1.0 OVERVIEW OF CANADA S MINERALS INDUSTRY

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1 Positioning for Future Growth A Brief to the 66 th Mines Ministers Conference, St. John s Submitted by the Canadian Mineral Industry Federation, August 2009 The Mining Association of Canada (MAC), the Prospectors and Developers Association of Canada (PDAC) and the fifteen other mining-related associations that are members of the Canadian Mineral Industry Federation (CMIF) appreciate this opportunity to provide federal, provincial and territorial Mines Ministers with views and recommendations regarding policy issues of importance to our industry. The CMIF members represent the majority of companies engaged in mineral exploration, mining, and processing accounting for most of Canada s production of base and precious metals, uranium, diamonds, metallurgical coal, mined oil sands and industrial minerals. 1.0 OVERVIEW OF CANADA S MINERALS INDUSTRY The Canadian Economy One year ago, the CMIF submission to ministers spoke of high oil and commodity prices, record capital investment and exploration levels, and quarter-century lows in the national unemployment rate. As ministers know well, things have changed in the past year, both in the Canadian and global economy and within the mining industry. Economic growth came to a halt in the late months of 2008 as the effects of high debt and ineffective regulation in the United States, among other variables, served to trigger a global recession. Mineral prices fell in most commodities in response to declining global demand. In Canada, operations in some 32 mines were closed/suspended over a half-year period and companies are operating at only 66% of full capacity in non-metallic minerals and 71% in fabricated metals. Dramatic effects are also being seen in exploration, where companies share prices and ability to raise money for grassroots programs have been sharply curtailed. The IMF forecasts Canadian GDP to decline by 1.2% in 2009 while globally the World Bank recently reduced its 2009 growth forecast to minus 3%. Economic Impact of the Canadian Mining Industry The mining industry contributed $40 billion to Canada s GDP in 2008, employing 351,000 workers in mineral extraction, smelting, fabrication and manufacturing. While the industry is important in remote communities, it also generates prosperity in our larger cities. Toronto is the world s leading city for mining equity finance and Vancouver is home to the leading cluster of exploration companies. Montreal houses important aluminum and iron ore companies while Edmonton and Calgary have become global centres for oil sands expertise and Saskatoon for uranium and potash. It is estimated that 3140 suppliers provide equipment, consumables and expertise to the industry, including hundreds of manufacturing, engineering, geotechnical, environmental and financial firms. 1

2 The mining industry is an important contributor to government coffers. According to a recent study by ENTRANS Consultants, the industry paid a record-high $11.5 billion in taxes and royalties to F/P/T governments in Oil sands mining operations contribute an estimated $3.1 billion of this figure. The fabricated metal products stage is not included including this stage would bring the total to around $13.6 billion. These payments will likely decline in 2009 as the effects of the recession become evident. On the international scene, Canada remained the top destination for global exploration in Canada received 19% of world spending, followed by Australia at 14% and the United States at 7%. The industry accounts for 19% of Canadian goods exports - key exports include aluminum, nickel, copper, gold, uranium, coal, potash, zinc, diamonds, iron and steel, and iron ore. A consequence of this global reach is that over half of the freight revenues of Canada s railroads are generated by the mining industry and high portions of Canada s port and marine revenues are also attributable to the industry. Canada features world-leading mineral exploration capabilities - there are some 1000 Canadian exploration companies active in over 100 countries. The mining industry accesses new capital, ideas and opportunities through high flows of inward and outward investment. Canadian mining companies have an accumulated stock of $67 billion in investment abroad as of 2008, while there is an accumulated stock of $59 billion in foreign direct investment in Canada. This represents 12% of total foreign direct investment stocks in Canada, double the 6% share of 2005, and reflective of the foreign acquisitions that occurred in the minerals and metals sector in recent years. Progress in Social and Environmental Areas The Canadian exploration and mining industry places a high priority on social, environmental and health and safety issues. MAC s Towards Sustainable Mining (TSM) initiative addresses the mining industry s social licence to operate through applying performance and reporting obligations in a range of areas, while the PDAC s e3 Plus: A Framework for Responsible Exploration helps exploration companies continuously improve their social, environmental and health/safety performance in domestic and international programs. Provincial and territorial associations have also implemented many effective social and environmental undertakings, while companies and stakeholders are actively engaged in the MEND and NOAMI initiatives, important focal points for dialogue and research on water quality, tailings management and related issues. The industry has a positive relationship with Canada s Aboriginal community. The mining industry is the largest private employer of Aboriginal Canadians and there is potential to draw upon this source in greater numbers. Toward this end, MAC signed a memorandum of understanding with the Assembly of First Nations in March 2009 and is also developing TSM architecture in the area of aboriginal relations. The PDAC also seeks to enhance understanding and cooperation, through its programs, conferences and research activities, and signed an agreement for further cooperation with the AFN in At the company level, bilateral agreements with Aboriginal groups facilitate progress on extractive projects while providing education, training, and employment. 2

