The Real Muskrat Falls - Part 2

In this, a record winning year for Canadian Olympians, I think the motto of the Olympic movement says it best, “Citius, Altius, Fortius” – “Faster, Higher, Stronger”. Premier Danny Williams, St. John's Board of Trade, Wednesday, September 8, 2010.

The ending of Williams speech says it best - Altius.


Altius is an exploration corporation based in St. John's, Newfoundland. It has for years staked claims in various areas throughout the province. Its primary business plan is to identify potential mineral deposits, stake claims to them, build small exploration companies to represent the individual claims and then sell them for shares in any company interested in taking over these claims. It generally takes those newly acquired shares and essentially builds its net worth as a corporation on their value. Often it will then liquidate these shares for cash. One practice it always maintains is keeping an ongoing royalty in the projects it sells. It may be a gross sales fee, a net smelter return, or both - as was the case with its Aurora project.

Altius was co-founded by Brian Dalton and Roland Butler, Jr and in October 1997 it went public. Roland Butler, Jr has since left the company to serve as a director of Millrock Resources Inc which hopes to emulate Altius' success as a company  focused on generating metallic mineral projects for joint venture exploration and development. Its Board of Directors is an interesting group covering both the Liberal and Conservative political spectrum. Of particular interest is the involvement of John A. Baker, QC. Mr Baker looks to be the sole surviving founder of the law firm Ottenhiemer and Baker in St. John's. It calls itself : "the largest independent law firm in Newfoundland and Labrador."

Ottenhiemer and Baker was run by both the late Senator Gerry Ottenhiemer (PC), who passed away in the late 1990's  and John Baker - from the Liberal Baker family. Other prominent members of the Ottenhiemer family include John Ottenhiemer who received his QC while he was a sitting Minister in Danny Williams government in 2004 (and would go on to become Chair of Nalcor in 2007), and Ed Byrne who would be named Danny Williams first Minister of Natural Resources (and held it until charged with influence peddling in 2006).

Ottenhiemer and Baker was in fact covered by the publication Canadian Lawyer http://tinyurl.com/7wq7ob9 . Canadian Lawyer actually brought out some interesting points on the firm during their coverage. Most notably: "Key Clients: Bank of Montreal; Government of Newfoundland and Labrador (Department of Natural Resources); Altius Minerals..."
Ordinarily this would not raise many eyebrows. However, consider that Altius directors Fred Mifflin (Liberal) and Jamie Strauss both had affiliations with the Bank of Montreal. Then there is Brian Dalton and the presidency of Altius.

The big one though has to be Mr. Baker himself. Consider for a moment that Mr. Baker's law firm of Ottenhiemer and Baker represents the Department of  Natural Resources, Newfoundland and Labrador and he is also a director of Altius. Consider that Altius has been directly involved with the Department of Natural Resources, over many years, on projects ranging from Alderon's Kami project to the Royalty Trust proposal for the financing of the Lower Churchill.

Take the Newfoundland and Labrador Refining Corporation for starters. It was a project started by Altius to create a refinery near the existing Come-By-Chance refinery in Eastern Newfoundland. Altius held a 39.6% controlling interest in it and Brian Dalton was the managing director. On February 8, 2006 the NL Refining Corporation announced it was starting a feasibility study on the project. That same day somebody else had this to say:

"We know there is tremendous potential to expand and develop many areas of our resource industries, including the oil and gas sector. Worldwide, oil refining capacity needs expansion, and Newfoundland and Labrador is a prime location for a new refinery. With our province's oil and gas expertise and growing industry, expanding our oil refining capabilities will further enhance and strengthen the sector."
- Premier Danny Williams, Feb. 8, 2006

The refinery project received the environmental green light from then Environment Minister Clyde Jackman on October 5, 2007 http://www.releases.gov.nl.ca/releases/2007/env/1005n02.htm  - during the 2007 provincial election period. On November 27, 2007 Altius issued a press release announcing  participation in the project by SNC Lavelin and Japan's IJK consortium. http://nlrefining.com/files/pr_1196877398.pdf  SNC Lavelin had been working on the project with Altius since 2006.

