Recent election brings mixed results for mining companies

Parliamentary elections were held in Greenland on March 12 2013 and former opposition party Siumut, headed by Aleqa Hammond, was the major winner, with 43% of the votes. The Greenland Parliament elects and appoints the Green­land government. On March 19 2013 it was announced that a new government consisting of three parties - Siumut, Parti Inuit and Atassut - had been formed.

The new government may greatly influence the possibili­ties for extraction in Greenland in the coming years.

Introduction

Parliamentary elections were held in Greenland on March 12 2013 and former opposition party Siumut, headed by Aleqa Hammond, was the major winner, with 43% of the votes.

The Greenland Parliament elects and appoints the Green­land government. On March 19 2013 it was announced that a new government consisting of three parties - Siumut, Parti Inuit and Atassut - had been formed. These three parties now hold a total of 18 seats, while 13 seats are held by the opposition parties.

The new government may greatly influence the possibili­ties for extraction in Greenland in the coming years.

Tougher line against mining companies?

During the election campaign, Siumut advocated a tougher line against mining companies. It has mooted, for example, renegotiation of parts of the Tax Act, the Large Scale Projects Act and the Mineral Resource Act.

Under the existing Tax Act, mining companies pay corpora­tion tax based only on profit. Accordingly, a mining com­pany will not be subject to corporation tax on its income in Greenland until its activities have generated a profit for the company. The profit is subject to 30% corporation tax, with the exception of distribution from a company in Greenland to a parent company outside Greenland (in which case the tax rate is 37%).

With the recent announcements from the new govern­ment, it is likely that royalties will be imposed on projects that are not yet in the extraction phase. Siumut has sug­gested that royalties be imposed based on the company's turnover, or that royalties be calculated as a fixed percent­age of the individual mining company's amount of pro­duced minerals. Consequently, companies may end up contributing to the Greenland treasury even where they have not yet generated a profit. Such an arrangement corresponds to the legal position in Australia, as well as in a number of African countries, where payment of royalties on raw materials has also been imposed.

As regards the Large Scale Projects Act, the new govern­ment wishes to include trade unions in negotiations for mining projects when workers' salaries are involved. Under the existing regulation, mining companies can hire foreign workers outside the collectively agreed hourly wage in Greenland. Hence, if the act is amended as announced by the new government, it is likely to lead to higher personnel costs for mining companies.

Most recently, the new government announced a tempo­rary freeze on new offshore oil licences granted under the Mineral Resources Act. The freeze will be introduced both to limit the impact on the environment and to ensure that society is able to keep up with developments (many new licences have been issued in recent years). However, the temporary freeze will apply only to future applications - companies with existing licences will be unaffected.

New possibilities for extraction of rare earth metals and uranium?

For the past 25 years Greenland has had a 'zero tolerance policy' in relation to the extraction of uranium, due to con­cerns over the consequences for that part of the popula­tion residing in close proximity to the areas where uranium can be extracted. However, the new government has con­sidered lifting the ban on the extraction of uranium. 

The extraction of rare earth metals is impossible without extracting uranium as well. Therefore, lifting the ban on the extraction of uranium will make possible the comple­tion of, for example, the Kvanefjeld project in the southern part of Greenland (among the largest mining projects in the country). In addition to rare earth metals, Kvanefjeld also contains approximately 575 million pounds of ura­nium, making it the world's fifth-largest uranium reserve.

The new government has stated that it will impose a ceiling on extraction, whereby only raw materials containing a maximum of 0.1% uranium can be extracted. Today, many mines can extract raw materials containing a maximum of 0.02% uranium, and it is estimated that the uranium con­tent in Kvanefjeld lies between 0.02% and 0.04%.

If Greenland is to be an exporter of uranium, an effective supervising authority must be established, as well as a system that can regulate the safety of extraction and ex­port of uranium.

With the adoption of the Greenland Self-Government Act 2009, Greenland took responsibility for several different legal areas, including that of mineral resources. However, as the extraction of uranium is a foreign and security policy matter - and because Denmark administers the foreign and security policy across the kingdom of Denmark (ie, Den­mark, the Faroe Islands and Greenland) - the Danish Par­liament must pass a special act before the existing ban can be lifted.

Accordingly, the Danish Ministry of Foreign Affairs is inves­tigating whether Greenland will be able to export uranium without violating the conventions and international trea­ties signed by Denmark.

Comment

Greenland's new government wishes to renegotiate and amend the Tax Act, the Large Scale Projects Act and the Mineral Resources Act. However, the adoption of new legislation is not expected until 2014.

There is no doubt that most parties in Greenland are keen for the mining industry to expand - the questions are merely how and at what pace.

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