EDITORIAL PAGE (June 01, 1992)

When Royal Oak Mines swung the deal to buy the Hope Brook gold mine in Newfoundland from BP Canada, it was good news for the companies, for the province and for the people who work at the mine.

But, like any deal, those involved had to hold their breath while waiting to see if the transaction would actually go through. And, because this involved government assistance, the waiting could have gone on for a long time.

As it happened, the Hope Brook purchase went through smoothly and relatively quickly. But what looks like a great collaboration can be a curse months or even years down the road. When governments get involved, the standard for measuring success ultimately becomes political.

The Westray coal mine is one recent, tragic example. Government involvement finally got the project on track, and the benefits to Nova Scotia were welcomed almost unanimously. When an explosion trapped 26 miners underground, however, the issues of safety standards and regulatory compliance took second place to political manoeuvering.

So Royal Oak’s announcement that the Hope Brook purchase was made possible with a $20-million financial assistance package raises serious concerns. An operating Hope Brook mine is welcome news for Newfoundland, but if the deal goes sour, it will be impossible to separate the mine’s technical merits from the political motivation that revived it. Besides, the financing package Royal Oak put together is far from being a model for believers in a free market system.

Government assistance is always a mixed blessing at best. In the Hope Brook case it was seen as a little piece that allowed a much bigger puzzle to be completed.

The $20-million package, it seems, is just too great a temptation to resist. Companies, however, should know better than to believe that a project can be made viable with a little nudge from public funds. There may be occasions where the partnership works, and Hope Brook may prove to be one of them. But the number of deals that have gone sour are so much more numerous — Bricklin, the Sprung Greenhouse fiasco, Sydney Steel, Come By Chance and countless others. The lesson would seem to be plain: Avoid government assistance like the plague.

And governments should have learned that by helping make a deal work, they skew the numbers so that a true judgment on its financial merits is difficult to attain.

The Hope Brook package of government assistance seems innocuous. There’s a $6-million “grant,” fully repayable only if gold goes over US$425. There’s a break on provincial sales tax payments and a grant to cover on-site medical services.

What is most worrisome, however, is the use of funds from the federal-provincial mineral development agreement (MDA) program to “assist in infrastructure modifications.”

The MDA money is not really being diverted to finance things it wasn’t meant to fund. Most of the Hope Brook money was already earmarked for projects at the mine and the “infrastructure modifications” — read airstrip — were contemplated in the original 5-year agreement.

Still, one can’t help but feel the spirit of the MDAs has been violated. They were set up, as the name suggests, to help develop mineral resources in general, not to help public companies pick up properties at bargain prices. They weren’t meant to facilitate the sale of assets between two companies. Royal Oak is going to need all the help it can to make the Hope Brook mine pay, but using MDAs to make a deal between two companies is a bad precedent that we hope won’t be repeated.