One year later, on October 6, 2008 SNC Lavelin announced it was suing the Newfoundland and Labrador Refining Corporation (NLRC), and Altius Minerals (including its directors) for $20.6 million dollars it claimed was owed to it for work completed on the project thus far.  The SNC Lavelin suit claims that by October 2007, three European investors — including Scottish billionaire Harry Dobson — "had decided to no longer fund their proportionate share" of the refinery's expenses, unknown to the engineering firm. In fact, SNC Lavelin had applied to place the refining corporation in bankruptcy in June, 2008. SNC claimed in court that Altius had "deceived" them. SNC failed to have NLRC placed into bankruptcy with the Supreme Court granting a stay of proceedings, which gave NLRC time to find a buyer/new investors or liquidate assets to pay their creditors. That stay ended in November, 2011. In March, 2010 Dalton and company sued to be excused from personal responsibility in the $20.6 million lawsuit. On March 24, 2011 Nalcor announced that SNC Lavelin was awarded the engineering, construction and procurement management for components of the Lower Churchill development.

During the same period of time Altius, at the open request of the provincial government, submitted a proposal for a Royalty Trust to fund the construction of the Lower Churchill. Although the details of that agreement have been kept relatively confidential, some aspects of it have been admitted to. For instance, as is part of their way of doing business, Altius intends on charging an ongoing royalty on gross power sales from the dam for as long as it operates. Judging from previous projects Altius has been involved in that royalty could range from 2 - 3 %.

In a 2005 interview Danny Williams gave some interesting statements:
"As well, from the original 25 submissions, we have also chosen an additional three proposals as potential financing options," Williams said.

"These three financing options will also move into the next phase of assessment as we continue to explore the best option for developing this resource," Williams said in noting "all six proponents have accepted our invitation to move into phase two."

Of the three financing options, two are potential equity investors.

Once the development concept is further defined, the province will be considering equity participation including: Cheung Kong Infrastructure Holdings Limited and Borealis Infrastructure Management Inc.

Finally, an innovative financing option in the form of a royalty trust has been proposed by Altius Minerals Corporation, which will be explored later in the process, Williams said.

The one financing option without an equity participation was Altius'. Their proposal amounts to an ongoing royalty for arranging financing of the project. Of course Altius could not arrange that kind of financing itself, but that story comes later.

Brian Dalton had this to say about the proposal in 2007:
"We're pretty happy to be there," said Brian Dalton, president of Altius. "I think we can provide a really competitive source of financing here and also a financing source that's based here. We think we've got a reasonable shot." Dalton said royalties are a common method of financing mineral projects. "We've proposed to create a royalty trust that would acquire a royalty interest in the project in exchange for financing. So, we wouldn't look for an actual ownership interest in the project, nor would the province or whomever have to take on additional debt. It's just a third option in the financing world."

In a Special Situations Report, Hayward Securities Inc had the following to say about Altius' plan to fund the Lower Churchill: "In August, 2005, the government announced that three firms had made the shortlist for financing alternatives from the twenty-five expressions of interest entered for the development and financing options. Among the three was a proposal by Altius to buy a $200 million plus gross royalty stake and to create a trust entity that would be structured to offer high benefits to Newfoundland and Labrador based investors, including Altius.

In May, 2006, Premier Danny Williams announced that Newfoundland and Labrador would lead development of the site. He stated that having an external partner join the province would result in "less-than-acceptable" benefits to the province. Given Altius' position as a Newfoundland-based firm with deep local roots and an intriguing financing proposal, we believe this decision is positive for the company. We believe this royalty would provide significant upside to the company's long-term performance. There is no better stream than that from hydro, as cash flows may be generated until the next ice age!"

Now you have an idea where the money will be going locally, and who is involved at that level. Next will be the Labrador/Toronto/China tie in.

