In the summer of 2006, Greater Sudbury residents were extremely concerned that the local community was being overlooked during the foreign takeovers of Inco and Falconbridge. The then Mayor David Courtemanche asked me to produce a policy document that outlined the community’s concerns about the impending loss of Sudbury’s two iconic Canadian miners to foreign ownership.
Many community stakeholders were interviewed and an aggressive first draft was delivered to Mayor Courtemanche. To the concern of some of the stakeholders, myself included, the final version was less bold and assertive than originally planned.
However, it was an honour to play a key role in the production and writing of “Claiming Our Stake! Building a Sustainable Community” during this pivotal time in the mining history of the Sudbury Basin.
Stan Sudol
Executive Summary
“There is an international bidding war taking place in the Canadian mining sector, and Greater Sudbury is at the front lines. What happens here in the next few months will re-define the Canadian mining industry and this community for, the next century.
Mayor Courtemanche, Greater Sudbury (June, 2006)
Over the past year, the global business media and Canadians have been captivated by one of the most expensive and bitter takeover battles in the history of world mining. Falconbridge Limited has been taken over by Swiss-based Xstrata PLC and, while the final ownership of lnco Limited has yet to be decided, these events will permanently change the course and ownership of the country’s resource sector.
We are also witnessing one of the largest economic transformations in the history of mankind. China, India and many other developing countries are rapidly urbanizing and industrializing their societies, and mineral commodities and mining expertise are an essential part of this change. The world is entering the start of commodity super-cycle that will last for decades and create enormous prosperity.
Our community has an enormous stake in the outcome of this international bidding war. Our stake is over 100 years of mining behind us, billions of dollars of ore beneath us, and enormous opportunities in front of us. Greater Sudbury is the historic heart and soul of the global nickel industry. Most geologists and mine industry experts agree that there is still another hundred years of life to this enormous trillion dollar mining camp.
Greater Sudbury is home to one of the greatest mining camps that the world has ever known. The Sudbury Basin is the richest mining district in North America and among the top ten most significant globally. In a world full of geo-political uncertainty, Sudbury’s strategic nickel resources ensure a secure environment for the billions of dollars needed to increase production. Nickel has become the metallic version of oil.
After a hundred and twenty years, Sudbury has established a high-tech cluster of mining supply and service companies that are exporting their expertise around the world. The community has also built one of the highest concentrations of mining education and research facilities in the country. Sudbury is also the only mining community in Canada to host a research university.
The long-standing relationships between the companies and the community have come to a crossroad. We have an opportunity to re-define those relationships and forge a dynamic new partnership that will enhance the equitable and sustainable development of the geological riches found underneath the Sudbury Basin. People want sustainable development and a more equitable sharing of the benefits of resource extraction to guarantee a higher quality of life for the communities involved. Sustainable development ensures investment in local capacity – the social, economic and environmental needs of the communities in which they operate.
For example, the community started a massive revegetation program in 1978 that has transformed the region’s bleak moonscape terrain into an environmental success story. Over 11 million trees have been planted and the community has received many international awards for its restoration successes.
The Federal and Provincial governments also have a key role to play through strategic investments in the city’s research and educational infrastructure – in supporting Sudbury’s goal of becoming a global centre of hardrock mining expertise. These investments will also firmly establish the City of Greater Sudbury as the central “hub city” of Northern Ontario.
This document provides a framework for a more comprehensive community agenda as it relates to the future of the local mining industry. It seeks to define a sustainable and equitable partnership between the community and industry that will endure for the rest of the century. It provides a basis for the community, local mining companies and senior levels of government to work together for the betterment of the community – a vital stakeholder.
How will these opportunities translate into sustained prosperity for our community7 How will this mineral wealth be re-invested in our community7 What do we expect of our local mining companies? What are the investment opportunities required to build a sustainable community7
There is an enormous opportunity for mining companies, governments and other community stakeholders to make the investments required to building a more sustainable community and local mining industry. These investment requirements include:
• investments in local operations;
• investments in training and education;
• investments in research and innovation;
• investments in local businesses; and
• investments in a sustainable community.
The City of Greater Sudbury looks forward to collaborating with the new owners and senior levels of government to ensure the community’s vision to become the world’s premiere high-tech, mining centre of the 21″ century – the Silicon Valley of the mining sector – are met and that the next generation of young people will be able to stay and take part in the enormous prosperity that these initiatives will bring.
