Opening Northern Canada to Investment in the Natural Resources Sector By Brian Dominique Introduction From the development of world-class diamond mines, to the growth of commercial fisheries, to a thriving tourism industry that attracts visitors from around the globe, the door to Northern Canada s tremendous economic potential is being pushed wide open by a flood of domestic and foreign investment. International interest in Canada s North has reached new heights in recent years as the world has become increasingly aware of the vast opportunities for resource development in the region, which region hosts some of the world s largest known deposits of oil, gas and minerals and has unlimited potential. Political and Regulatory Renewal At the same time as growth has exploded in Canada s North, the region has undergone a massive political and regulatory realignment, including the transfer of province-like political responsibilities in respect of onshore lands, resources and waters from Canada s federal government to local territorial governments in a process called devolution. The governments of Canada s three northern territories (Yukon Territory, Northwest Territories and Nunavut Territory) are public governments elected by the populations of the respective territories, each of which has significant populations of Aboriginal peoples. The importance of this political and regulatory transition process to foreign investors cannot be overstated because it means that the Canadian North s Aboriginal populations have a unique level of political influence in determining the region s economic development but, at the same time, the devolution process has respected the rights of the various stakeholders established by public governments. As a result of what has in the past been a lack of local decision making and regulatory clarity, this mineral and petroleum prolific area has historically been underexplored. Foreign investors need to learn about this process of devolution--both the opportunities it creates and the challenges it presents--in order to achieve success in this new political and social order. Our firm, Cassels Brock & Blackwell, represented the federal Government of Canada in regards to the devolution in the Northwest Territories and is currently doing likewise in respect of onshore lands, resources and waters in Nunavut Territory and has the professional expertise and unique experience to identify those opportunities and address those challenges. The Geography The Arctic region of Canada comprises three territories: the Yukon Territory, the Northwest Territories and Nunavut Territory. Nunavut was created out of part of the former Northwest Territories and includes the eastern Arctic part of the former Northwest Territories and most of the islands of the Arctic Archipelago. The geographic scale of these territories is difficult to comprehend: they comprise 36% of the total land mass of Canada and cover an area equivalent
- 2 - to 40% of China s land mass, while the population of the area is only 0.01% of China s population. The territory of Nunavut, the homeland of the eastern Arctic Inuit, is 1.9 million square kilometres in area and is nearly one-fifth the size of Canada, which itself is the second largest country in the world. More than $100 billion in investment is planned for a range of projects in the North, including diamond mines in the Northwest Territories and Nunavut, uranium exploration in Nunavut and Labrador, the Mackenzie Valley Gas Pipeline Project in the Northwest Territories, and the Alaska Highway Pipeline Project in the Yukon. World class companies like DeBeers Canada, BHP Billiton, Caterpillar, Chevron, ExxonMobil, Rio Tinto and many others are leading development and exploration in the North. Devolution in the Northwest Territories An Overview of NWT Devolution Of the three territories, the Northwest Territories is known to have the most proven mineral and petroleum (oil and gas) resources and the most accessible prospects. One of the recent key aspects of the development of Canada s north has been the passing of the Northwest Territories Devolution Act (the Devolution Act or the Act ). The Devolution Act governs the transfer of certain powers from the federal government to the Government of the Northwest Territories (the GNWT ). The Devolution Act implements the Northwest Territories Lands and Resources Devolution Agreement (the Devolution Agreement ), which was signed on June 25, 2013 between the Government of Canada, the GNWT, and five regional Aboriginal governments/organizations: the Inuvialuit Regional Corporation, the Northwest Territory Métis Nation, the Sahtu