Yukonomist: An outbreak of international cooperation

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In an era of growing politico-economic conflict, it’s welcome to see an outbreak of international cooperation: the Yukon-Skagway deal for a long-term upgrade to the port facilities that serve the Yukon’s mineral exports.

Even closer to home than Ukraine or Taiwan, the long-standing US-Canada relationship has been a bit wobbly of late. There have been spats over US tariffs on Canadian steel and aluminum, Canadian regulation of big American tech companies and the Biden Administration’s new Buy America policies on things from bridges to electric-vehicle battery production.

So it is good news that leaders on both sides of the Chilkoot Pass could come up with a mutually satisfactory deal that will have decades of benefits.

At its March 2 meeting, the Skagway Borough Assembly voted 5-1 to approve the broad terms of the deal (in an innovative display of digital democracy, you can listen to the entire debate on the Borough’s podcast feed on Apple Podcasts).

According to coverage by the Yukon News and KHNS, the National Public Radio affiliate in Skagway and Haines, the Yukon government will make a contribution of US$17.65 million (about $24 million in Yukon money) to the construction of a new combination cruise-and-mining ship terminal. Skagway will own the facility while giving a 25 per cent discount on fees to mining companies approved by the borough and the Yukon government. There will also be two acres of land for ore container storage. The deal will last 35 years, with a review after 15.

The deal could easily have been derailed by petty politicking on either side of the border. Some might ask why the Yukon government should spend its federal transfer payment dollars building infrastructure in Alaska. Skagwegians might have preferred to stick to the cruise business after remembering the dangerous levels of lead contamination left over from the decades of uncovered Yukon lead-zinc trucks that rolled through town. One of the options for Skagway was to replace the rickety old dock with a new facility just serving the Alaska ferry and cruise ships.

But there are good reasons for the deal.

Perhaps the biggest relates to the joint US-Canada effort with our allies to improve the security of supply for critical minerals. This relates to geopolitical competition with China and Russia, as well as our future needs for huge amounts of copper and other minerals needed for the climate transition. It would make no sense at all for democratic countries to launch critical mineral strategies while the Yukon, an area the size of France with excellent geology, loses port access to the markets.

For Skagway, the deal hedges the town’s exposure to the cruise ship industry and will create a few jobs. Minerals will no longer roll through town in open trucks, nor will the lead and zinc dust be hosed off the trucks beside a drain that pours directly into Skagway harbour.

Those annoyed by the US$17.65 million bill for the new dock might want to consider that, if there was justice in cosmos, we might actually have to pay for more of the clean up of the Yukon lead dust that environmental teams documented along the highway and Skagway’s streets.

For the Yukon, the deal solves a major problem. Without industrial port access in Skagway, the Yukon mining industry is left with some unpalatable options.

One would be to ignore copper, lead and zinc and just focus on metals with a high value-to-weight ratio. This would be things like gold, palladium, rhodium and platinum. Rhodium, for example, trades at around US$8,000 per ounce. Transport costs don’t really matter. However, while the Yukon has plenty of gold, it doesn’t currently produce much of these other metals. Writing off copper, lead and large parts of the periodic table would be highly limiting.

Another strategy would be to export via Prince Rupert. However, that port is much farther from Minto mine than Skagway. Giving Minto’s drivers an extra 1,200 kilometres of Alaska Highway and Stewart-Cassiar scenery to admire would crush the business case.

There are promoters out there reviving the 1970s dream of a standard-gauge railway from Alaska through the Yukon to British Columbia. Even if the business case for such a project did work, no one has yet stumped up the $20-30 billion probably required or started the approvals process. Such a scheme is a distant and uncertain prospect that no mining investor could rely upon.

Building another mining terminal on the Haines side of the Lynn Canal is also a possibility. However, a recent fact-finding mission by Yukonomist to the Fogcutter tavern in Haines did not reveal widespread enthusiasm to welcome Yukon mining trucks to a new facility. According to the Skagway News, the Haines Chamber of Commerce and the Alaska Industrial Development and Export Authority have held discussions about redeveloping the Lutak Dock to include ore facilities. However, environmentalists in town are fiercely opposed.

Plus, Haines is a longer drive for most Yukon mining properties than Skagway.

All of this would have been easier if Canadian fantasies of getting ownership of Skagway back in 1898 had happened. For this we can blame the negotiators of the famously vaguely worded 1825 Russo-British Treaty of Saint Petersburg, and Tsar Alexander II for selling Alaska to the Americans instead of to us.

Nonetheless, Yukoners and Alaskans share an important mineral supply chain and need to collaborate as Skagway and the Yukon have been doing.

In fact, we should quietly be thankful that Skagway only charged us US$17.65 million. As owners of the best port option, they had a strong bargaining position. Of course, they may still exploit that position. It will be interesting to see what the terminal fees turn out to be. As shoppers at some retail outlets will know, a 25 per cent discount on a very large number still leaves a very large number.

The final details of the deal will be hammered out over the coming months. Subscribe to the Skagway Borough podcast to hear live discussion of the details.

Keith Halliday is a Yukon economist, author of the Aurore of the Yukon youth adventure novels and co-host of the Klondike Gold Rush History podcast. He won the 2022 Canadian Community Newspaper Award for Outstanding Columnist.

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