Ontario may be home to world-class mines, but it isn’t getting world-class returns.
My goal with the Michener-Deacon investigation was to test the bold assertions made by government and industry when it comes to the value of mining. Coherent, unbiased, fact-based answers are hard to come by. In the investigation, I tested the arguments with original, independent analysis. I went as far as I could go in the time I had. What are mining jobs really worth? Do mining companies pay their fair share of taxes? Where does the philosophical debate about royalties exist? Are royalties just another tax, or are royalties a meaningful attempt to compensate for the loss of a non-renewable natural resource? If the Ontario and federal governments indeed commit up to two billion dollars to open up the Ring of Fire in Ontario, is it time for a 21st century model of mining?
In this report, I’ll bring you behind the scenes.
Secret diamond royalty discovered
Uncovering the secret diamond royalty is the marquee part of the investigation.
- Monday May 11th. Mining for More: Is Ontario getting a good deal?
- Tuesday May 12th: Untold Story of Ontario Diamonds. Feature length documentary plus revealing a big secret
- Wednesday May 13th: Should Ontario’s auditor-general investigate the real value of mining?
- Friday May 15th: De Beers Reacts to CBC coverage
- Thursday May 21: Mining Association of Canada on “What is mining really worth?”
The story on the secret diamond royalty was one of the top 10 most read stories on the CBC site with almost 100,000 views. It has been picked up around the world, even translated for a Chinese audience.
We now know that more than halfway through the life of Ontario’s only diamond mine, the world’s biggest producer of diamonds, De Beers, made a $226 payment in 2013-2014 to the provincial government. That same year, the province collected nearly $4 million in royalties from two salt mines.
The reaction was stunning.
“Congratulations on the excellent and important work you have done, the disclosures you’ve made. I’m outraged to learn how shabbily our elected representatives have allowed mining interests to treat us. This piratical system needs to be changed! I hope very much that your investigations provide evidence that our elected representatives will be obliged to act upon, and change the system for the better.”
Former Ontario Premier Dalton McGuinty once boasted that diamond royalties would be so bountiful, the money would help build schools and hire more nurses. This has not happened.
It took a colossal effort, and an accidental slip by a government official to obtain what is essentially an accounting detail. One payment, in one year, by one company. Given the attention it has attracted around the world, one can deduce how rare it is to get a look inside the books of a big corporation.
“You`re a very brave soul for tackling what I suspect other journalists would consider tantamount to spending an eternity in Dante’s nine circles of hell. You`re the only one on planet earth that`s figured out it was that particular figure and now they`ve admitted it.”
Queen’s University tax specialist Arthur Cockfield
The discovery of the secret royalty payment is double-edged, both telling and vexing from a journalistic point of view.
On one side, it tells the story of an entire industry in a few dramatic details.
Diamonds are alluring, wrapped in their own unique intrigue. The story is also easy enough to understand. There is only one diamond mine, and when it opened less than a decade ago, the then-premier boasted that these diamonds belonged to everyone. This diamond mine will close in a few years, and it could be Ontario’s only experience with diamonds. Story over forever.
It is important to note that De Beers is the only mining company operating in Ontario that actively engaged with me, granting repeated interviews and hosting me for an eye-opening trip to the Victor site.
It is fly-in only camp, and the company granted a 24 hour guided tour. It is a classy, clean operation. The workers appear to enjoy some luxuries, and there is a hint (no one will divulge salaries because it is a private company) that the compensation is generous. De Beers also enjoys a reputation as a good corporate citizen. New Democrats, Liberals and even a few bureaucrats went out of their way to pay compliments. That said, no one knew anything precise about whether the company paid royalties, even the minister in charge.
Bigger than diamonds
Diamonds are a small part of a bigger, perhaps more troubling picture of Ontario’s mining sector. The diamond story may shine a bit too bright and obscure serious questions that remain unanswered. There are century-old mines still yielding precious and base metals, such as gold, silver and nickel. There is no permanent record of what has been taken out of the ground. Secrecy persists. In one analysis, I was able to show that the mining tax is worth as little as parking fines collected in the city of Toronto. Why? I also discovered that the provincial government was forced to pay back tens of millions of dollars to mining companies. Again, why? All these new revelations are now on public record, thanks to the Michener-Deacon investigation. But much remains unknown.
In the Quebec documentary The Hole Story, the filmmakers say: “Mines don’t talk much.” Neither does government. Or industry.
Psst! There’s Rita Celli
Squeezing information from government or corporations is a feat. It took me months to untangle the mechanics of how the provincial government collects mining-related taxes or royalties. No one offered up a clear answer.
Attending the world-renowned PDAC Mining Conference in Toronto in March 2014, I met a couple of the anonymous bureaucrats who were responding to all my email inquiries to the Ontario government. They knew exactly who I was. Turns out, the companies knew me too. It felt as though I had been observed for a long time, through a one-way mirror.
Here’s one story. Everyone wears nametags at the PDAC conference, and during a walkabout, I crossed paths with a Goldcorp VP. “You’ve been in touch with Christine,” he said, glancing at my name. “Ahhh,” I said, slightly off guard, “I wrote a few times but I never heard back.” “But you’ve been in touch,” he insisted. “In touch” hadn’t yielded any answers so I asked, on the spot, if he would be interviewed about the Mining Profits Tax. He declined. Instead, the VP gave me a booklet. Entitled “Economic and social impact of Goldcorp’s Inc’s Ontario operations, it outlines the company’s contributions such as a $5 million dollar donation for a medical clinic in Red Lake. It does not mention the mining profits tax.
