TORONTO - On March 22, the ONTARIO GOVERNMENT brought down its 2007 budget. The document was hailed by academic, labour, transportation, health and family groups for its many promises. And buried among the good news is word that the province plans to levy a royalty on the fledgling Ontario diamond mining industry.
The budget states that effective March 22, 2007, operators of diamond mines will pay a royalty on the value of their output based on a formula of 5% on amounts of $10,000 to $5.0 million; 6% between $5.0 million up to $10 million; an additional 1% on each additional $5.0 million up to 14% of the value of output in excess of $45.0 million. Or, if it is less, a straight-forward 13% on total output.
The proposed diamond royalty has never been discussed with industry, said DE BEERS CANADA in its response to the proposal. We are concerned about these apparently arbitrary changes to the tax structure so close to the start of production at Victor. Once we have more information regarding how its proposed diamond royalty will be implemented, we will be in a position to assess the impact on the economics of the Victor diamond mine.
The company is in the middle of developing Ontarios first diamond producer, the $1-billion Victor project near Attawapiskat. Production is scheduled to begin in the first half of 2008, and the project will create 400 permanent, high-paid jobs in the James Bay region of Northern Ontario.
I doubt the new royalty will derail the Victor project; its development is too far advanced. But a changeor lets call it what it is: a money-grabsuch as a royalty alters the economics of diamond mining for all potential projects in Ontario. Small exploration and mining companies will face lower rates of return when judging potential new diamond mines.
De Beers says it looks forward to the opportunity to work with the government on its proposed diamond royalty to ensure that the economic development implications for future exploration and mine development are clearly understood. That is the corporately correct thing to say when the government surprises business with demands for more money.
The royalty proposal sounds on the surface like something a Third World dictatorship would do to line its own pockets. Shame on the Ontario government for not consulting with industry before making this decision.
The 2007 Ontario budget papers, speech and backgrounders may be read in their entirety in French or English at www.OntarioBudget.ca. Highlights are available in a wide variety of other languages.
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