Mining companies are extracting billions of dollars worth of gold from Canada every year but are paying only a tiny fraction in taxes and royalties compared to operations in other countries, an analysis by The Narwhal has found.

Experts say Canadian governments are collecting a smaller percentage of mineral value than almost any other jurisdiction on earth, ranging from Burkina Faso to Chile to Finland.

For example, Barrick Gold, the second-largest mining company in Canada, extracted close to $250 million in gold from its Helmo mine in northwest Ontario in 2017, the most recent year for which data is publicly available. In return, the company paid $14.4 million in taxes and fees — or only 5.8 per cent of the gold’s worth.

That same year, Barrick extracted roughly $817 million in gold at its Pueblo Viejo mine in the Dominican Republic. There, the company paid $327 million in taxes, royalties, fees and infrastructure improvements — a full 40 per cent of the gold’s total value.

Meanwhile in Peru, the government received $45.5 million in compensation for the company’s Lagunas Norte mine — or 9.4 per cent of the recovered gold’s worth.

When broken down, the disparity between fees paid is stark: Barrick paid the Dominican Republic roughly $503 per ounce of gold, paid Peru $117 per ounce of gold and paid Canada $73 per ounce.

The Narwhal analyzed the second round of public data released by mining companies operating in Canada under the Extractive Sector Transparency Measures Act, a new mandatory reporting framework. All amounts listed are in U.S. dollars.

“Generally speaking, the royalty and corporate tax revenues — which we would argue are the two main potential fiscal benefits for states from mining — are a disaster in Canada,” said Ugo Lapointe, program coordinator for MiningWatch Canada.

Andrew Bauer, a natural resource governance consultant formerly with the Natural Resource Governance Institute, told The Narwhal governments need to work hard to find symmetry when weighing taxation against attractiveness to industry.

“We need to find a better balance: a fiscal regime that encourages investment while allowing governments to collect a larger share of these economic rents,” Bauer said.

“The question is, ‘are we, as Canadians, getting fair value for our underground wealth?” he continued. “Are Canadian governments transforming our minerals into better social services and infrastructure for all? Or are we allowing the private sector to capture the vast majority of that wealth, ultimately benefitting shareholders?”

Companies forced to report payments to governments

Starting in mid-2015, extractive companies listed on a Canadian stock exchange or operating in the country with at least $20 million in assets, $40 million in revenue or employing at least 250 employees had to start reporting payments of at least $100,000, whether in taxes, royalties, fees, bonuses, dividends or infrastructure improvement.

Companies were granted a two-year deferral to report payments to Indigenous governments, so this analysis could not account for these unreported figures.

The 2017 numbers reveal some astoundingly low payments to municipalities, provinces, territories and federal coffers in exchange for the right to extract gold, especially when compared to payments made in other jurisdictions around the world.

While there are more than 60 types of metals and minerals mined in Canada, gold is by far the most valuable.

In 2017, an estimated $8.7 billion worth of gold was extracted from Canadian mines.

No other mined resource came close to matching that total value — not coal ($6.2 billion), copper ($4.7 billion), potash ($4.6 billion) or diamonds ($2.6 billion).

But while gold mining operations are notably profitable for companies, much of that wealth does not extend to surrounding communities and municipal governments.

Take Detour Gold Corporation’s operation in northeastern Ontario, one of the largest gold mines in the country.

In 2017, it produced 571,000 ounces of gold. While the price of gold fluctuates greatly from month to month, the average price in 2017 was $1,257 per ounce, meaning Detour extracted upwards of $718 million in gold that year.

Detour paid $4.9 million in fees and bonuses, according to the company’s disclosure report. But $1.4 million of that was for a penalty payment “relating to an incident at the Detour Lake property.” That means Detour only paid out $3.5 million: a mere 0.5 per cent of the gold’s worth.*

Or consider Alamos Gold’s Young-Davidson mine in northern Ontario. It extracted 200,000 ounces of gold in 2017 — worth around $250 million — but only paid out $1.6 million in taxes and fees. That’s 0.6 per cent.