Secretariat Incorporated, the Gwich in Tribal council and the Tlicho Government. The Devolution Act was introduced into the federal Parliament of Canada as Bill C-15 on December 3, 2013 and received Royal Assent on March 25, 2014. On April 1, 2014, certain key provisions of the Devolution Act came into force, with the remaining provisions in the Act scheduled to be rolled out gradually in spring 2015 and spring 2016. Included among the provisions that came into force on April 1, 2014 are: the transfer to the GNWT of administration and control of, including the power to use, sell or dispose of, certain public lands that are located onshore. These public lands include minerals, oil, gas, timber and infrastructure; the transfer to the GNWT of the administration and control, including the power to use, sell or dispose of, certain waters that are located onshore; and the right of the GNWT to collect up to 50% of resource revenues annually (subject to a cap), which the GNWT in turn has an obligation to share with Aboriginal governments/organizations party to the Devolution Agreement. Despite the broad transfers to the GNWT under the Devolution Act, the Government of Canada retained, among other powers, jurisdiction over and administration and control of the offshore, including offshore oil and gas resources, the power to regulate petroleum (oil and gas) resources through the National Energy Board in the Inuvialuit Settlement Region (see Figure 1)
- 3 - and the oil producing Norman Wells Proven Area, and ownership interests in the subsurface rights in the Norman Wells Proven Area (see Figure 2). Changes to the Regulatory Framework in the NWT The Devolution Act also made amendments to several pieces of legislation, including the Territorial Lands Act, the Northwest Territories Waters Act and the Mackenzie Valley Resource Management Act. The amendments to the Mackenzie Valley Resource Management Act (the MVRMA ) in particular have resulted in dramatic changes to the regulatory decision-making framework in the Northwest Territories. The MVRMA establishes the structure for the management of public and private lands and waters in the Mackenzie Valley, which is defined in the MVRMA as all of the territory in the Northwest Territories, except for the Inuvialuit Settlement Region and the Wood Buffalo National Park. Prior to the changes under the Devolution Act, the land in the Mackenzie Valley was managed by regional land and water boards that regulated the use of lands and waters, issued land use permits and water licenses and carried out environmental assessments and regulatory reviews. Concerns that the regulatory scheme under the MVRMA was inefficient, costly, and timeconsuming prompted significant changes to the regulatory scheme, as amended by the Devolution Act. The changes to the MVRMA are substantial, and include: the elimination of regional land and water boards into a single, consolidated review board, consisting of 11 members, including one member from each of the Gwich in First Nation, the Sahtu First Nation, and one member appointed by the Tlicho Government; the establishment of time limits between approximately nine months and 18 months, depending on the circumstances, for the completion by the review board of environmental assessments and/or environmental impact reviews; and the establishment of time limits for decisions on the issuance of water licenses. While the consolidation of the land and water boards into a single review board is scheduled to come into force in spring 2015, the time limits for decisions on environmental assessments and the issuances of licenses are already in force. The goal of the changes to the MVRMA was to streamline the process for the regulation of land and water use in the Mackenzie Valley. Although these changes are largely perceived as beneficial to industry and development, they have been accompanied by some political tension between the federal Government of Canada and Aboriginal communities. For example, the Tlicho First Nation has launched a law suit against the federal government claiming that the changes to the MVRMA, especially the consolidation of the regional review boards, violate treaty rights. Ultimately, the collective changes under the Devolution Act present new opportunities for industry and the development of the Northwest Territories. However, an understanding of the concerns and interests of Aboriginal peoples, as well as a commitment to building long-term relationships, will be beneficial to all interest groups involved in northern development. Cassels, Brock & Blackwell LLP has the professional expertise and experience to address those challenges.
