Editor's note: On Sept. 11, 2014, Pierre Gratton, president and CEO of the Mining Association of Canada, spoke to the Vancouver Board of Trade. Here are some excerpts from his speech.
On global market conditions: First, the ugliest bits. Over the course of 2013, the world's 40 largest mining companies booked record impairments of $57 billion. Aggregate net profits fell 72% to their lowest level in a decade, their collective market capitalization declining 23%.
2013 was also a grim year for mineral exploration financing, with global exploration budgets dropping by 30%. What’s more, PDAC research indicates that in 2013 more than 50% of all financings were for $500,000 or less compared to just 13% in 2010.
Global economic growth has declined for the past four years, falling from 5.2% in 2010 to 3% in 2013. The Bank of Canada, the International Monetary Fund, and the World Bank all downgraded global economic growth forecasts for 2014, in recent July updates.
On how Canadian miners rate: Since, the commodity boom began a decade ago, the number of major operating mines in Canada, not including industrial minerals, has grown by 25% from 96 in 2003 to a 122 in 2013. The value of mineral production has soared, reflecting the rise in commodity prices.
These increases increased taxes paid to governments, among the reasons why Canada fared so much better than other nations during the recent years of economic turmoil. And it explains why our governments are turning their focus to growing our natural resource industries.
All of this sounds pretty good. However, despite the increased number of mines and soaring production values, our actual production of mineral resources has not increased substantially.
The fact is, while a vast country rich in resources, Canada has lost ground. We were a top five producer of 14 major minerals and metals in 2007, but today of only 10, with mineral reserves for most commodities plummeting since the 1980s.
And that's not all. Last year, after an eight year reign as the number one jurisdiction for global exploration spending, we fell to the number two spot behind Australia.
On earning a social licence to operate: I don’t believe social licence is a significant obstacle to new mine development in Canada, because I believe our practices, overall, have been keeping pace with new expectations.
And our opinion research suggests I am right. Over the past three years, MAC has been asking Canadians their impressions of Canada’s mining sector, in a pretty high level of detail. Over 80% of Canadians have a favourable or very favourable opinion of mining, and we are held in higher esteem than other major resource sectors. Another recent survey by the Canada West Foundation also showed that the more people know about mining, the more they like it. This tells me that every new mining project starts from a strong position. If the work is done right – and again, providing Canadians with confidence that we operate safely is part of that – it will be welcomed by the communities where it will operate.
On aboriginal land title: Has [everything] changed because of the Williams case in which the Tsilhqot’in First Nation was granted land title and the SCC invoked the term 'consent' as a requirement for development on title lands?
Again, columnists have had a field day. So too have the lawyers. The Fraser Institute deemed it a “game changer,” concluding that it will result in an environment of uncertainty for all current and potential projects. I disagree.
Two weeks after the Williams Case ruling, De Beers concluded an economic agreement with the Lutsel’ Ke Dene First Nation in an unsettled region of the NWT for the Gahcho Kué project. For both parties, it was business as usual.
Some might say that BC is different, with so much of the province subject to overlapping, unsettled claims. I agree. BC is different. It is more complex. But this was the case well before Williams. In my view, the Supreme Court, if anything, has made the legal landscape clearer.
Why Canadian miners are losing ground: If social licence and Williams aren't the reasons why Canada may be losing ground as a mining power, then what are?
Let’s look again at the fundamentals.
A global study by McKinsey last year ranked Canada very near the top across a wide range of indicators measuring investor attractiveness. But the same study also showed that Canada is one of the most expensive places to build. There are a few reasons for this.
Cheap power used to be a Canadian advantage, but it is becoming less so. The price of diesel has doubled in a decade.
The availability of skilled labour (or the lack thereof) is driving up labour costs.
It is increasingly expensive to build and operate a mine in Canada, especially in remote regions of the country where infrastructure is lacking. According to MAC research, it costs about 2 or 2.5 times as much to build and operate a mine in northern Canada off grid than in the south. The elimination of mining tax measures in recent federal budgets, such as the Accelerated Capital Cost Allowance, has made capital intensive projects, particularly in the north with large infrastructure components, even more expensive.
Moving product to market is getting more expensive. Canada is a vast country, competing with other countries with much shorter logistical supply chains. And with what is effectively a monopoly rail system, shippers are often at the mercy of service challenges and unilateral rail pricing.
Time is money and our approval processes are complex and lengthy. Recent federal reforms have had mixed effects. Changes to the Canadian Environmental Assessment Act have led to better managed, though no fewer or less robust federal mining environmental assessments. In contrast, amendments to the Fisheries Act have created new uncertainties and delays for mining projects. Governments failing to fulfill their obligations to First Nations, or delays in meeting these obligations, also contribute to delayed decision making on major projects.
On what how to move forward: Many, including Prime Minister Harper, have highlighted the potential of Canada's North to our future prosperity. Northern Canada, not just the territories but the northern regions of provinces, are rich in geological potential, with many known rich but undeveloped deposits. There is no shortage of opportunity to retain and grow our premier position as a mining nation.
But we need to act now. The re-start of Quebec's Plan Nord is encouraging. Bold moves like the extension of BC’s Northwest transmission line is a smart example, as is Ontario's $1 billion Ring of Fire infrastructure commitment. The Ring of Ice in the NWT would open up further with an all season road. New infrastructure will be a catalyst to our economic future.
We also have to make sure the symbiotic relationship between mining and railways works to the advantage of both. We have to continue to improve the efficiency of decision making on new projects and avoid duplication. Innovation and investments in skills training to enhance productivity to counteract rising labour costs is crucial.
The opportunity is there. We have to decide – and decide now – whether we seize it, or whether we slowly recede and let other countries, perhaps more desperate for the wealth mining brings, take it instead.
The full text of the speech may be found at Mining.ca.
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