GRAEME HOSSIE and Greenland's Industry Minister, Jens-Erik Kirkegaard, announcing the company's 30-year exploitation license.

Greenland Pioneers New Royalty Code for Isua Iron Ore Mine

Issue 62, October 2013

London Mining has been awarded a 30-year exploitation license for its Isua iron ore project in Greenland. Industry Minister Jens-Erik Kirkegaard told Global Mining Observer in May that he expected to grant the project a license, the first in Greenland’s history, if both parties could negotiate a tax structure that guaranteed a “minimum of government take.”

The royalty agreed escalates from 1 per cent of sales in the first 5 years to 5 per cent after year 16, but only applies if the company’s other taxes paid are less than the royalty threshold. The structure gives London Mining headroom during Isua’s payback period, whilst putting a tax floor under the new mine, with profit-based corporation tax seen as too open to escape.

London Mining chief executive Graeme Hossie told Global Mining Observer this week that the thrust of negotiations was to create a mining code that gave certainty to both parties, without impacting the “investability of the project.” Isua is forecast to cost $2.4bn, shipping 15m tonnes of premium pellet each year from its 1bn tonne resource.

“The government recognised the need not to impair the investment case,” Hossie says. “The certainty of a robust regime is very important. The financial terms are a key part of that, but so is Greenland’s respect for the rule of law. Compared to some more pioneering jurisdictions, it makes it a much more stable environment.” The license award he says “gives a basis on which we can talk to funding partners.”

Greenland’s coalition government, which is eager to tap its resources to lower its dependence on fisheries and an annual subsidy from Denmark, also overturned a flat ban on uranium and rare earths mining last week by a parliamentary vote of 15 to 14.

Isua is subject to a 1 per cent royalty held by London-listed Anglo Pacific. Last year, London Mining also sold a 2 per cent royalty over its Marampa mine in Sierra Leone to fund manager BlackRock. Royalty deals offer “excellent value” to operators, Hossie says. “They get funding into the project at or close to its net present value, which is a much higher value than a typical equity or private equity transaction.”

“It also shows belief in the viability of the project by companies that know their business and undertake a lot of due dilligence.”

“The government recognised the need not to impair the investment case.”
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