For its two similarly sized gold operations in Mexico, with the Mulatos and El Chanate mines producing 220,000 ounces of gold in 2017, Alamos Gold paid the government 1.8 per cent of the gold’s value in taxes and fees —  three times the percentage Ontario received, although still a very small percentage.

The issue isn’t by any means restricted to Ontario.

IAMGOLD’s Westwood mine in southwestern Québec produced 125,000 ounces of gold (or around $157 million in gold) but only contributed $4.6 million in taxes and fees — or three per cent of the gold’s value.

That same year, IAMGOLD’s Rosebel mine produced 302,000 ounces and paid $56.2 million to Suriname (about 14.8 per cent of the gold’s value) while its Essakane mine in Burkina Faso produced 389,000 ounces and paid $42.9 million, or 8.7 per cent of its worth.

When The Narwhal requested clarification from the Government of Ontario about revenues from the Hemlo and Detour mines, senior media advisor for the provincial ministry of mines replied: “The Government of Ontario cannot release any data that could breach the confidentiality of taxpayer information.”

Percentage of fees paid by three major producers per ounce of gold extracted. Source: Extractive Sector Transparency Measures Act Report 2017. Graphic by The Narwhal

‘They don’t want you to know’

Because taxation in Canada is not consistent across the spectrum, it can be difficult to understand exactly why projects pay what they do.

As accounting firm PriceWaterhouseCoopers Canada put it in a recent report: “Mining taxation in Canada is not easy to understand, partly because each province and territory imposes its own mining tax, under systems that vary significantly.”

Lapointe, from MiningWatch Canada has a different take: “The industry loves to bring you down that rabbit hole by saying it’s too complex and you can’t really compare. They don’t want you to know.”

To put all these numbers in perspective, MiningWatch Canada currently estimates that total unsecured liabilities for mine site clean-up — that is, the amount that will be needed for remediation but isn’t currently held as financial securities — totals $15 billion, and is potentially as high as $20 billion. That excludes liabilities for oilsands mining operations, which could easily double the figure.

Deferred fees means you mine for free

Every mine is different. In addition to mineral prices and the cost of production, one of the most important factors in determining payments to governments is the phase of production the mine is in.

For the first few years of production, taxes and royalties are usually quite low because this is what is called the “cost recovery” phase during which companies don’t pay certain fees until they recover a portion of their costs.

It’s not usually until this phase of the lifecycle of the mine is completed that it starts to churn out major contributions to governments.

In addition, most governments around the world calculate royalties based on production volume and the cost of the mineral. However, royalties in Canada are generally calculated after costs have been subtracted, a practice which is exceedingly rare globally.

This could help explain the low royalty payments in Canada relative to other parts of the world.

In recent years, much of the mining sector has used a metric called “all-in sustaining costs” to report the amount of money it requires to remove and process an ounce of gold. It includes costs like labour, energy, royalties, administration, exploration, capital expenditure and reclamation.

In 2017, the all-in sustaining cost at Barrick’s Hemlo mine was $1,092 per ounce. That was on the high side for the company. In the Dominican Republic, for example, Barrick boasted an all-in sustaining cost of only $525 per ounce.

Such costs can vary from year to year, and depend heavily on factors like local labour costs, finding efficiencies in mining processes and whether a company is making a short-term investment in a capital project like a tailings pond. By only charging royalties on revenue above those costs, governments are only receiving a fraction of the gold’s worth.

“Most Canadian jurisdictions do not charge a real royalty,” Bauer said.

“When you can deduct costs from your royalty payments, you are not fully compensating the owners of the resource — Canadian citizens — for the use of their assets, which is what a royalty is intended to do.”

Bauer said that if a company stops production before the “cost recovery” phase is completed, a government could conceivably receive no compensation at all.

Royalties under this scheme become another net revenue stream, Bauer said, “somewhere in between a profit’s tax and a royalty.”