3 There are over 50 such agreements in place and numerous other initiatives underway relating to mineral extraction projects these involve many leading mining companies. 2.0 CHALLENGES AND RECOMMENDATIONS Governments have contributed positively to the competitiveness of Canada s mining industry in recent years. For example, the Geo-mapping for Energy and Minerals (GEM) program, a five-year $100 million re-investment in geological mapping that also brings enhanced provincial spending, will help address Canada s declining reserves challenge. On the tax front, reduction of the federal corporate income tax rate to 15% by 2012 is positive, as are recent technical clarifications from the revenue agency. The Mineral Exploration Tax Credit has enhanced mineral exploration and discovery in Canada. Countering these positive moves, there are many challenges facing the Canadian exploration and mining industry, including mounting land access concerns, ongoing regulatory inefficiencies, and medium-term human resource and skills needs. In light of these challenges, and to help further improve the industry s international competitiveness, CMIF members propose the following recommendations. Ministers should: 1. Enhance Commitment to the Core Mandate of Natural Resource Ministers There is no shortage of organizations tasked with promoting social and environmental objectives with respect to the mining industry. Numerous government departments and NGOs have a dedicated mandate toward this end and some have adopted an aggressive anti-mining focus. It is critically important that Canada s natural resource ministers maintain and enhance their dedication to economic development. In this sense, advocacy for infrastructure projects, for more open access to minerals, for northern development, and for tax incentives to encourage increased investment, among other objectives, remains fundamental to the mandate of natural resource ministers. There is concern among several CMIF members that ministers are losing their focus in this respect. 2. Improve Canadian Tax/Budget Incentives There has been a significant decline in Canadian mineral reserves over the past 25 years in all major base metals. As well, at the value-added stage, Canadian smelters and refineries are facing competitiveness pressures from China and other low-cost regions. The appreciating Canadian dollar adds a further competitiveness squeeze to an industry that pays many costs in Canadian currency while receiving revenues in US dollars. Despite these pressures, value-added manufacturing in Canadian mining will not necessarily diminish. The CMIF believes that, with appropriate tax measures for exploration and plant investment, Canada can build on its competitive advantages and continue to have an important presence in value-added activities. In particular: 3