The Sudbury Basin
Over the past year, the global business media and Canadians in general have been captivated by one of the most expensive and bitter takeover battles in the history of world mining. Falconbridge Limited has been taken over by Swiss-based Xstrata PLC and while the final ownership of lnco Limited has yet to be decided, these events will permanently change the course and ownership of the country’s resource sector.
The ultimate prize is control of the incredibly rich nickel deposits of the Sudbury Basin. An oval-shaped basin measuring roughly 60 krns by 30 kms the Sudbury Igneous complex, as it is sometimes called, is the richest mining district in North America and among the top ten most significant globally. After the rich mineral deposits of Norilsk, Russia, the Basin is the second largest source of nickel in the world. By comparison the Voisevs Bay and Thompson nickel deposits each contain only 10% of the volume of nickel found in this enormous deposit. The Sudbury Basin also contains significant quantities of copper, cobalt, gold, silver and many other minerals including platinum group metals – the third largest global source after South Africa’s Bushveld Region and Norilsk, Russia.
The city is the historic heart and soul of the global nickel industry. Both lnco, in 1902 and
Falconbridge, in 1928 started their global nickel empires from the Basin’s geological riches. Greater Sudbury’s eleven operating mines produce about $3 billion worth of metals annually. At current metal prices the amount of metal already produced over the past 120 years is about $200 billion. A further $650 billion is estimated to still remain in the ground making the Basin a near-trillion dollar natural resource. Most geologists and industry experts expect this extraordinary deposit to still be in production for another 100 years.
The Sudbury Basin is Ontario’s metallic equivalent to the Alberta oil sands, Greater Sudbury is home to one of the greatest mining camps that the world has ever known, Over the last century lnco and Falconbridge have explored and developed mines throughout the Sudbury Basin and, as a result, have established extensive and sophisticated mining operations including mines, mills, smelters and refineries.
From the devastating layoffs in 1977 and the long strike of 1978-79 to the brief labour disruption in 2003, Sudbury has witnessed a 26-year commodity slump. No other major urban centre in this country has seen its local economy go through such enormous economic upheavals due to low commodity prices. A mining work force of about 30,000 was reduced to about 6,000 today. Until recently, the unending news of layoffs, strikes and early retirement buyouts has left the impression that the Sudbury Basin nickel deposits are rapidly depleting or near exhaustion. Many observers felt the Basin has lost its industrial significance. Before the current boom, the mining sector was often called a sunset industry and along with Sudbury was often relegated to the dustbins of economic history. The industry has downsized itself to such an extent that it has been unable to rapidly respond to the new global paradigm.
There is no other significant mining region outside of Australia, as welcoming to the mining sector as the City of Greater Sudbury. The community is looking forward to the next century of mining investment and is actively encouraging accelerated mine development as well as new manufacturing facilities that will add additional value to the metals refined in this location.
The Community’s Stake
Recent developments in proposed mining company mergers and acquisitions raise many questions and concerns for the people of Greater Sudbury. As the national and international media cover this dramatic business story, much of the debate has focused on the implications of corporate transactions from the perspective of financial analysts and shareholders. But this isn’t just about shareholders. It’s about stakeholders!
Our community has an enormous stake in the outcome of this international bidding war. Our stake is over 100 years of mining behind us, billions of dollars of ore beneath us, and enormous opportunities in front of us.
Shareholders and hedge fund managers are determining who will own lnco and Falconbridge. Hedge funds are pools of capital that are invested with a promise of making as high a return as quickly as possible with no regard for the underlying company, long-term governance of the corporation, let alone the impact on communities and people, Increasingly the future of corporations and communities like the City of Greater Sudbury and its citizens are being made by far-off, faceless hedge fund managers whose only loyalty is a “quick return” on an investment. This should be put in context to the demands and expectations of the City of Greater Sudbury, the original source of the enormous amounts of wealth that both lnco and Falconbridge have dug out of the ground over the past 120 years and the basis of each company’s global empires.
We don’t know what the final outcome of the bidding war for lnco will be, but we do know that it will have long-range implications for our community, our economy and our prosperity. The long-standing relationship between the company and the community has come to a crossroads. We have an opportunity today to re-define that relationship and ensure that Greater Sudbury is positioned to be the world’s premier mining centre for the 21″ century. While various mining companies are staking a claim in the Sudbury Basin, we must work together to claim our community’s stake in the future of the local mining industry.