“This is what companies want since they don’t need to pay much to governments until shareholders get paid out of profits.”

Lapointe added: “These are non-renewables. Whatever you extract from the ground, which is never going to come back to future generations, needs to be fairly compensated. We should not allow those tactics to bring it down to zero. There should always be a minimum floor contribution for extracted resources.”

Gold-rush era laws

There are more ways that companies can get around paying taxes, even if a mine has been in production and has recovered some costs.

Financial tools can include tax credits, cost allowances, development expenses, loss carryovers and flow-through shares.

One of the most common means of lowering tax payments is shifting profits from higher-tax jurisdictions to lower-tax jurisdictions, a process known as “base erosion and profit shifting.”

Or, in some provinces or territories, companies can open a mine near existing operations and call it an “expansion” even though it’s a sizable distance away — meaning a company can continue in the initial “cost allowance” phase.

That allows a mine that has been open for many years to continue paying very little in revenue to governments.

Bauer said that this regime made sense from a 19th century perspective in which Canada wanted to encourage investment and get projects underway. But now, millions of ounces of gold are being extracted by companies without any clear benefit for governments or the average citizen.

“The fiscal regime does do that,” he said. “It creates massive incentives to explore, develop new mines and populate rural areas. But we’re no longer in the 19th century when the government’s goal was colonization.”

*Update July 18, 2018 5:58 pm pst. A slight adjustment to Detour’s figures was made to adjust for U.S. dollar conversion rates.

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As the mid-term elections in the United States continue to heat up, a new report released Wednesday shows that Canadian corporations have registered at least $15.3 million USD in spending on direct lobbying of the U.S. federal government in the first nine months of 2014.

That includes $2.87 million by Canadian National Railway Company in the face of increasing regulatory attention to the rail transport industry on both sides of the border, said the report — Are Canadian corporations spending to influence the U.S. political process?

Written by The Shareholder Association for Research and Education (SHARE), the 13-page report noted that the TransCanada Corporation, well aware that the controversial Keystone pipeline project is up for approval at the federal level, spent $1.07 million on political lobbying from January to September.

The author of the report, Kevin Thomas, SHARE’s Director of Shareholder Engagement, said in a telephone interview that Canadian companies are clearly involved in political spending in the U.S.

“The problem is there’s no real requirement for disclosure on either side of the border that can quantify the extent of that spending,” Thomas said.

There needs to be transparency and proper oversight when it comes to companies trying to get involved in the political process, he added.

“Investor interest here [in Canada] is not necessarily being well served by lobbying.”

Other Canadian companies involved in U.S. lobbying include Blackberry ($2.59 million), Manulife Financial ($1.67 million), Bombardier Inc. ($1.39 million) and Barrick Gold Corporation ($1.26 million).

“As in Canada, corporations and unions are barred from contributing directly to U.S.  federal political candidates,” the report said. “However, they have multiple means of contributing funds to political activity that do not run afoul of this limit, and due to incomplete disclosure regimes, much of that spending is not transparent.”   

The report notes corporate contributions to political campaigns in the U.S. occur through direct contributions by a corporation’s Political Action Committee (PAC), contributions to so-called Super PACs, and indirect contributions to non-profit organizations and trade associations.

PACs pool money donated by members and contribute funds to political campaigns, the report said, while Super PACs can raise and spend unlimited sums on campaigns but cannot contribute directly to candidates or coordinate their spending activity with a candidate’s campaign.

Non-profit organizations can spend unlimited amounts on political advertising, and while their own spending must be disclosed, their source of funds can remain secret.

“This has given rise to widespread concerns about ‘dark money’ in U.S. elections,” the report said. “So far this year, dark money has already accounted for over $100 million in spending, and some observers expect it to top $200 million by the time the election is held.”

The veil was lifted on one of these non-profit organizations this fall when a technical glitch exposed a list of the Republican Governors’ Association (RGA) contributors. The organization offered perks for corporations that donate, including “intimate gatherings” with governors and other VIPs, the report details.

