I propose to take Questions Nos. 20 and 25 together.
The sequence of events which gave rise to the collapse of the arrangements for the take-over of Bula Ltd. by Tara Mines Ltd. was as follows. On 11 September 1985 Bula Holdings, the principal private shareholder in Bula Ltd., rejected the Tara offer and on 26 September Bula Holdings demanded further substantial consideration for their shareholding and for certain substantial advances they had made to Bula Ltd. On 4 October Tara Mines Ltd. rejected the further Bula demands and withdrew their offer entirely but my Department had good reason to understand that the Tara withdrawal was a tactical move and that the offer would be reinstated if Bula Holdings decided to accept it. On 8 October a receiver was appointed over Bula Ltd. and on 9 October Bula Holdings accepted the Tara offer.
After a series of Tara board meetings, the board decided not to reinstate the offer, stating that the board did not believe that it would be in the best interests of Tara Mines Ltd. to do so. In a press statement issued by the board, it was stated that Tara had suffered a significant deterioration in their trading position due to a fall in the price of zinc and a less favourable dollar-punt relationship and that the company were incurring heavy losses on their operations.
In the context of these trading changes I would like to point out these were not overnight happenings but had been gradually developing over the period of the negotiations during the past year. Nevertheless Tara had not only stayed with the negotiations but they had in fact improved their offer on 16 August, they had expressed satisfaction at the settlement of all outstanding issues on 23 August and they had been in correspondence with my Department about aspects of the contract documentation up to the end of September. I was greatly surprised and disappointed therefore at the totally unexpected about-turn in Tara's attitude very shortly after. I would also remark that whilst undoubtedly there has been a significant downturn in Tara's trading position, cyclical ups and downs have always been a feature of trade in lead and zinc and it is not the practice for lead and zinc mining interests to take investment decisions on the basis of prevailing market conditions. It would have been more appropriate to base a decision in this case on expectations of future trading conditions in the circumstances that if the takeover had gone ahead Bula ore would not have come on stream for about two years after conclusion of the deal. It is noteworthy in this regard that it was stated in the Tara Exploration and Development Company Ltd., 1984 Annual Report that, whilst prospects were that zinc metal prices would decline in the short term, the company anticipated that with increased zinc demand, metal prices will increase.
In summary, collapse of the deal was due in the first instance to the new demands put forward on 27 September by Bula Holdings which were greatly in excess of terms which that company had accepted in principle in December 1984 and, secondly, it was due to the fact that Tara most unexpectedly pulled out of a deal finally agreed in the terms they had offered and to which they were fully committed up to a very short time before they retracted it.
I most strongly reject the suggestion of disastrous handling of the negotiations by my Department who had acted as intermediary between the companies in the deal at the request of Tara Mines Ltd. The Minister for Energy, myself and officials of my Department had spent long hours over the past ten months in the task and had eventually brought the deal to a point that there were agreed terms for a settlement. I continue to be of the view that the national interest, the interests of the people in the Navan area and the longer-term interests of Tara Mines Ltd., would best have been served by integrated development of the Tara and Bula portions of the Navan orebody.
The development of the Bula ore reserves depends at this juncture on action by the receiver over the company in regard to the company's assets. In the meantime certain contracts involving the possibility of development of the ore reserves by other interests will be pursued. At this stage it would not be appropriate for me to furnish details on these contacts or to anticipate what the outcome will be. Any arrangements which may emerge would be subject to the receiver's approval, of course.
Loans totalling almost £900,000 were advanced by the Department to Bula Ltd. at certain stages to avert action by the banks when serious negotiations were in progress that held out the prospect of development of the Bula orebody.
The payment of royalty to the State by Tara Mines Ltd. is based in the first instance on a calculation of the company's profits by the Revenue Commissioners. The profit of the company for tax purposes have not yet been settled by the Revenue Commissioners who are in correspondence with the company on a number of outstanding issues. Apart from those issues a number of complex questions relating to the calculation of profits for royalty purposes are being actively addressed, but it may be some time before they are resolved as arbitration proceedings may prove necessary. I can assure the Deputy that the State's rights in the matter will be fully enforced. No basic changes in mining policies relating to royalties are contemplated but, depending on the legal advices my Department receive and the outcome of discussions with Tara on the points at issue, which may not be resolved without arbitration hearings, some clearer definition as to the calculation of profits for royalty purposes my be called for in the future mining leases.
From time to time there are calls for the levying of royalties on a per ton of ore raised basis rather than on profits. Such a basis could have a seriously damaging impact on a company such as Tara in their early years of operation when capital expenditures were very high and when the company were in a substantial loss situation; the royalty would be an "off the top" cut off cashflow, irrespective of the company's ability to pay. A further drawback of a tonnage royalty is that it would be too low in boom years when a percentage of profits basis would yield a better return to the State. It has been the practice in the case of large mining undertakings in this country, and elsewhere to the best of my knowledge, to levy royalty as a percentage of profits.