A recent Conference Board of Canada report demonstrates that economic growth in Canada’s “hub cities” spurs growth in proximate smaller communities, Sudbury is already the dynamic and diverse regional hub for Northeastern Ontario. The community is the logistical centre for medical, educational, government, retail and financial services and the mining supply and services cluster of a vast region stretching to the James Bay Coast to the north, the Quebec border in the east and the eastern shore of Lake Superior to the west.
The city has a GDP of $5.6 billion, bigger than the Province of PEI with a GDP of only $3.4 billion. A growing and prosperous Sudbury would have a tremendously positive economic impact for all of Northeastern Ontario.
This document provides a framework for a more comprehensive community agenda as it relates to the future of the local mining industry. It seeks to define a sustainable and equitable partnership between the community and industry that will endure for the rest of the century. It provides a basis for the community, local mining companies and senior levels of government to work together for the betterment of the community – a vital stakeholder. The future of our community is at stake!
Nickel – The Metallic Version of Oil
Nickel is a non-descript, silvery-white metal whose unique material properties can be found in over 300,000 products world-wide. It is not an abundant metal in the Earth’s upper crust and is currently in short supply. The mining and refining of this vital and complex mineral is a very specialized business with both lnco and Falconbridge well known as the technological leaders. Nickel makes steel extremely tough, resistant to corrosion and enables certain alloys to function in a wide range of extreme temperatures without deteriorating. Nickel is also essential to all facets of industrial manufacturing, primarily through stainless steel, which uses about 70% of global production. Nickel based super-alloys are an indispensable component of jet engines, missile technology and space applications. For many of its critical military and industrial applications, there is no substitute.
On August 24, 2006, the official cash settle price of nickel on the London Metal Exchange skyrocketed to USS15.76 per pound or US$34,745 per metric ton. This is well above the previous cyclical peak in 1988 of US$10.84. Current prices of about $14.00 per pound are roughly four to five times their long-term average. The price has more than doubled since the beginning of the year and stockpiles monitored by the exchange have plunged 83%. In a July 24th Associated Press article titled “Market Spotlight: Nickel’ Peter Goudie, lnco Marketing Executive Vice-President, called 2006 “the tightest nickel market we have ever seen. It is not only the inventories on the London Metals Exchange that are decreasing quickly; we observed a shortage throughout the supply chain .”
Nickel has become the metallic version of oil. In September 2005, respected Wall Street investment firm, Goldman Sachs indicated that nickel prices should stay higher for longer, in a similar way to oil prices due to shortages of supply, increased demand and the much higher costs to bring new projects on stream. Their analysis of the nickel market appear to be accurate as cost blowouts and technical delays are plaguing Inco’s Goro project in New Caledonia and BHP-Billiton’s Raventhorpe nickel development in Western Australia. Voisevs Bay, a sulphide deposit has come into production ahead of schedule with no apparent production problems. These global nickel shortages will ensure billions of investment in the Sudbury Basin over the next decade.
Global nickel production for 2006 is estimated to be around 1.35 million metric tons. The Sudbury Basin will produce about 12% of world demand. In the past few months the prices for all base metals – iron, aluminum, nickel, copper, zinc, and lead, the basic building blocks of modern society – have all reached historic highs. Part of the reason is that global hedge funds are helping push up prices but the basic fundamentals are that supply cannot meet demand and will not in the near future unless the global economy experiences a deep recession. According to Scotiabank’s July 2006, Global Outlook report, “The current upswing in commodity prices has been one of the most powerful in the post-World War I1 era – second only to the 1970s advance at the time of the Arab oil embargo. In inflation-adjusted terms this expansion has outpaced the 1970s. . . ”
The Commodity Super-Cycle
The mining sector is one of the most integral activities to industrial and modern society. Nearly everything mankind utilizes has to be grown or mined. The most essential and long lasting of products such as concrete, steel, copper wire and piping are made from material that comes from the ground. Every form of transportation – planes, trains, automobiles, trucks and buses – are made from metal. Every office tower, residential house and apartment building requires metals. Computers, cell phones flat-screen TV’s and microwave ovens are again all made from metal. And every manufacturing or industrial operation could not function without metals. In fact, those who have the resources and know-how to economically mine and refine minerals will prosper and create enormous amounts of wealth in the new millennium.
