained in a Jan. 11 letter to Red Dog employees, of which 64 percent are NANA shareholders.
Prior to Red Dog going into production, Teck and NANA reached a mutually beneficial agreement that allowed the Vancouver, B.C.-based miner to mine one of the richest zinc deposits on the planet and provided the Alaska Native corporation an opportunity to establish a strong economic base for its more than 13,800 Iñupiat shareholders whose ancestors settled the northwest corner of Alaska thousands of years ago.
Over the ensuing 26 years, NANA and its shareholders have enjoyed more than US$1.7 billion in royalties, wages and tax payments from the Red Dog Mine.
“To us, Red Dog is an example of how Arctic development can work to the benefit of Arctic communities,” NANA CEO Wayne Westlake said during a November presentation at the Resource Development Council Convention in Anchorage.
Beyond the progressive partnership forged between NANA and Teck, a local government was established to “improve the quality of life for all residents” living within the more than 40,000 square miles of Northwest Alaska that the borough covers.
Over the past 26 years, the Red Dog Mine has paid more than US$140 million to the borough, accounting for more than 70 percent of the local government general fund revenue. This revenue has come in the form of payments in lieu of taxes.
Traditionally, these “PILT” payments are the result of agreements negotiated between the Red Dog Mine and Northwest Arctic Borough every five years.
Over the past five years, these negotiated payments to the borough have averaged nearly US$11.5 million per year, a total of US$57.5 million for that span.
The Northwest Arctic Borough, however, decided not to renegotiate the PILT payments prior to them expiring at the end of 2015. Instead, the assembly opted to implement a severance tax that would be assessed on the ore extracted in the borough and is expected to more than triple the payments Red Dog pays to the regional government.
Discriminatory, opportunistic Teck contends that the US$30 million to US$40 million per year that it will pay to Northwest Arctic Borough under the new tax scheme will be roughly seven times as much as the sum its nearest peer in the state, Kinross Gold Corp.’s Fort Knox Mine, pays out in comparable taxes.
Fort Knox paid the Fairbanks North Star Borough US$5.24 million in taxes during 2014.
Teck said that under that borough’s taxing system, the Red Dog Mine would only pay about US$3.67 million in taxes, or about 10 percent of what Northwest Arctic Borough is levying against the mine.
The mining company characterizes the tripling of an already healthy tax structure as unreasonable, unconstitutional and unfair.
The only business that is currently subject to the severance tax is Red Dog, which is already, by far, the biggest taxpayer in the Northwest Arctic Borough, accounting for 70-80 percent of the municipal government’s general funds. Teck argues that this targeted tax hike is discriminatory.
The company also contends that the steep tax increase is opportunistic, taking advantage of the fact that Red Dog can’t be moved to a jurisdiction with a more favorable tax structure, which would be anywhere else in Alaska.
While Teck officials say they have a strong legal argument, they do not want the courts to decide what is best for Red Dog and the region.
“It is our hope that, rather than continue the legal process, the NAB will agree to come to the table and work cooperatively to achieve a reasonable new agreement,” company officials wrote in a paper laying out their position.
Providing a bridge NANA, which has strong business and personal ties to both Teck and Northwest Arctic Borough, is doing its best to get both sides of this taxing issue back to the table.
“We understand the perspectives of both parties, and we believe we can help provide a bridge to reach a long-term, or interim, agreement. We want to come together, in the spirit of cooperation, and resolve this issue through structured mediation,” the Native corporation commented when questioned about the tax hike.
NANA owns the Red Dog deposit and is 30 percent owner of the operation.
On the flipside, the Northwest Arctic Borough covers exactly the same area as the NANA region and the vast majority of the some 8,000 residents of the region are NANA shareholders, as well as beneficiaries of any tax the borough takes in.
Despite the overlapping interests, NANA says the financial benefits the mine already provides to the area outweighs by far the added revenue the borough hopes to get through the steep tax increase.
Since mining began, NANA has received roughly US$1.3 billion in net proceeds payments from Red Dog, of which it has distributed about US$820 million to other regions and at-large shareholders via the 7(i) sharing provisions of the Alaska Native Claims Settlement Act. Of the US$480 million that NANA has kept, some US$221 million has been paid in dividends to shareholders.
This is on top of the more than US$469 million in wages Red Dog has paid to NANA shareholders working at the mine over the past 26 years, including the US$39.3 million paid to 604 NANA shareholders that either worked full- or part-time at Red Dog in 2015.
“We are concerned about jobs. A reduced operating budget for the mine will mean fewer jobs for NANA shareholders,” the Native corporation said in a statement.
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