​. Prepare the proposal structure (maximum in total of 8 pages with title page and reference pagE)

timer Asked: Jan 28th, 2021

Question Description

. Prepare the proposal structure (maximum in total of 8 pages with title page and reference page) and address it to the key person of Sagamok First Nation

- Title Page
- Content pages
- Reference pages
- only the Reference page is APA

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SAGAMOK FIRST NATION: A MINING COMPANY CONTEXT Ron Mulholland wrote this case solely to provide material for class discussion. The author does not intend to illustrate either effective or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com. Copyright © 2018, Ivey Business School Foundation Version: 2018-03-09 Chief Paul Eshkakogan had a problem. Once again, one of the mineral extraction partners was not living up to the terms of the negotiated agreement. Although the Sagamok First Nation (Sagamok) had negotiated an agreement with company executives, the project manager and purchasing agent apparently did not understand their responsibilities. Their lack of understanding was partly due to personnel changes and to changes in the company’s exploration schedule. Eshkakogan was pulled out of a meeting to deal with a phone call. He excused himself, left the room, and began to listen to the problem that had been created “this time.” He did not understand why there was a problem at all since Sagamok had signed an agreement with the company to be the preferential provider of site services and security. As the story unfolded, Eshkakogan wondered how many more times he would need to deal with a similar issue before the mine was in full production. BACKGROUND Sagamok was an Aboriginal community located in northeastern Ontario, 100 kilometres west of Sudbury on the North Channel, a body of water along the north shore of Lake Huron. The Sagamok had an area of 11,400 hectares of land, approximately 4 per cent of the size of Manitoulin Island. The reserve lay along the Spanish River south of Massey, Ontario, and extended east along the North Channel to the historic Fort La Cloche. The reserve had been defined by the Robinson-Huron Treaty of 1850 and was further controlled under a federal statute, the Indian Act, initially proclaimed in 1876.1 In 2016, the Sagamok were governed by a chief (Eshkakogan) and 12 councillors. Sagamok’s population in 2016 was approximately 2,800, of which nearly 1,600 lived on the reserve. The unemployment rate on reserve was in the 30 per cent range compared with well less than 10 per cent in the rest of the region.2 Economic development and increased employment were obvious goals for the Sagamok’s council. Authorized for use only in the course BUSI 640 at University Canada West taught by Brent Ramsay from Jan 11, 2021 to Jul 09, 2021. Use outside these parameters is a copyright violation. 9B18M035 Page 2 9B18M035 Ancestors of the community had been in the area for thousands of years. The lifestyle before contact with Europeans had been a subsistence existence. Winters were spent in the bush in small groups, each with their own identified territory for trapping and hunting, while summers were spent communally, typically adjacent to a river or lake with abundant food resources where trade and ceremonies were conducted. Indigenous mining in the nearby region of Lake Superior had been going on for hundreds, if not thousands, of years. The discovery of copper and other non-locally originated points on the banks of the Spanish River suggested trading in copper and other materials had been taking place for hundreds of years before contact.3 At contact, the Indigenous residents began a trading relationship with the newcomers. However, some conflict arose between the residents and settlers—for example, at Mica Bay, where colonial miners set up operations on traditional First Nations lands without a treaty or permission (see Exhibits 1 and 2). William Robinson was a trader and mining company director known to the First Nations community. The Province of Ontario appointed him to establish a treaty with the First Nations of the Upper Great Lakes, which resulted in the Robinson-Huron Treaty of 1850, the government’s attempt to resolve conflict, regularize relations with the First Nations of Lake Huron, and gain access to mining lands that were being prospected (see Exhibit 3). This agreement established the Sagamok Reserve as it became known, although Sagamok’s traditional land and range encompassed many times the area of the reserve boundaries.4 Following the Treaty, in 1876, the government of Canada passed the Indian Act, which, among other indignities, required First Nations community members to obtain permission from an “Indian agent” to leave the reserve. Residential schools—a network of compulsory boarding schools for Indigenous Peoples, investigated by the Truth and Reconciliation Commission of Canada from 2008 