- 4 - Recognizing Aboriginal Rights and Interests in Northern Canada Devolution in Yukon Territory, the Northwest Territories and coming in Nunavut Territory was and is a clear recognition by the federal Government of Canada of the importance of Aboriginal communities to the development and future of those territories and a desire to give Aboriginal peoples a say in that future. Canada s Aboriginal communities are an integral part of each of Yukon, Northwest Territories, and Nunavut and will be a crucial part in the successful development of Canada s North. As a result, development in Yukon, Northwest Territories and Nunavut can only come with sensitivity to the interests and rights of Aboriginal peoples and cooperation and consultation with Aboriginal communities. In Yukon, Aboriginal peoples make up 35% of the residents, in the Northwest Territories, Aboriginal peoples make up almost 50% of the residents and in Nunavut, Aboriginal peoples make up 85% of the residents. Aboriginal peoples are among those most affected by the landuse and resource-development decisions of governments and the private sector. Aboriginal peoples are also major land and resource owners in all three territories and have legal rights related to land and resources through historical and modern treaties, including land-claim and self-government rights. Aboriginal Settlement Agreements and Treaty Rights Canada s relationship with Aboriginal communities in the North is governed by a complex patchwork of historical and modern treaties and settlement agreements. In Northwest Territories, the historical treaties, Treaty 8 (1899) and Treaty 11 (1921), together cover most of the Northwest Territories, apart from (i) the eastern part of the territory closer to the Nunavut border; and (ii) the northern Inuvialuit Settlement Region as established by and subject to the Inuvialuit Final Agreement (Figure 3). In addition, the area is subject to modern settlement agreements, including the Gwich in Comprehensive Land Claim Agreement, the Sahtu Dene and Métis Comprehensive Land Claims Agreement, the Tlicho Agreement (which includes self government provisions) and the Inuvialuit Final Agreement (Figure 4). These agreements include surrenders of large tracts of public lands but also make the Aboriginal organizations land owners on certain settlement lands, including subsurface minerals and petroleum (oil and gas). In Yukon, the Umbrella Final Agreement ( UFA ) is a policy document entered into between the Government of Canada, Government of Yukon and Yukon First Nations. The UFA was reached in 1988 and finalized in 1990. This agreement is used as a template for negotiating First Nation Final Agreements ( FNFA ). FNFAs are recognized as treaties under section 35 of the Constitution Act, 1982. As a treaty, the agreements take precedence over other laws. FNFAs provide financial compensation and settlement lands, which agreements make the Aboriginal organizations land owners on certain settlement lands, including subsurface minerals and petroleum (oil and gas), along with the authority conferred by the accompanying selfgovernment agreements. Currently, there are eleven Yukon First Nations that have Final and Self Government Agreements in effect. Only three First Nations in the Yukon have not settled land claims; these First Nations remain Indian Bands under the federal Government of Canada Indian Act. In Nunavut, the Nunavut Land Claims Agreement ( NLCA ) is a land claims agreement entered into in 1993 by the Government of Canada and the Tunngavik Federation of Nunavut, now Nunavut Tunngavik Inc. ( NTI ). When the Agreement was signed, legislation was also passed leading to the creation of a new territory and territorial government, Nunavut, in 1999. The
- 5 - NLCA consists of 41 articles, including Inuit surrender of large tracts of public lands but also including equal representation of Inuit within government; the right of Inuit to harvest wildlife on lands and waters throughout the Nunavut settlement area; $1.2 billion payable to Inuit over fourteen years; a right of Inuit to share in royalties from oil, gas and mineral development over Crown lands; and the granting of title over approximately 350,000 square kilometres of land to the Inuit of Nunavut. 35,257 square kilometres of this land include mineral and petroleum (oil and gas) rights. The specific interaction between historical and modern treaties are determined by the unique provisions of each agreement. For example, under the Gwich in Comprehensive Land Claim Agreement in the Northwest Territories, certain Aboriginal rights under Treaty 11, including the obligation to set aside reserves, in the Northwest Territories were ceded in consideration for other rights and benefits provided by the Agreement. Treaty 11 rights that were not specifically ceded, were otherwise confirmed. A similar provision is included in the Tlicho Agreement, however the specific rights that were ceded or affirmed differ depending on the agreement. The combination of settlement agreements, treaty rights and common law, as applicable, establish certain Aboriginal rights and duties owed to Aboriginal communities by groups that intend to engage in exploration and development in the North. Such duties include compensation arrangements and a duty to consult. Under the Inuvialuit Final