asked the Minister for Energy if any bid has been received for the State's shareholding in Tara Mines; if any discussions have been held with interested parties regarding a sale of the State's shareholding; if the Government's decision to accept a suitable bid for the shares indicates a change in national policy in relation to public shareholding in strategically important mining companies; and if he will make a statement on the matter.
Ceisteanna—Questions. Oral Answers. - Tara Mines.
14.
As the Deputy is aware I announced details yesterday of an agreement for the sale of the State shareholding and royalty in Tara Mines Ltd. The Government decided to proceed with this transaction following careful consideration of the various factors involved including the question of the value to the State of a minority shareholding in the company.
The Minister is probably aware that this question was down for some time before the Minister made a decision. Is he aware that for six years now, since 1983, every six months I have questioned every Minister for Energy in regard to the payment of royalties and tax by this company who have not paid, as the Minister said yesterday, a brass farthing? Does the Minister agree that the agreement he has announced is equivalent to total capitulation to this company? They have taken up £608 million and the Minister has capitulated to them by selling them 25 per cent of the company. In view of the rising price of non-ferrous metals, including zinc, for quite some time — in recent months very sharply rising prices — does the Minister agree that the State's shareholding he has sold for less than its market value, will be increasing in the next few months?
I assure the Deputy there was absolutely no capitulation to anybody in relation to these negotiations. I informed this House and Deputy Mac Giolla that, should I get a satisfactory offer for the Tara shareholding, I would be prepared to sell, and we negotiated on the basis of ensuring that the consideration in the final analysis would put into the hands of the State at this time funds which would exceed the dividend and royalty which would be possible over the lifetime of the mine and any historic royalties which were due up to this time. It was on that basis I set out to negotiate to ensure that we had in hand at the end of the negotiations a sum of money not equivalent to but greater than the anticipated forecast dividend and royalty over the lifetime of the mine. The significant difference between the two is, as the Deputy rightly says, in the historical context.Up to now there was clearly no certainty on the basis of experience as to what the future would give by way of dividend and royalty. I clearly took that matter into consideration and, using the best available international forecasting agencies on the likely price of ore over future years, on the likely exchange rate between the dollar and the pound and on all the other considerations in relation to the restricted shareholding I had, I am satisfied that I have achieved at this juncture, with money in hands for the State, a very significant breakthrough. Also I have, as I said, ended the barren period which the Deputy referred to, during which no royalties whatsoever were paid on this mine to the State.
(Interruptions).
Would the Minister inform the House in regard to the overall products of the amount of royalties forthcoming and the actual amount he will receive for the 25 per cent stake? Has he an assurance from the company that part of this amount of finance that will be paid to the State from the Finnish company will not arise out of further redundancies or a reduction in the numbers of people employed?
The Deputy will be aware that I have no control over employment patterns in a privately controlled company such as Outokumpu. The Deputy will have to accept that the job losses in Tara to which he referred took place during a time——
I am talking about the future.
Let me conclude. These job losses took place during a time when we had a 25 per cent shareholding in the company. In the context of these negotiations and on the best information available to me, there are no proposals for a reduction in the workforce. The company are a highly competent, professional developing organisation and have introduced a lot of new technology. As far as I can see, the future for the workforce in Navan is quite secure. When we had a 25 per cent shareholding there were job losses and the Deputy will have to realise that I cannot control these patterns in privately controlled companies.
Perhaps the Minister could clarify something which was not explicit in yesterday's announcement. Is the figure of US$50 million converted to IR£35 million the total and absolute settlement for historic royalties not paid in the past and the waiving of any royalties to which we might be entitled in the future?
Yes.
So this is it. Tara with all its richness is worth just £35 million to the Irish people and the Minister does not think he has capitulated.
No, and I will explain the position to the House. In 1986 Outokumpu purchased 75 per cent of this shareholding in Tara. At that time they paid $80 million using the US GNP inflation rate, that would be equivalent to $113 million today. If we were to do a straightforward mathematical calculation on the value of the 25 per cent shareholding which I had, though slightly diluted in 1982——
We all had it.
——we would come to a value of $28.5 million.
Assuming no change in zinc prices.
Right. In 1986, Cominco, Noranda and Chartered Consolidated were multi-national companies reading the future in regard to zinc prices. That was the best price that those multi-national companies with international experience, one of which will be controlling one of the biggest refining and smelting processes in the world, were prepared to accept, using the criteria we were talking about. I have beaten that price by 50 per cent. I acknowledge that zinc prices have gone up and were at an all-time high last February, though they have dropped by 20 per cent in the past two months. If I wanted to achieve the maximum input of finance for the State I was right to go at the time when zinc prices were high. I will counterbalance this is one other way. I achieved that price with a minority shareholding, which could not be compared to a 75 per cent shareholding with the restrictions that were there from 1975 and the dilution which took place in March 1982. If we use the developments which took place in 1986, update the price paid then and take into account that the negotiators were internationally experienced competent people in the world of mining, we must take cognisance of what they accepted and compare that to what has been achieved in this instance. We must take into account the use for which the money is being provided. We have had an exceptionally good deal. I am disposing of a minor shareholding in a dormant asset in a privately controlled company——
State company.
——and transferring it into a public utility of national strategic importance.
A number of Deputies are offering. A supplementary from Deputy Quinn. I will seek to call the other Deputies if they will be brief.
We should not confuse the purposes for which the Minister wishes to spend the money with the value of the money which he has obtained. Let us not follow that red herring. Can the Minister not accept that his forfeiture of any future royalties is inexplicable? Can he indicate why he has written off on behalf of future generations and future Ministers for Energy that possible opportunity?
