Discussions around gold royalty rates have been ongoing for much of my near 35 years in the placer mining industry, and are usually motivated by three common factors; ignorance, greed and envy.
I will attempt to address the topic accordingly.
First of all, Yukon placer mines are not corporate, we are largely family based.
Publicly-traded corporations have tried and failed to operate in the Yukon placer field for they cannot reliably maintain the required profit margins.
Because of these tight margins we have limited access to conventional financing from banks, and are therefore largely self-financed.
Yet the wealth placer mining creates plays a critical role in delivering jobs, growth and prosperity for Yukoners and is new wealth injected directly into our local economy.
It is the mining which allows Dawson to have two grocery stores that would never be supported by a small northern community on the local populace alone.
It allows First Nation-owned businesses like Air North Cargo or Kluane Freight Lines to serve the community and generate prosperity for their beneficiaries.
Do you like having a good selection at the grocery store or being able to get that piece of furniture shipped up?
Thank a placer miner, not royalties.
Yukon’s Placer gold royalty is actually an “accounting” royalty to help offset the cost of service.
To be fair, the 2.5% royalty was once government’s only revenue source from the placer industry, but that all changed during the First World War when Canada introduced a “temporary” income tax.
At the time, the Placer Act valued gold at $15 per raw (crude) ounce for royalty purposes, when gold was trading at $20.67 per fine ounce.
This resulted in a payment to government of thirty-seven and one-half cents ($.375) for each raw ounce produced.
Income tax has since become a long-term reality, and when government’s revenue model shifted from royalty to tax-based, the royalty understandably remained unchanged.
Yukon placer gold also varies widely in the amount of gold contained in each raw ounce.
Some creeks can have as little as 65% gold while others may run to 90%.
Each raw ounce may contain other impurities which are carried away in the initial smelting process and form the “melt loss.”
As such, a royalty based purely on raw gold weights is an imprecise, inequitable, and patently unfair form of taxation.
$15 is not an arbitrary figure, it is some 72.6% of the fine ounce price to reflect this.
These facts were understood when the original gold royalty was set up.
In 2016, the Yukon Placer Industry produced 65,646 crude (raw) ounces of placer gold.
By contrast, Yukon’s only operating hard rock mine, Capstone Mining’s Minto Mine, produced 39,000 fine ounces of gold in 2016 as a by-product of its copper production, or nearly 65% of the entire placer industry’s output.
Victoria Gold’s Eagle project is slated to produce 188,400 fine ounces annually or nearly 3 times placer’s output.
Yukon’s combined 170-or-so placer operations produce less than a very small hard rock mine and employ, spend and spread around much more per ounce in the process.
In my humble opinion Yukon Government doesn’t have a revenue problem, it has a spending problem.
Figures for 2016 peg spending at $1,284,377,000, over $3.5 million per day.
Yukon’s Financial Advisory Panel has recommended reviewing the royalty rate on placer gold to assist with government’s “revenue” crunch.
What would modernizing the royalty to reflect the current gold price accomplish?
Gold is currently trading at roughly $1610 CDN, so if we multiply that by 72.6% to account for smelting loss and gold fineness (inequitable or not), we arrive at $1168.86 as a “base rate” per raw (crude) ounce.
Now 2.5% of $1168.86 is $29.22 per ounce and that times the 2016 production of 65,646 ounces is $1,918,275.
Under $2 million from an 80-fold increase in the royalty rate.
An amount of money your Yukon government will burn through in less than 24 hours.
Let’s bring this down to a personal level.
On top of the more than $50,000 I currently pay annually in business, payroll and personal tax, as well as all the monies my operation contributes towards fuel, groceries and other supplies to the local economy, I typically produce enough placer gold to be responsible for approximately $20,000 of that updated royalty amount.
$20,000 is what it costs to put one of my daughters through a year of university.
What impact does $20,000 of one youth and future taxpayer’s education have on a brief moment of the current government’s operations, yet alone its projected deficit for 2018/19 of nearly $50 Million?
As I said at the outset, this current round of discussions was sparked largely by ignorance of the operational realities of placer mining, and has totally overlooked its valuable contributions.
For the public, who unless they are directly involved as a supplier to our industry, that is forgivable.
But to the committee who is charged by our public government to formulate these recommendations I can offer no such understanding.
It is absolutely incumbent upon you to understand those whom you wish to tax.
I can only assume you possess one or both of the other two unappealing traits mentioned at the outset and for that I say shame on you…all of you.
President Mike McDougall, Klondike Placer Miners’ Association