Agreement, for example, explorers, developers and producers that hold certain petroleum, coal or mineral rights or interests, must pay fair compensation to the Inuvialuit for access to lands. The Tlicho Final Agreement states that explorers, developers and producers of certain minerals or oil and gas resources have an obligation to consult with the Tlicho Government, such consultation to include consultation on environmental impact, impact on wildlife harvesting and employment. Development activities in the North thus require awareness and understanding of the obligations to Aboriginal peoples that may arise. Other Recent Legal Developments in Aboriginal Rights in Canada Two recent legal cases from the Supreme Court of Canada (the court of last appeal in Canada) address Aboriginal title and treaty rights and have thrown into stark relief the importance of understanding Aboriginal rights in Canada. 1. Tsilhqot in Nation v British Columbia ( Tsilhqot in Nation, pronounced Chil-co-tin ) is the first time that the Supreme Court of Canada issued a declaration of Aboriginal title in Canada, in that case over approximately 1750 square kilometres of land in the province of British Columbia. In Tsilhqot in Nation, the Supreme Court clarified the test for Aboriginal title: to establish a claim for title, an Aboriginal group must show (i) sufficient pre-sovereignty occupation (occupation before the historic declaration of sovereignty by the British Columbia; (ii) continuous occupation (if present occupation is relied on as proof of pre-sovereignty occupation); and (ii) exclusive historic occupation. Although based on the test in Tsilhqot in Nation, the bar for Aboriginal title is still relatively high, the court affirmed that the establishment of title constitutes a beneficial title interest to the land, and can only be infringed upon when there is (i) a compelling and substantial governmental objective; and (ii) the actions of the government are consistent with its fiduciary duties to Aboriginal peoples. Unlike most other provinces and territories, there are very few treaties and settlement agreements that dictate land ownership and usage in British Columbia, resulting in
- 6 - uncertainties as to Aboriginal title. In contrast, the settlement agreements and treaties that have been entered into in Yukon Territory, the Northwest Territories and Nunavut Territory, which specifically set out the rights and benefits of Aboriginal peoples, mean that the land claims are more settled in those territories and the outcome of Tsilhqot in Nation may have limited application in the North and other parts of Canada subject to treaty and settlement (land claim) agreements. However, it is clear that appreciation of the claims and rights of Aboriginal peoples and an intimate knowledge and understanding of the duties to consult and accommodate the rights of Aboriginal peoples have now become an integral part of development and doing business across Canada. 2. Grassy Narrows First Nation v Ontario ( Grassy Narrows ), decided by the Supreme Court of Canada only 15 days after Tsilhqot in Nation, is another landmark case that explores the scope of Aboriginal treaty rights. In Grassy Narrows, the Supreme Court of Canada found that the provincial government of Ontario has the ability to take up certain lands in Treaty 3 territory, for the purpose of settlement, mining, lumbering or other purposes. This ability to take-up lands is nevertheless subject to the fiduciary duties that the Crown owes to Aboriginal peoples, including the duty to consult and accommodate Aboriginal peoples, and the restriction that so much land cannot be taken up to render the Aboriginal peoples right to harvest meaningless. As in Tsilhqot in Nation, the Supreme Court affirmed that the government s ability to infringe treaty rights is possible only if there is a substantial and compelling government objective and the actions are consistent with the government s fiduciary duties to Aboriginal peoples. Together, Tsilhqot in Nation and Grassy Narrows are important cases that define the relationship between Canadian governments (both provincial and federal) and Canada s Aboriginal peoples, which in turn has an impact on groups seeking to engage in Canadian resource development. Ultimately, the cases highlight the strong need to engage and accommodate affected Aboriginal peoples, who play an important role in land-development decisions. Success Stories in Canada s North Devolution in Yukon Territory The Northwest Territories was not the first Canadian territory to have undergone devolution. On April 1, 2003, Canada s Yukon Territory took over land and resource management responsibilities from the Government of Canada, representing the final step in the devolution process. Changes to the Regulatory Framework Post Devolution: Yukon Territory On April 1, 2003, a new Yukon Act came into effect, which gave the Government of Yukon direct control over a wider array of province-like programs, responsibilities and powers. Since 2003, the Yukon government has amended and modernized the Forest Resources Act, the Quartz Mining Act, the Placer Mining Act and the Miner s Lien Act. Several other pieces of legislation that were inherited as part of devolution were introduced to the Senate to be amended in June 2014. One act that is currently in the legislative amendment process is the Yukon Environment and Socio-Economic Assessment Act ( YESAA ). YESAA established an independent assessment
