June 1, 2016
Recently there have been specific occurrences in BC where mineral exploration companies and their contractors and suppliers are being approached by some First Nations demanding payments for accessing exploration work sites that have been fully permitted by the government following due consultation with First Nations. Unfortunately, these demands are often conveyed under a threat of inciting work interruptions if payments are not provided. Many of these payment demands are not in support of any mutually beneficial quid pro quo business benefits, or potential capacity building arrangements or existing agreements between companies and First Nations.
It is concerning that some First Nations are asserting, or being ill advised, that demands for such payments are good practice or legal. As leaders in promoting and building positive relationships through respectful and transparent engagement, AME is fully supportive of the many positive and mutually beneficial agreements being negotiated and implemented between First Nations and mineral exploration and development companies in BC. For more information on building successful agreements and recommended practices, please see AME’s Aboriginal Engagement Guidebook.
While not widespread, in the case of mineral exploration companies, a common demand is to pay the First Nation a fixed percentage of the total exploration program budget. For suppliers or contractors the demand is typically some percentage of the gross billing of a supplier, without any consideration or provision of a service. With overlapping asserted territory by multiple First Nations, each of the First Nations (and in some cases each House of a First Nation) may demand payments. It is a real and terribly uncomfortable position for an explorer to be in a position where certain parties are trying to coerce them into paying access fees or signing agreements under pressured conditions.
In other cases, some First Nations have made agreements with suppliers identifying them as a preferred vendor; but if an exploration company selects a different supplier then a payment is demanded from the exploration company or its vendor of choice. Another issue is that some First Nations are requesting a list of suppliers to an exploration project and then demanding payment in the form of a percentage of the revenue from those suppliers or contractors, or risk project uncertainty.
The magnitude of the fees demanded can be significant, and the demands are often accompanied by a statement or a suggestion that if the company does not pay, then the exploration work program will be at risk from some form of interference. In almost all cases, a demand for payment is not in relation to a positive and early engagement approach or obligation that an exploration company has established through sound business practices, proactive agreements or the government permitting process, but rather it is simply a demand for a payment to operate in a First Nation’s traditional territory. Sometimes, demands for payments are made despite the existence of an agreement between the First Nation and the mineral exploration company.
Prospecting and exploration activities do not generate cash flow for the prospector or explorer. These activities are dependent on attracting risk capital. Without a steady and healthy influx of capital, prospecting and exploration activities are scaled back dramatically or cancelled completely. Although prospecting and exploration are vital to discovering new deposits that could generate significant revenues from mining, these activities bear the highest burden of the upfront costs and risks. Upfront costs for aboriginal engagement and mineral exploration and development work have increased while the venture capital investment for such early stage exploration work is challenging to attract and sustain.
If you or your company has received this type of payment for access demand, we urge you to contact government authorities and inform them of the situation. Alternatively, please contact AME at [email protected] and we will aggregate your confidential information and share it with government officials in an anonymous form.