A new commodity super cycle has begun around the world. A commodity super cycle is an extended decades-long trend rise in commodity prices, driven by the urbanization and industrialization of a major economy. The 1945-1975 commodity super-cycle was driven by the post-war reconstruction of Europe and a later massive economic expansion of Japan, Korea and Taiwan. The Australian Institute of Mining and Metallurgy has stated that over the next 50 years the world will use five times the mineral resources that have been mined to the year 2000.
China, the sleeping giant, is now rapidly modernizing and industrializing. The country is sending a tsunami of metal demand rolling across the globe and catching the entire mining sector unprepared. We are witnessing one of the largest economic transformations in the history of mankind and mineral commodities are an essential part. When Japan went through their industrial expansion, global nickel demand grew by 7% for fourteen straight years. China has ten times the population of Japan and lndia is another rapidly modernizing and industrializing country we cannot ignore. The Chinese are rapidly urbanizing their population. By 2020 – only 14 years from now – another 300 million people will have been moved to cities now being built, China consumes 47% of the world’s cement, 26% of its steel and aluminum, 33% of its iron ore and 22% of its copper. In 1979, there were sixty privately owned cars in China. Last year, China became the number two auto market with 5.92 million sales.
European merchant banker, Fortis Bank, stated in its August metals research paper that,
“. . .nickel’s fundamentals are looking very attractive through to the end of the decade; the current nickel Bull Run may endure for much longer than anyone anticipates.” Some of the bigger customers are starting to openly talk about the need to ration customers. Chinese stainless steel demand is the primary reason. This year, China may account for 25% of local nickel demand. The BRlC countries – Brazil, Russia, lndia and last but not least China – with their growing middle class markets and low labour costs will buy cars, appliances, move into new homes that have electricity, plumbing and other modern conveniences. This takes lots of metal.
The world is entering the start of commodity super cycle that will last for decades. This global transformation is reshaping the world economy. It presents many challenges to how Ontario businesses will compete and grow. The high-tech sophistication of Sudbury’s mining supply and services cluster as well as the enormous metallic resources of the Sudbury Basin will become more important to the overall Ontario economy.
Building a Sustainable Community
Thirty years ago, the role of lnco and Falconbridge in the Sudbury Basin was generally economical. The companies invested in the local mining operations that provided jobs locally while the wealth created in the Sudbury Basin largely flowed to Southern Ontario and stockholders. In those days, pollution was just part of the accepted social cost of mining and the companies would, depending on their profits, donate to worthy social causes. The public’s expectations of corporations in society have significantly changed.
Today, simply providing jobs is not enough and industrial pollution must be minimized as effectively as possible. People want a more equitable sharing of the benefits of resource extraction to ensure a high quality of life for the communities involved. And resource communities demand and expect a reasonable share of the wealth created from their mineral resources to remain in their communities.
This demand for an equitable sharing of benefits is seen throughout mining communities around the world and is called Corporate Social Responsibility (CSR) and Sustainable Development. The World Bank defines CSR as, “the commitment of business to contribute to sustainable economic development – working with employees, their families, the local community and society at large to improve the quality of life, in ways that are good for both business and good for development.”
Sustainable development is economic growth or investment in an environmentally responsible manner so future generations will not be impacted. Sustainable Development also ensures investment in local capacity – the social, economic and environmental needs of the communities in which they operate. For example, the significant commitment of local mining companies to the establishment of a new technology research and development centre in Sudbury is a form of sustainable development that will help the community build local capacity by enhancing its reputation as a centre of mining research. Long after the mines are exhausted Sudbury will still be known for its mining expertise that will be exported around the world. The challenge of Corporate Social Responsibility is to attain a balance of benefits for business, employees, various stakeholders and the host communities. The long-term prosperity of many northern and rural communities across the country depends on meeting these challenges.
The City of Greater Sudbury intends to forge a dynamic partnership with the new owners of lnco and Xstrata Nickel. This new relationship must encourage a sustainable development that will benefit both the local community and the new owners by equitably sharing the enormous wealth of the Sudbury Basin. This partnership will be based on the commitment of industry, government and the community to investing in the opportunities that are before us.
How will these opportunities translate into sustained prosperity for our community? How will this mineral wealth be re-invested in our community? What do we expect of our local mining companies? What are the investment opportunities required to build a sustainable community?
The answers to these questions will shape the relationship between the community and local industry for decades to come.