to 2015—were another painful part of the community’s history (see Exhibit 4). MINING CONSULTATION AND ACCOMMODATION The rights of First Peoples were recognized under Canada’s Constitution Act, 1982 and the Charter of Rights and Freedoms.5 The government’s duty to consult with First Nations before accessing or taking up their land was clarified by the courts in Mikisew Cree First Nation v. Canada6 and revisited in several other cases in the first decade of the 2000s. The courts required that consultation with First Nations be fair and meaningful, which included providing fair notice, a sufficient supply of information, and reasonable time to consider and respond to the request. Ontario’s Ministry of Northern Development and Mines (MNDM) had been criticized by the Ontario Superior Court for failing in its duty to participate in and oversee a consultation process with a First Nation, and, instead, delegating the consultation to a third party—the mining company being challenged, Platinex Inc.7 The conflict began in 1999 when Platinex became aware that the Kitchenuhmaykoosib Inninuwug (KI) First Nation intended to file a Treaty Land Entitlement Claim on the basis that the calculation of the area of its reserve was inadequate. KI claimed that the land being explored by Platinex was, if the land was assessed properly, part of the KI Reserve. The case played out in the media with injunctions, counter injunctions, blockades, runway confrontations, and so on. Six members of the KI First Nation were sent to jail and the Ontario government eventually had to pay substantive settlements to end the confusing, unstable, and unhappy situation.8 The government had since developed better consultation procedures, guided by a discussion paper.9 Authorized for use only in the course BUSI 640 at University Canada West taught by Brent Ramsay from Jan 11, 2021 to Jul 09, 2021. Use outside these parameters is a copyright violation. HISTORY Page 3 9B18M035 URSA AND THE SHAKESPEARE MINE URSA Major Minerals Inc. (URSA) was a junior mining company that had issued its first prospectus in June 2000. The company had acquired options from Falconbridge Nickel Mining Limited (Falconbridge) on 28 claims in Shakespeare Township on the northeast side of Agnew Lake, within Sagamok traditional territory. URSA could obtain up to a 75 per cent interest in the Falconbridge claims if a drilling program of US$1.2 million10 was completed. These were not new claims; exploration had taken place as early as 1920 and at various times since, including in the 1940s, 1950s, and 1980s.11 Falconbridge had drilled 47 holes for a total of 22,000 feet12 of core sample for analysis.13 The evaluation revealed 0.36 per cent grade nickel and 0.42 per cent grade copper, as well as palladium, platinum, and gold. URSA developed an exploration program and implemented it in early 2002. In light of the promising drilling results, URSA staked additional claims. The additional claims were explored in 2003, revealing nickel and copper grades at 0.49 per cent and 0.47 per cent, respectively. In 2004, the company earned its 75 per cent interest in Falconbridge’s claims and became a joint venture partner. URSA continued to stake more adjacent properties, owning these outright (100 per cent).14 At the same time, URSA began discussions with Sagamok, wanting access to Agnew Lake, which was part of the Spanish River—the traditional waterway of the Sagamok. In 2005, for the first time, URSA included in its annual report the caution, “Property title may be subject to government licensing requirements or regulations, unregistered prior agreements or transfers or native land claims.” URSA, with Falconbridge, had earned an 80 per cent share in the Shakespeare Township property and had staked more than 300 additional claims on adjacent property. A pre-feasibility study performed by mineral industry engineering consultants Micon International Limited had reported positive results.15 A bankable feasibility study was completed in 2006. At this stage, a company typically determined whether a mine was financially viable. The feasibility consultant reported that the project “contained an economic mineral reserve worthy of development.” The study envisioned a 4,500 tonne per day open pit mining operation, and nickel prices at $5.48 per pound.16 In 2007, URSA entered serious negotiations with Sagamok to fulfill the MNDM’s requirement for consultation and accommodation with the First Nation. By then, Eshkakogan had been elected as chief. He recalled feeling “overmatched” in the negotiations because the community did “not have the capacity” to understand or evaluate the opportunity. The MNDM approved URSA’s plan for mine closure, and the company provided a $260,000 pledge to the MNDM as surety for the closure operation. That same year, URSA produced a 50,000 tonne bulk sample to evaluate the quality of the ore. The sample was shipped to the