- 7 - board that invites input from First Nation governments, local residents and interested parties prior to the commencement of any project in the Yukon. The Act s proposed amendments aim to improve the regulatory processes by introducing legislated time limits and increased clarity regarding project assessments. In August 2012, amendments were made to resource revenue sharing arrangements under the Yukon Northern Affairs Program Devolution Transfer Agreement and the 1993 Canada-Yukon Oil and Gas Accord. These amendments enable residents of the Yukon to benefit from arrangements similar to those recently agreed to in principle as part of Northwest Territories devolution negotiations. The revised legislation aims to ensure that a greater portion of the revenues generated from the mining and resource economy in Yukon will be available for use in the territory. Successful Results in Yukon Territory Devolution in Yukon Territory is a success story. Since devolution the territory has experienced 10 straight years of positive GDP growth and has received a surge in private-sector investment, with an increase in the number of producing mines in the territory. In 2012, Yukon s GDP was $2.5 billion, a $1 billion increase since devolution. Since 2002, exploration expenditures have grown from a low of $7.4 million in 2002 to a peak of $441.7 million in 2011. Additionally, since 2003, Yukon s annual unemployment has trended downward: from 2004 to 2012, Yukon s unemployment rate averaged below 6%, lower than the Canadian national average of 7% for the same period. Yukon s devolution has played an important role in the economic development of Canada s North, and continues to act as a model for the Northwest Territories. Nunavut Territory; Mary River Project, A Northern Success Story The Mary River Iron Ore Project is a success story that is happening right now in Nunavut. Mary River is located on North Baffin Island in the Qikiqtani Region of Nunavut. Because this project sits on Inuit owned land, NTI Nunavut Tunngavik Inc. ( NTI ), Nunavut s land claims organization, receives the royalties from the project on behalf of the Inuit of Nunavut. In 2012, the Canadian Government approved construction of the Mary River project in a move that could jumpstart the development of the entire Canadian Arctic. Mary River is owned and operated by Baffinland Iron Mine Corp. ( Baffinland ), which is a joint venture between ArcelorMittal (50%) and Nunavut Iron Ore (50%). The Project consists of nine or more high-grade lump and fine iron ore deposits that can be mined, crushed and screened into marketable products. It is currently one of the largest mining developments planned in Canada. With an estimated 373 million tonnes of reserves, and significant infrastructure developments planned, including a railway and deep-water port, the project is by far the most significant development ever planned above the Arctic Circle. On September 13, 2013, Baffinland Iron Mines Corporation announced a formal decision to proceed with approved construction activities for the Mary River Project. The announcement followed the achievement of certain milestones, including the Inuit Impact Benefit Agreement and Commercial Production Lease which were executed on September 6, 2013. Since then, Baffinland has also announced the launch of the Ilagiiktunut Fund, which was established by joint contributions from Baffinland and the Qikiqtani Inuit Association and which will support youth, cultural, educational and social initiatives.
- 8 - Canada s then Minister of Aboriginal Affairs and Northern Development, John Duncan, called this a game changer for Nunavut. When construction is completed, the Baffinland mine site will be almost a town of its own, bigger than many Nunavut communities. Although the initial development was scaled back to reflect the slowing demand for global commodities, Baffinland has stated that it remains committed to developing the Mary River project in the near term despite the current global financial challenges and that it believes the project will generate benefits to Nunavut in the near term. Developing Mineral Wealth in Ontario s Far North: The Ring of Fire In addition to the enormous mineral wealth of Canada s Northern territories, a 5,000 square km region in the far north of the province of Ontario is host to significant deposits of copper, zinc, nickel, platinum, vanadium and gold. Called The Ring of Fire, the area contains a chromium deposit that is huge by global standards and is the only such deposit in North America. (China purchases half the world s current chromium production supply). The discoveries in the Ring of Fire have been so vast that the Ontario mining industry experts describe them as representing a multi-billion-dollar deposit that may take generations to fully exploit. A former Northern Development and Mines Minister of the province of Ontario has said that the Ring of Fire is home to one of the most promising mineral development opportunities in Ontario in more than a century. The Government of Ontario has demonstrated its commitment to developing the region as quickly as possible. The province has established a Secretariat to