Compensation report cause for concern

Undeveloped mineral deposits in British Columbia could be expropriated by the provincial government for exploration costs over the last five years if the recommendations of a recent commission of inquiry into compensation are made law.

The report by Richard Schwindt was commissioned by the provincial government earlier this year to look into the principles and processes for determining compensation, “in the event that private interests in mineral and timber resources are taken for public use.”

The mining and forestry industries will have three months to respond to the recommendations before legislation is introduced in the spring 1993 session of the legislature.

“Mining companies will be pleased to know the report recommends the owners of mineral and timber interests should be compensated when these interests are taken for a public purpose,” said Mines Minister Anne Edwards. Edwards conceded, however, that some of the recommendations will generate “plenty of discussion.”

Tom Waterland, head of the province’s mining association, was first off the mark. He said the government will be on “dangerous ground” if the recommendations are implemented. Jack Patterson, managing director of the British Columbia & Yukon Chamber of Mines, also slammed the report, saying the proposals set the stage for “claim-jumping, government-style.” The report — which places great emphasis on the view that property is “an instrument to assist in the maximization of social welfare” — recommends a cost-based compensation policy for exploration properties, no matter how advanced. Compensation would be based on “reasonable” costs of acquiring and holding the claim for the past five years (from the notice of taking), plus a nominal rate of interest. It also suggests, that “where possible,” mineral claims that are taken could be exchanged for other claims, supplemented by disturbance damages.

The report recommends that a sharp distinction be made between exploration and properties in the development or production stage, which may require revisions to the province’s Mineral Tenure Act. Schwindt proposes that mining leases should be granted only when a company has a “bankable” feasibility study and makes a positive production decision.

A majority of mining companies that made submissions to the commission advocated compensation based on estimates of market value for both claims and leases. But Schwindt rejected those arguments, and instead recommended that only leases be compensated on this basis.

“It is not clear that mineral claims do, or should, convey complete property rights to unproven deposits,” Schwindt writes. “Second, valuation of such properties is difficult, expensive, and subject to wide variation. To adopt such a policy would ensure persistently high settlement costs for both title holders and government.”