The Mineral Rights Tax - Setting the Record Straight

Finance Minister Joan Marie Aylward responded on November 24 to the publicity campaign orchestrated by Archean Resources Limited, and assisted by the Newfoundland and Labrador Chamber of Mineral Resources, respecting the Mining and Mineral Rights Tax Act. Minister Aylward issued the following statement:

"Archean, in a full page ad in the Telegram on November 23 and 24, 2002, purports to give the �straight facts. However, in doing so, they have conveniently cut corners - they omit critical facts.

"While there are a number of substantive amendments being proposed for the Mining and Mineral Rights Tax Act, the tax on royalties is not new. It has been in place since 1975 and was implemented by the Moores government based upon recommendations of the Royal Commission on Mineral Revenues in 1974. It is generic, that is, it applies to all mining projects in the province where the operator pays a royalty to another person.

Mineral Resources - Who Owns Them
"Non-renewable mineral resources belong to the people of the province. They do not belong to explorationists, nor to developers. Voisey�s Bay is a world class mineral resource. Chris Verbiski and Al Chislett, the discoverers of the Voisey�s Bay deposit and principles of Archean, stand to benefit substantially from the development of the people�s non-renewable resource. Should the province receive compensation for the depletion of its resources, whether mineral or petroleum, or should we give them away? Should Archean acquire enormous wealth from the mineral resources of the people without compensation to the people, other than corporate income tax, most of which goes to the federal government? Those who benefit should compensate the people who own the resource. The Mining and Mineral Rights Tax has been designed to do this since 1975.

The Legal Process
"Archean claims that government �hijacked the legal process� because the province has advised the Supreme Court of Canada that it intends to clarify the existing applicable law. What Archean does not say, is that it took the province to court in 1998 and lost its case in the Newfoundland and Labrador Supreme Court, Trial Division. It appealed this judgement and lost by unanimous decision in 2002 in the Court of Appeal, the highest court in the province. The amendment to the Mining and Mineral Rights Tax Act serves only to affirm government�s policy intent to receive part of the compensation for the use of the non-renewable resource from recipients of royalties.

The So Called "Fugitive Tax"
"Archean claims that the Mineral Rights Tax is a �fugitive tax� targeted specifically to John C. Doyle, and suggests that the tax has not been otherwise applied. This is simply not the case. This tax has been consistently applied since 1975 to all royalty recipients. The Court of Appeal, not only upheld government�s interpretation of the law, but expressed the view that, in imposing the tax on Archean, the legislation was doing exactly what it was intended to do.

Errors of Omission
"Archean does not acknowledge that the proposed amendments to the Mining and Mineral Rights Tax Act provide more incentives for explorationists than the current regime. Under the amended legislation, there would be no tax on a royalty recipient who receives up to $100,000 per year, and there would be a partial tax on royalty income up to $200,000. A feature of the proposed legislation would allow explorationists to deduct exploration expenses for other properties against their royalty income. This new feature represents a tax break of $200,000 per year for Archean.

Newfoundland and Labrador�s Competitive Position
"Archean has expressed the view that other provinces do not impose a tax on royalty income. What they fail to mention is that these provinces, unlike Newfoundland and Labrador, do not allow a tax deduction to the company which pays the royalty. The fact is that all provinces effectively tax the royalty income. The only difference is that Newfoundland and Labrador shares the tax burden among all the parties that benefit.

Conclusion
"Archean appears to have negotiated a net smelter royalty contract in 1993 without determining the tax consequences of the transaction. They are now looking to the government to change the tax act, an act which was in place at the time they negotiated their arrangement, so that they can add to the enormous benefits that they stand to receive. They would have us believe, however, that their purpose in eliminating the tax is that it discourages exploration. The reality is that the only party which is negatively impacting exploration in this province is Archean through their provincial and national publicity campaign, the result of which is to escape payment to the people of the province for their resources.

"Archean Resources say they are satisfied to pay their fair share. This does not appear to include a share of the benefit they receive from the peoples� resource. It is a sad day for the province, when a company which stands to benefit substantially from a non-renewable resource does not feel that they should provide compensation to the people of the province for the use of their resource. The people expect and demand their fair and rightful share from those who benefit.

"Government asks Archean to state publicly how much they expect to receive, after tax, from this project. The people of the province can then determine whether Archean is being adequately compensated for their discovery of the resource at Voisey�s Bay."

Media contact: Josephine Cheeseman (709) 729-0329; 687-3353

2002 11 25                                      11:45 a.m.