Mining survey ignored
I contacted all 15 companies operating mines in Ontario in 2014. In the spirit of the new federal legislation, Extractive Sector Transparency Measures Act, I asked if they would be open about what they paid to the Ontario government in Mining Profits Tax. Four companies responded but declined. One offered a pamphlet. Ten never replied.
Who is on the side of taxpayers?
The Ontario Minister of Northern Development and Mines, Michael Gravelle, didn’t make much of a case. He wasn’t even aware that a royalty was being collected by his own ministry, and he insisted repeatedly that royalties are not his priority.
“If you work from the premise that I should be the one to know all these details. Precise things. That’s not the focus of my priorities in terms of minister. My focus is to be very much the person who goes out there and sells Ontario as an attractive destination for mining sector investment,” Gravelle said in an hour long interview.
I was truly taken aback. I had tried for months to secure an interview with the minister. I was clear in both writing, and verbally, that I was digging into questions about royalties. The nature and scope of the interview was explicit. By the time I interviewed the minister nearly three months had passed, and important facts had coalesced.
When the Michener-Deacon investigative stories came out, there was a flurry of scrums at Queens Park. A colleague was listening to audio, and sincerely asked: “Who is this speaking? The company?”
It was a scrum with the minister. A not-so-subtle thrust of priorities was laid bare. The minister’s job is to develop mines and that means working very closely with the companies. The bureaucracy is the same position. The bureaucrats are always in contact with companies, not the general public. I had never really considered how profound the entanglement could be. How many other ministries fit the same pattern?
Government relies on mining industry for facts
The government does not appear to do its own independent analysis. It relies on research sponsored by industry.
Who says $284 million is a magic number? Beware the boasting.
Let’s use the following statement, from Ontario’s Ministry of Northern Development and Mines, as a case study:
“The mining industry is of tremendous economic significance to Ontario’s economy. Ontario is the top province in Canada for mineral production and 2012 the value of mineral production in the province was a remarkable $9.2 billion. According to most recent estimates, mineral production in Ontario generates about $284 million annually for the province.”
I kept coming across this figure, $284 million, quoted but not attributed by other provincial government departments. I tracked down where it came from.
Perhaps more troubling is that this $284 million dollar figure is only an estimate, based on best case scenarios from another report paid for by the Mining Association of Canada, a lobby group with an obvious interest. The bottom line? The figure widely quoted by government is a hypothetical figure based on multiple estimates from mining industry sources. It is a small but telling detail. A journalist caught up in the day-to-day hustle of reporting would never have the time to follow this thread. The time and freedom offered by the Michener-Deacon fellowship made it possible.
I found many examples like this. For instance, in the hour-long interview with Ontario’s Mines Minister, Michael Gravelle raises a study by the Ontario Mining Association to demonstrate how much wealth is generated by a single gold mine. The minister never quoted provincial government data.
Check. Check and triple check. Beware the numbers.
Diving into hundreds of pages of public documents, I tripped over mistakes. Simply by looking.
Case Number One: I discovered a faulty set of numbers in the previously mentioned report prepared for the Mining Association of Canada. It is considered a premier authority on mining payments to government. The authors had received incorrect figures for four out of ten years. The incorrect numbers didn’t change the conclusion substantively but the authors expressed genuine concern over the mix-up.
Case Number Two: Natural Resources Canada, which reports tonnage, ounces and the value of all ores extracted in Canada, made mistakes too. In one case, I discovered that NRCAN had posted the same national statistics online for 2007 and 2008.
Neither of these examples are perhaps earth shattering, but they were important for me. I was trying to be hyper scrupulous when analyzing data. Journalists are supposed to live by the rule of double sourcing facts. This kind of scrutiny is obviously also valuable with numbers.
I’m not a forensic accountant but I tried to play one for the Michener-Deacon investigation…
I spent a fair bit of time getting to know the work, and some of the people, who did Quebec’s value-for-money mining audit. Among many things, it showed that between 2002 and 2008, few mining companies paid ANY royalty at all. The average payment discovered in Quebec was 1.5 per cent, just like the Michener-Deacon investigation revealed about Ontario. Not having the same powers as the Verificateur-General du Quebec, I was more limited in scope of what I could analyze.
I consulted privately with several auditing experts. I was nervous but invigorated. What became clear is how much numbers have to say, how many stories they can tell, if one takes the time to sit with them long enough. In some cases, I returned to figures again and again, and each time I seemed to scratch away a new layer. This is especially true with the case of the secret diamond royalty.
My original proposal to the Michener Foundation was rooted in my own day to day experience as a journalist. Over a period of several years, I began to be troubled by the lack of coherency when talking to all politicians, regardless of political affiliations. Answers about the value of mining had an ephemeral feel. Follow up questions yielded few meaningful responses. Facts were hard to come by. My biggest goal was to try to create literacy for citizens, and to inspire smart, modern conversations. I have come to see the totality of the investigation as a giant essay in which I tested promises with new data and analysis. I personally learned more than I ever imagined. It was an experience of a lifetime.