work and consult with Aboriginal communities, northern Ontarians and industry in order to give full consideration to development that is environmentally sustainable and responsible. Consistent with this initiative, in May 2014, the Government of Ontario announced its commitment to spending $1 billion on a highway to the Ring of Fire region, in order to spur development. The government also announced its decision to establish a development corporation that would bring together private and public partners and would finance and maintain infrastructure to support access to resources in the Ring of Fire. There are several First Nations that will be affected by the government s plan to develop this infrastructure in Northern Ontario. The heterogeneity of First Nations communities in Northern Ontario increases the level of complexity for the government. When consulting with the affected First Nations, the government must balance the various and potentially conflicting demands of the different affected First Nations. Opportunities for Chinese Investors Mining activities and major projects such as the Mary River Project are the cornerstones of sustained economic activity in the North and the key to building prosperous Aboriginal and Northern communities. The large-scale projects already underway barely scratch the surface of the North's immense reserves of mineral, petroleum, hydro and ocean resources. In fact, the full extent of the natural resources potential in the Arctic is still unknown. The Canadian federal government has committed to improving infrastructure and the regulatory process to ensure that the landscape is attractive to mining companies that are interested in exploring and developing the North. As we have noted, the devolution of Canada s Northern territories has been a key component of this strategy. Increased autonomy in Canada s north
- 9 - will reduce the amount of regulatory oversight on mining projects and shorten the period required to complete the permitting process. The devolution of the Canada s northern territories is only one aspect of the development of Canada s north. Devolution itself is a tremendous step forward because, in our view, up to now the lack of clarity regarding the various administrative and regulatory regimes in the North has presented a major obstacle to exploration and resource development in one of Canada s most mineral prolific regions. Cassels Brock Knows the North Cassels Brock is strategically positioned to guide Chinese investors in developing and implementing business strategies that take the greatest advantage of the major changes taking place in the North. The Cassels Brock Mining Group is world renowned and industry peer recognized for its expertise in Northern Canada. Brian Dominique, a partner in our firm, acted as Chief Federal Negotiator for the Government of Canada in respect of devolution negotiations and implementation in the Northwest Territories. He is currently the Chief Federal Negotiator for the Government of Canada in respect of devolution negotiations and implementation in Nunavut Territory. His work included negotiating the Devolution Agreement in Principle and the Devolution Final Agreement between the Government of the Northwest Territories and Aboriginal parties in the Northwest Territories regarding the transfer of legislative authority, financial arrangements, and resource revenuesharing, as well as the integration of on-shore/off-shore management between the Government of Canada and the Government of the Northwest Territories and currently includes similar work in Nunavut. In addition, Mr. Dominique successfully represented Goldcorp Inc. at the Supreme Court of Canada, a party to the Grassy Narrows case that was discussed earlier in this article. Given the firm s professional expertise and experience in Aboriginal matters and Northern development, Cassels Brock is in a unique position to advise Chinese business leaders on how to profit from the wide range of opportunities available through strategic investment in Northern Canada s natural resources.
- 10 - Figure 1. A map showing the approximate area of the Inuvialuit Settlement Region. (Image Credit: National Energy Board, Filing Requirements for Offshore Drilling In the Canadian Arctic (2011), online: http://www.neb-one.gc.ca/clf-nsi/rthnb/pplctnsbfrthnb/rctcffshrdrllngrvw/rctcrvwflngrqrmnt/ rctcrvwflngrqmnt-eng.html)
- 11 - Figure 2. A map showing the location of the Norman Wells Proven Area. The Norman Wells Proven Area is shown as a black rectangle on the map and is magnified in the inset. (Image Credit: National Energy Board, NEB Regulatory Oversight in NWT Post-Devolution (2014), online: http://www.neb-one.gc.ca/clfnsi/rthnb/nrthffshr/nb-nwt-dvltn/nb-nwt-dvltn-eng.html).
- 12 - Figure 3. A map of the historical Aboriginal treaties in Canada. (Image credit: Government of Canada, Ministry of Aboriginal Affairs and Northern Development Canada, Maps of Treaty-Making in Canada (2013), online: https://www.aadnc-aandc.gc.ca/ eng/1100100032297/ 1100100032309)
- 13 - Figure 4. A map of the modern Aboriginal settlement agreements in Canada. (Image credit: Government of Canada, Ministry of Aboriginal Affairs and Northern Development Canada, Maps of Treaty-Making in Canada (2013), online: https://www.aadnc-aandc.gc.ca/ eng/1100100032297/ 1100100032309)