Falconbridge mill and smelter in the town of Falconbridge for processing. The revenue realized from the bulk sample in 2007 was $5 million. Nickel prices were at a peak then (see Exhibit 6). Accordingly, the feasibility study was updated, placing nickel at $9.37 per pound.17 The future of the mine looked very positive.18 Authorized for use only in the course BUSI 640 at University Canada West taught by Brent Ramsay from Jan 11, 2021 to Jul 09, 2021. Use outside these parameters is a copyright violation. All mining companies in the province would have been aware of these issues and how they shaped the context for dealing with First Nations. It was in that context that Sagamok dealt with and made agreements with several mining companies spotted over Sagamok land (see Exhibit 5). 9B18M035 Sales from a second 50,000 tonne bulk sample in 2008 realized $8 million against $7.2 million in expenses. The drop in nickel prices and the global economic slowdown forced URSA to stop the work plan. In spite of this stoppage, URSA signed an impact and benefit agreement (IBA) with Sagamok in August 2009—the first IBA signed by Sagamok. It had high hopes for training and employment. In addition to financial compensation, the community was looking forward to building capacity for environmental monitoring, making other skilled contributions to the project, and securing contracts for trucking and the provision of site services. The goal was to support a service company development within the Sagamok community in the areas of construction, mine operation, and closure.19 Operations at the mine resumed in May 2010, with a nickel grade averaging 0.68 per cent per sample. In its annual report, URSA acknowledged the deteriorating situation in terms of nickel prices and its milling contract with Xstrata plc (which had taken over Falconbridge): On May 27, 2010, the Company declared commercial production and URSA Major was in production for twenty months until January 27, 2012. On December 13, 2011, URSA Major announced that it had limited operations at the Shakespeare Property to crushing of existing broken ore, ore sampling and trucking operations as a consequence of reduced base metals prices. On February 3, 2012, URSA Major announced it had temporarily suspended operations at the Shakespeare Property following the expiration, on December 31, 2011, of the milling agreement in place with Xstrata and the Company was not able to conclude a new processing agreement.20 In early 2012, URSA suspended operations at the Shakespeare property, and in July, Prophecy Platinum Corp. (Prophecy) bought the company. In 2013, Prophecy declared, “The project [Shakespeare] is currently on care and maintenance with all permits in good standing.”21 In December 2013, Prophecy Platinum changed its name to Wellgreen Platinum to underline its focus on its Wellgreen property in Yukon. On May 8, 2014, Wellgreen issued a press release retracting the 2006 feasibility study for the Shakespeare project: Retraction of Shakespeare Feasibility Study and Mineral Reserves The Company has determined that the January 2006 feasibility study (“2006 Feasibility Study”) in respect of the Shakespeare project, and the information contained therein with respect to mineral reserve estimates, is no longer valid, and that investors should not rely on the viability of economic or production estimates based on the 2006 Feasibility Study because the operating and capital expenditures estimated therein are outdated and no longer reliable. Accordingly, the Company retracts the 2006 Feasibility Study and announces that the Shakespeare project does not currently contain any mineral reserves, as such term is defined for the purposes of NI 43-101.22 Just a few months later, in September 2014, Wellgreen announced the Shakespeare property was for sale, as it was no longer core to its operation. This announcement was a bit of subterfuge, as the likelihood of a buyer was zero; however, Wellgreen would not need to expend the funds for closure as long the property remained potentially viable. In its third quarter 2015 report, Wellgreen acknowledged it was committed to making an annual payment to Sagamok, “provided that the Shakespeare Mine and Mill Project is in production and at such time as URSA Major’s aggregate net project operating profits before taxes received from the Shakespeare Project are equal to or greater than its initial capital investment in the Shakespeare Project plus interest.”23 In other words, there would be no payments in the near future. Authorized for use only in the course BUSI 640 at University Canada West taught by Brent Ramsay from Jan 11, 2021 to Jul 09, 2021. Use outside these parameters is a copyright violation. Page 4 Page 5 9B18M035 Upon reflection, Eshkakogan was uncertain whether they should have entered into the agreement at all. He noted that this experience had underlined some important principles for the First