TransCanada Corporation ($50,000) was also listed among the contributors, the report said.  “Other known donors to the RGA are Barrick Gold, who gave $25,000 in 2012 and Encana, which gave $50,000 in 2013.”

Another non-profit organization with significant corporate support is the American Legislative Exchange Council (ALEC), a group that drafts and promotes legislation.

“ALEC came under intense scrutiny for advocating the adoption of ‘stand your ground’ laws (legalizing the use of lethal force by civilians if they believe they face an imminent threat of serious bodily harm) across the U.S. even after the tragic Trayvon Martin shooting in Florida in 2012.”

ALEC has also advocated the expansion of “right-to-work” laws, and has been accused of climate-change denial, the report added.

“A number of U.S. companies including Google and Facebook took a reputational hit when they were found to be supporting the organization. Although its membership is still largely secret, TransCanada has recently been shown to sponsor ALEC’s activities.”

The report said the lack of effective disclosure regulations in the U.S. and in Canada means Canadian investors have no idea to what extent their companies have been contributing to U.S. political campaigns, or why.  

“What we do know is that although foreign corporations are banned from directly contributing to a candidate’s campaign, their U.S. subsidiaries are allowed to form a Political Action Committee and solicit contributions from their managers or shareholders.”

In many cases, as the report outlines, amounts disclosed at both the federal and state level by Canadian corporations are likely financially immaterial to shareholders. “The problem is that they may represent only a small part of what the company spends to influence political outcomes in the U.S.”

“Too much is still hidden from view.”

The report added there is also a real need for disclosure of corporate associations with particular political positions so that investors can decide whether the company’s political activity is consistent with their own long-term interests, and whether the company is vulnerable to reputational risks as a result of that spending.

The report notes that the Vancouver-based SHARE is engaged in a three-year project looking at how Canadian corporations’ influence on public policy debates and decision-making affects the interests of long-horizon investors.

“Institutional investors in the United States have been raising concerns about disclosure of corporate political spending for years,” the report said.

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Barrick Gold's shareholders will be greeted by a familiar sight in Toronto this morning: protesters are once again gathering outside the Annual General Meeting of the world's largest gold mining company to denouce the corporation's human rights and environmental abuses.

Sakura Saunders, of Protest Barrick and one of the demonstration's long-time organizers, told DeSmog that this year's AGM is happening amidst a “perfect storm” of controversies for the company.

“Everyone's angry at Barrick right now. Everyone's mad at [Barrick Chair and founder] Peter Munk because of botched deal after botched deal, fraudulent activity due to their Pascua-Lama mine, and they're also being sued in the British High Court for the killings that have happened with regularity at their North Mara mine,” she said in a phone interview.

The perfect storm

Top of the list for Canada's most prolific mining company is a $6 billion class action lawsuit – totalling over a quarter of Barrick's market capitalization – from shareholders alleging fraud over the company's Pascua-Lama mine, located on the border between Argentina and Chile. Pascua-Lama was meant to be the company's flagship operation at the centre of the largest stock offering in Canadian history in 2009. Slated to start production in 2013, the project has instead been shuttered after ballooning costs and the Chilean government's decision to suspend the mine's license for violating environmental regulations.

The lawsuit, which still needs certification as a class action by the courts, alleges Barrick executives knew and hid information about these environmental concerns from shareholders, causing them to eventually lose millions of dollars in investments.

Barrick is denying the allegations, and has said it will “defend itself against any lawsuit vigorously.”

Contravening environmental rules in Chile is just part of the accusations that human rights and environment activists have levelled against the company.

In Tanzania, there have been repeated shootings and killings of people in proximity of Barrick's North Mara mine by police who double as security. The company's subsidiary African Barrick Gold is now being sued in British courts by the families of men who have been killed by security agents, on the grounds that they used excessive force. And in Papua New Guinea, communities next to Barrick's Porgera mine are demanding the company pay for their resettlement after run-off and pollution from the site have made their villages unlivable.