I have explained already and I will try to do so in a different way. The consideration which the Deputy has in mind seems to ignore a fundamental feature of our experience in this relationship to date. In 1986 an application was made for a royalty which, to the best of my recollection, was something like $4.8 million. This was considered to be the royalty entitlement up to that time. Negotiations have gone on since then and it has not been possible to complete this matter, so that up to the current time we have not been able, with the lifetime of the mine nearly half-way through and with an exported ore in value terms of something like £600 million, to obtain a single penny through royalties. Looking at the system in the shareholding and the agreement, one could not be sure as to what the future would hold in relation to this matter. Ore prices are high at present, though dropping. The cyclical nature of ore prices results in high peaks and some very protracted periods of low prices. There is a new dimension in the context of refining facilities which will be operational in Alaska next year and are expected to depress prices further. Taking all these considerations into account I do not understand why the Deputy can assume a dividend and a royalty of such a substantial nature that it would be better than the deal I have achieved. It must be borne in mind that starting from now I have a time value alone of $3.5 million a year by virtue of the fact that I have this money on hand now.
The Minister has not got it all.
The deferred payments have a market rate of interest compounded from day one until they are finally paid. I do not think the Deputy can stretch his imagination, based on experience up to now in relation to royalties and looking to the future, to decide that this country would be certain to obtain through that mechanism the kind of funds which I have put at the taxpayers' disposal and into the refinery today.
Is it not the case that when Outokumpu bought their share in this mine it was sustaining losses while it is now making significant profits? Is it not also the case that this bears no comparison with the figures now since the Minister is giving away royalties on top of the shares? The two figures cannot be compared. Is it not the case that only up to 1984 royalties of £5 million were sought? Royalties of at least another £5 million are due up to 1989 and with two-thirds of the mine left we could expect another £20 million in royalties from the remaining life of the mine. In view of that, would the Minister not accept that, as the Irish Stock Market now values a similar company two-thirds the size of his share in this mine at £40 million, they would value his share at £60 million and not the £35 million he obtained?
I think the Deputy is incorrect in relation to 1986. As far as I recall between 1982 and 1985 the mine, mainly because of a strengthening dollar, was in profit.
The Minister's press release states——
Let us hear the Minister.
There is no way you can compare the price of a 75 per cent shareholding with what I had — a minority shareholding in the company — and relate that to what is happening on the stock market, where people spend money on shares in a particular company in the expectation of a bonanza, or that they are going to make a lot of money. People do that in these instances, but I am dealing with a cold situation——
The Minister is selling it on the market.
——I know what I am doing. I have been able to calculate what dividends and royalties would be due to the State over the next 20 years of the lifetime of the mine. I was not prepared to accept at this stage an equivalent sum for these royalties. I sought more than that, and that is what I have achieved.
We have dwelt on this question at some length. I am calling Deputy Pat O'Malley for a brief question and a final question from Deputy Tomás Mac Giolla.
Arising from what the Minister has just said, the lease agreement at present requires that royalties would be paid only after a certain level of after tax profits has been obtained. Given that the State has received nothing during the lifetime of this mine up until the announcement was made yesterday, would the Minister not consider that the best way to ensure the Irish people benefit from mineral resources which are being extracted would be to have a production royalty system in place whereby every time something is extracted from the mine a royalty of some kind is paid on foot of that? Would the Minister assure the House that he would put that kind of system in place for any future mining leases he grants?
In answer to a previous question I indicated that the Government are quite happy with the system in place at present but if it was necessary to review that in the light of developments in the future, I would be quite anxious to ensure that changes are made. Let us acknowledge that we want to see exploration and mining taking place. In some instances it is quite a high risk business where very considerable finance has to be expended before there can be any return for the investment. We need to develop these resources and to create employment. We have to get a balance between the incentives which are there for that development to take place in the first instance and the final take to the State.
In relation to the final part of the question, by disposing of the royalty element in the context of these negotiations for the future, the tax take from the company, including Outokumpu or any future company arising from a similar arrangement, will be all the greater.
I wish to make a few points. I want to ask the Minister if the sale of this share, for whatever price, is an indication of a dramatic change in policy by Fianna Fáil. With the Galmoy discovery coming onstream, possibly as big as Tara, does this indicate that the Minister has forgotton completely and forever about the question of building a smelter to process our own ore? Finally, is this sale an indication to Fianna Fáil's friends in Galmoy that there will be no State interference in that area and that they can take the whole lot for themselves?
This decision and this sale have no ideological undertones. It is a stand-alone arrangement. It is the sale of a minority restricted shareholding, which was perhaps badly constructed in the beginning and diluted on 5 March 1982, in a privately controlled company, being used in a publicly owned strategic facility. that is the direct opposite to what the Deputy claims the Government are doing. The Government are being accused of privatisation by transferring funds from a privately controlled company into a publicly owned national strategic facility. That could not possibly, by any stretch of imagination, be a direction in which you could go.
What about the smelter?
We have considered the question of a smelter for this country for a very long time. The IDA and various Government Ministers have considered the capital intensive cost of building a smelter. Might I remind the Deputy that the very low employment content and the huge environmental considerations attached to it——
The manufacturing capacity arising from it.
——have, up to now, led us to the view that unless somebody out there is prepared to make that investment, it will not be made because there are no resources available for the taxpayer to do so. I would also remind the Deputy that the knowledge about the ore body in Navan is known to all the people in that business in Europe and no international proposal has been made. Finally, the facilities for smelting in the world as a whole, as the Deputy probably realises, far exceed the demands on that capacity at present.
We have the ore.
On all these bases it is not a runner.