The Real Muskrat Falls I

"If ye love wealth greater than liberty, the tranquility of servitude greater than the animating contest for freedom, go home from us in peace. We seek not your counsel, nor your arms. Crouch down and lick the hand that feeds you; and may posterity forget that ye were our countrymen."
Samuel Adams

The real story of Muskrat Falls is not the romantic, nationalistic ballad that the government of Newfoundland and Labrador portays it as. It is not a noble effort to enhance the environment. It is not an attempt to join Newfoundland and Labrador to the North American electrical grid. It is not a project to replace the foul airs of Holyrood. It most definately is not a project to rid us of the territorial stranglehold Quebec imposes. Indeed, it is not even a project to make us "masters of our own house".

It is a project to facilitate the creation of wealth in Labrador, and to profit those ambitious enough to be in the right place for the opportunity. It is a story of far flung claims stretched around Labrador, and in some cases the island of Newfoundland. It is a story of boardrooms large and small. It is a story of corporate battles, and international markets. It is a story of wealthy families and favoured friends. It is all of these things, yet it is sold as none of them.

Although ambitions for the Lower Churchill date back decades it started taking a decidedly interesting turn in 2002 when then Premier Grimes proposed to develop the Gull Island and Muskrat Falls hydro dams in partnership with Hydro Quebec. Then President of Newfoundland and Labrador Hydro Dean MacDonald, a Liberal, resigned in protest days before the agreement was announced. MacDonald, a former bagman for Brian Tobin, believed the deal was not in the province's interest - or so he said. MacDonald's history to that point in time included responsibilities at Roger's Communications, and a business partnership with Danny Williams in Cable Atlantic with an ownership of 4.5%. With Danny Williams, then leader of the PC Party and Leader of the Official Opposition in the House of Assembly, cheering on the sidelines Dean MacDonald effictively killed the Hydro Quebec deal - despite the fact that it had the backing of the majority of the Board of Directors.

During this time a small exploration company named Altius was busy securing a 3% net smelter return royalty, as part of a limited partnership, over the Voisey's Bay nickel-copper-cobalt project in Labrador that is owned and operated by Vale INCO NL. Altius was also involved in the Central Mineral Belt project in 2003 which later would result in Aurora Energy. More on that later.

Significantly, 2003 saw the election of Danny Williams as Premier of the province. A monumental event in more ways than one. It was also in that year that Dean MacDonald was approached by institutional investors to join them in the purchase of Persona Communications. In September, 2004 Danny Williams announced the birth of the Nalcor concept and appointed Dean MacDonald as Chair of  Newfoundland and Labrador Hydro. Significantly, he also replaced two other directors with Ken Marshall and Craig Tucker. Significant because Ken Marshall worked with Williams at Atlantic Cable, and had a minority interest in that company. Also, Craig Tucker who was a vice-president at M5 Marketing Communications and its group of companies - the parent company of the polling firm that conducted weekly unsolicited polling during the 2011 provincial election. Interestingly, both Dean MacDonald and Ken Marshall were listed as directors of companies held in blind trust created when Williams took office as Premier.

2003 also saw several other key appointments. First up was Ed Byrne. Byrne, the son-in-law of the late Senator Gerry Ottenhiemer, stepped aside as PC Party leader in 2001 to allow Danny Williams to assume the leadership. He was appointed as Williams first Minister of Natural Resources and placed in charge of overseeing the development of Muskrat Falls. Another member of the Ottenhiemer family, Senator Gerry Ottenhiemer's half brother John Ottenhiemer, was appointed as Minister of Education. His role as Chair of Nalcor doesn't evolve until 2007 - although he does become Minister of Natural resources for a period in between.

In the same press release of 2004 http://tinyurl.com/7cmdbjw , in which Williams announced his appointments to NL Hydro's Board of Directors, he let his intentions on the Lower Churchill project be known:

"Premier Williams stated his government’s priority for the immediate future is to advance the development of the Lower Churchill and he has full confidence in Mr. MacDonald’s ability to assist government in reaching its objectives on this major development."

Shortly afterward Newfoundland and Labrador Hydro issued a public call for Expressions of Interest (EOI) in developing the Lower Churchill.

“We are open to considering all proposal concepts, including the use of power in Labrador, on the Island, for export or some combination of these options in terms of achieving maximum economic and employment benefits for this province,” Williams said.

The subsequent submissions were narrowed to three, with only one being a Newfoundland based plan - that of Altius http://tinyurl.com/3xs9cf