Nation, including the need to employ consultants when necessary to augment Sagamok’s capacity to evaluate opportunities. This was considered to be a short-term measure while the community encouraged its youth and other underemployed members to seek the necessary education and training to participate in development and evaluation of future economic and environmental projects. KGHM AND THE VICTORIA MINE KGHM International Ltd. (KGHM) was a Canadian subsidiary of a Polish state-owned mining company. In December 2011, it made an offer to purchase, subject to shareholder agreement, Quadra FNX Mining Ltd. (Quadra), a mid-tier mining company with several projects underway.25 Quadra was, at the time, in the process of redeveloping the Victoria mine located on the traditional lands of both the Sagamok and Atikameksheng Anishnawbek First Nations. Nickel and copper had been mined on the Victoria property since their discovery in 1886. Missionaries had reported that Aboriginal Peoples in the 1600s had mined the minerals along the north shores of Lakes Huron and Superior,26 and in 1856, Alexander Murray of the Geological Survey of Canada discovered nickel-copper sulphide near the subsequently developed Creighton Mine.27 Logger and prospector Rinaldo McConnell began mining development in 1886,28 selling the McConnell Mine (later called Victoria Mine) to Dr. Ludwig Mond in 1899. Mining continued in the area until 1923 when the mine closed. Mond’s company became part of the International Nickel Company of Canada, Ltd. in 1929, placing the Victoria property under the control of what was renamed Inco Limited. The property lay dormant until Inco reopened it in the 1970s and put it back in care and maintenance. In 2002, FNX Mining Company Inc. (FNX) acquired the Victoria property along with four others, and began further exploration. In the initial years, FNX focused on exploration and production of the other four mines, but in 2009, the company increased exploration at Victoria, and in 2010, it announced a new find of nickel and copper south of the historic mine.29 In early 2010, FNX merged with Quadra Mining Ltd.,30 and the merged company was, in the end, subsequently taken over by KGHM. In January 2012, KGHM signed memoranda of understanding (MOU) with both Sagamok and Atikameksheng Anishnawbek First Nation, who had the next reserve east of Sagamok. The MOU were the first steps in negotiating IBAs. Eshkakogan described the negotiations with KGHM as interesting. He and the council were able to use the experience they had gained when negotiating with URSA and had the help of a consultant. The negotiations were with KGHM’s project supervisor. Sagamok was able to bid on contracts for site services, janitorial services, security, and rock haulage. Sagamok was co-operating with Cancom Security Inc., a security firm from Wikwemikong First Nation, on the security contract for the property. Subsequently, KGHM’s project supervisor was promoted to manage operations Canada-wide; there were also a number of other personnel changes. These changes affected Sagamok’s communications and Authorized for use only in the course BUSI 640 at University Canada West taught by Brent Ramsay from Jan 11, 2021 to Jul 09, 2021. Use outside these parameters is a copyright violation. Sagamok was not happy with the state of affairs, which included abandoned pits and sedimentation ponds less than 500 metres from Agnew Lake. Although a plan to close the site had been put in place with surety, there was no requirement to enact the plan because the site was not yet abandoned. In its third quarter 2015 financial statements, Wellgreen recognized the closure plan as a liability nearing $700,000; however, there was no indication when and if the liability would be realized.24 Page 6 9B18M035 Sagamok and KGHM signed an IBA in 2014. Once KGHM had finished its investigation, it was to file a mine closure plan and financial surety.31 There was some uncertainty with the agreement because of the nature of the company—which was owned by the Government of Poland, so its objectives could change with national elections—the market, and the scope of the project. Changes in plans and personnel also brought difficulties to the local operations. Although extra weight had been given to procuring from local suppliers and working with First Nations companies, the local purchasing agents did not seem to be following the agreement. The agreements seemed straightforward in negotiations, but actions taken by company employees were leading to consternation at Sagamok, and indicated some communication problems within the company. The company was uncertain of its own development path. In the first half of 2015, it had spent more than $25 million on exploration to develop an engineering study regarding mine development, shaft infrastructure, and electrical infrastructure. The company ...
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