With all these serious, documented abuses abroad, Saunders has mixed feelings about the fact that it is shareholders who are able to seek retribution in the courts, but not those directly impacted themselves.

“I just hope that these lies [about Pascua-Lama] expose the pathological culture at Barrick Gold. Which of course have many other consequences outside of shareholder value,” she said.

An early Barrick Gold demonstration in Toronto took place on April 24, 2014. Photo by @liezelhill via Twitter.

Shareholder activism

MiningWatch Canada is also working to bring awareness to Barrick Gold's activities. This past March they issued a notice to investors about the company's actions in Tanzania. In it, they document various shootings, killings and rapes that have allegedly been committed by security forces and police in and around the mine. They are urging shareholders to recognize the harm being committed by the company and to pressure executives at the AGM.

“[Shareholders] need to pay at least as much attention to the accusations of ongoing human rights abuses and severe environmental damage at Barrick sites around the world, as to the financial predictions of the company’s management based on reserves, pipelines and costs of production, as these severe harms caused by the company result in local-level conflict, opposition and legal action that presents real risks to their investment,” said Catherine Coumans of MiningWatch by email.

Driving this point home, Saunders and Protest Barrick organized a pre-AGM event on April 28, to "help investors bankrupt Barrick." The group distributed information detailing how to join the class action lawsuit. 

End of an era

Barrick's outspoken and controversial founder and chair Peter Munk will also be retiring this year, signalling what some have called the end of an era.

Munk has been ardent in his defense of the company's work, and in his refusal to take action to remedy the impacts of their mines, said Saunders. At the same time, neither she nor Coumans feels his leaving will mark much of a change at the company. “Maybe the company will finally agree to resettle people,” said Saunders. But the problem isn't Munk, she said, “it's that this company continues to operate.”

And while he may be out of the building, the 86-year-old's presence will probably continue to be felt, said Coumans. “[Munk's] influence is likely to continue through his hand-picked co-chair, who will now become chair, and possibly through his son who is also on the board of directors,” she wrote.

Accountability problem

While the biggest and often most visible violator of rights, Barrick is simply a reflection of problems in the mining industry. “Many of the negative impacts Barrick is causing locally, through human rights abuses and environmental degradation, and nationally through tax evasion and avoidance are quite widespread in the sector,” explained Coumans. “Because of Barrick’s sheer size and exposure globally, it is possible to expose a wide range of these harms related to one company, but we are seeing the same negative impacts by other Canadian mining companies.”

And at the root of this widespread problem is the question of accountability. Canada has the largest mining sector in the world, in part because of weak disclosure laws and no legislation for trying Canadian companies for crimes committed abroad.

In an historic ruling last year, a case against Canadian mining company Hudbay for negligence leading to rapes and murders committed by its security personnel at its Fenix mine in Guatemala was allowed to go ahead by the Ontario Superior Court of Justice. But there are still no laws on the books clearly granting victims of Canadian companies' abuses abroad the right to sue them in Canadian court.

This has led to the Open for Justice campaign, started in 2013 and spearheaded by the Canadian Network on Corporate Accountability, to have Canadian parliament adopt legislation making it clear that Canadian companies can be sued by both Canadians and non-Canadians for offenses committed abroad, and the creation of an Ombudsperson to receive complaints and verify the compliance of Canadian extractive companies with legally-binding corporate accountability standards. It's only by bringing in this new legislation that Canada's mining sector – including Barrick – will be pushed to change their actions, said Saunders.

While waiting for legislation with more teeth, though, the plans are to continue protesting, which has seen success at pressuring Barrick and changing the debate on mining in Canada. Over the past few years, Saunders says she has seen her and fellow organizers' concerns go from fringe and rejected, to being seriously discussed in the mainstream press.

“Each year we've come, Barrick has had to admit to what we are saying,” she said. “Each year I feel a lot of validation regarding the accusations against Barrick that have finally been accepted in the mainstream.”

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