4 A deep drilling investment tax credit applied to exploratory drilling within a defined proximity of production areas should be defined and introduced. As well, exploration near mine sites closed for over five years should qualify as CEE. Accelerated capital cost allowance measures should be defined and implemented to encourage investment in the modernization of mineral processing facilities. Enhancing the super flow-through share incentive for a limited period would encourage exploration and better position Canada for the post-recession period. To facilitate long-term planning, the 15% Mineral Exploration Tax Credit should be made a permanent feature of the federal income tax system. Given the importance of the Canadian oil sands, and the significant investment cuts of recent months, ministers should consider deferring the phase-out of accelerated CCA treatment for oil sands operations by 5 years. The importance of F/P/T government re-investment in geological mapping should be recognized through appropriating these funds as permanent rather than temporary. The need for enhanced investment is not a temporary phenomenon. The intent of these tax/budget measures would be to maintain exploration investment competitiveness, to help discover deep ore deposits, to extend the reserve life of existing mines, to enhance the raw material supply chains for value-added facilities and to encourage capital investment in efficient facilities. 3. Invest in Human Resources, Infrastructure and Innovation The Canadian mineral exploration and mining industry faces an impending human resource challenge in the coming decade and will need to hire over 6000 new workers per year to meet anticipated production targets. This comes at a time when the skilled core of the industry will reach retirement age and when enrolment in post-secondary programs falls short of needs. Governments must work with industry, schools, Aboriginal peoples and other stakeholders to address the sector s skills training, mobility and immigration needs. In this respect, the federal government s support for the work of the MiHR is valuable as is enhanced support for, and coordination of, related sector councils. The mining industry is the largest customer for Canada s transportation sector and requires good service, efficient logistics, modern facilities and competitive prices. Investment is needed in areas such as all-weather roads, sea ports, rail and inter-modal links. Companies also face energy management challenges related to rising costs and inadequate capacity. Strategic investments in transportation and electrical capacity would serve to open up new regions for exploration and development and the industry has proposed certain energy and transportation projects in this regard. There is also a need for government investment in innovation. The mining industry invests around $650 million annually in R&D, more than that of the oil and gas, auto, forest products, and machinery sectors. Evolving technologies include 3-dimensional data maps, seismic imaging, remote-operated equipment, automated loading systems, tailings management, and hydro-metallurgical processing. The industry feels that federal entities do not provide support commensurate with these needs and priorities. The newly-created 4

5 Canada Mining Innovation Council (CMIC) will develop a management team and strategic direction through As this evolves, governments should be prepared to invest in the innovative future of the industry, on a scale seen in other sectors. 4. Improve Regulatory Efficiency and Modernize Legislation Exploration and mining companies depend on governments for a clear understanding of information needs, approval processes, timetables and social-environmental expectations. Government performance in these respects in recent years has been uneven. On project review issues, while the industry is pleased with progress by the Major Projects Management Office in the past year, there remains scope for governments and specific departments to improve their processes and timeliness. The ongoing economic recession and a decreased number of projects in the pipeline make it premature to gauge the actual level of improvement flowing from the MPMO. While this initiative is positive, directions in the climate change and clean air regulatory areas remain unclear. Companies fear that duplicative regulatory systems may emerge as federal regulations intersect with provincial requirements. On the greenhouse gas front, industry needs certainty with respect to regulatory processes and mechanisms in order to make appropriate investments. In regard to emerging air pollutant targets and processes, industry is encouraged that governments are working toward a framework wherein the best-placed jurisdiction would regulate industry. Finally, with respect to the recent court decision on reporting to the National Pollutant Release Inventory, it is important that the federal regulatory response be cognizant of broader implications for the integrity of the NPRI and for potential communications challenges facing ministers and companies. Important questions have been raised regarding the inter-related issues of Aboriginal consultation, land use planning, and government sharing of resource revenues. Companies are concerned that ambiguity in these areas could have a negative effect on Canada s status as a destination for capital investment. In Ontario, for example, some suggest that the government s new requirement for completed community-based land-use plans in northern regions (satisfying numerous diverse stakeholders and political agendas) prior to project approval essentially amounts to a moratorium on mineral exploration and mining in these areas. 3.0 CONCLUSION Minerals and metals help build the products and infrastructure essential to modern life. The mineral exploration and mining industry makes a significant annual contribution to the Canadian economy, including through payments to governments, and its output is fundamental to the emergence of clean energy technologies. The Canadian industry faces competitiveness challenges, both at the raw materials and value-added processing stage. As detailed in this paper, there are four priority areas worth particular focus areas where enhanced effort and investment on the part of Canada s Mines Ministers would contribute significantly to a stronger Canadian industry. 5