BCBusiness, is British Columbia’s foremost business authority and the most widely read business publication in the province. This article was originally published January 01, 2009.
BCBusiness interviewed the following three key players about the current state of mining in British Columbia:
Terry Lyons-Chair Northgate Mineral Corp.
“In Canada there is no urgency to move projects to a “yes” or a “no.” And I will tell you over and over again, the industry doesn’t mind “no.” Say “no” and let us move on with our lives and our shareholders’ capital. But to waste five, six, seven, eight years because the bureaucrats in the government cannot make a decision or don’t want to make a decision doesn’t do anybody any good.”
Ken Boggio-PricewaterhousCooper LLP
“You look at China, for example: almost 7,000 privately held coal mines and reports that 250 or more people die each week in these coal mines. Do you want your steel being made from coal mined in China or would you prefer to have it come from the Fording properties in southeastern B.C.?”
Byng Giraud-Vice-President of Policy and Communications Mining Association of British Columbia
“We estimate between 25 and 30 projects in this province that could become mines are somewhere in the environmental testing or permitting process. And when I talk about political will or societal will to open a few extra mines in this province, that could mean the difference between recession and not. It’s that significant. We’re talking billions of dollars of capital investment and construction. Thousands of jobs. Building communities. The upside is huge.”
Sitting in a room with a group of high-profile insiders in the B.C. mining industry, the one thing that stands out is a sense of rejection, of an industry that built cities and towns across the province asking, “Do you want us here or not?”
Vancouver is a centre for mining in the world, with hundreds of companies engaged in raising money and spending it on far-flung geological studies, exploration missions, mine developments and extraction efforts. But when it comes to digging mines in B.C. itself, the picture is bleak. Mines across the province are reaching retirement age, and no promising young mines have come on scene to take their place since the mid-’90s.
Not that the province’s many miners aren’t trying. But the hurdles standing in the way of digging a new hole in B.C. are enormous, be they economic, social, environmental, logistic or simply bureaucratic. It’s enough to make miners wonder if they’re really welcome here at all.
To discuss B.C.’s shifting relationship with its mining industry, BCBusiness sat down with three senior mining industry pros. Terry Lyons has been involved with dozens of mining ventures in his career and is the chair of Northgate Mineral Corp., which runs the Kemess mine in northern B.C. Len Boggio is a partner at PricewaterhouseCoopers LLP and leads the firm’s mining practice. Byng Giraud is the vice-president of policy and communications at the Mining Association of B.C.
What has been mining’s role in the B.C. economy historically?
TERRY LYONS: It’s always been known as the second industry, after forestry. Mining has built cities, towns and communities over at least the last 150 years and you can name them: Trail, Nelson, Kimberley, Tumbler Ridge, Sparwood. In Kamloops basically half of its industry was mining, and the other half was forestry. So it’s been a very, very rich part of this province.
And where is the industry today?
Lyons: Today it’s still an important contributor. But there have been no metal mines in the province constructed since the Kemess mine in 1996. Mineral expansion has been just that: expanding existing mines. Even though we’ve had relatively robust economics in the minerals business, it’s not an industry that has seen a lot of development go forward, and now we’re entering this downturn.
What effect is the current economic crisis having in the mining world?
LEN BOGGIO: Well, it’s clear we’re headed into a global recession. There has been an almost one per cent contraction in the gross domestic product in the U.S. over the past year. China is required to spend $600 billion to support its economy because its exports are shrinking. Central banks are stepping in all around the world to help banks lend, and banks still are not lending. This won’t bode well for commodities and everyone who uses products that come from mines.
BYNG GIRAUD: For the mine operators who need a certain price to maintain their operations and to meet payroll and costs, it’s more difficult to make ends meet. We saw recently that one of our mines, the Breakwater operation on Vancouver Island, was temporarily shut down. For the exploration community or those in advanced development, the issue is the access to capital. These are high-risk ventures. It’s a long period of time from discovery to first extraction, and it requires a lot of investor confidence. If that money is not being lent, then those new projects, no matter how viable they may look, may not get off the ground for at least a little while.
LYONS: Let’s put things in perspective. Eskay Creek is one of the richest gold mines in Canadian history, and it’s just about to shut down. When they were drilling, hole 109 was the discovery hole. So 108 dry holes before they made the discovery. And out of that they created a beautiful 20-year underground mining operation, and it drove an economy in northwestern B.C. second to none. A wonderful deposit. There’s the risk/reward within the mining business.
What does a company need before starting a new mine?
LYONS: Commodity prices are a factor, but there are several others. One is the sustainability of the resource. Second is infrastructure: the ability to get your product to market. The third is arguably the most important: the consent to actually put a mine into production, which involves permitting, environmental assessments, community support, et cetera. So all of those have to come together before you can actually go to the capital markets and create a mine.
GIRAUD: When these things do line up, the benefits for the community and the province are multi-generational and significant, but we need policy-makers to understand that lining those things up in today’s world is not what it was 20 years ago or 50 years ago. It’s not the same old one-plus-one-equals-two answers: we have good geography, I’ve got the money and now I can build the mine. It’s not that simple.
BOGGIO: And that is the challenge. If you have good, strong policies for protection of the environment and sustainable development and working with communities, the mining industry should be able to follow the rules and have some certainty about actually developing a property into a mine. But it is so difficult to get that certainty after you’ve spent all that money drilling holes. The government has been really good about doing things like providing tax incentives that allow a company to share the risk among lots of people, but the challenge is, once you’ve done that and spent all this money on exploration, there’s still a very high chance of failure; you still have all of the rest of the hurdles to cross.
Is it more difficult to get these projects started in B.C. than in other regions?
LYONS: Where Canada has its difficulties is that different provinces have different rules. Alberta, Saskatchewan, Ontario and Quebec have very, very good rules, and they’re consistent in applying them. B.C. has a mixed bag. The mining rules were compromised by the Dave Barrett government in the 1970s because mining was seen as a large source of capital for social programs. It probably took us 25 years to get over that. Mike Harcourt’s NDP government basically took the Windy Craggy project out of the permitting process without even giving it a fair chance.
It probably wouldn’t have survived the permitting process, but with a stroke of a pen they took $300 million of exploration and development work out of the system and turned Windy Craggy into a park. Those types of things, political insecurity and inconsistency, really drive projects crazy. You talk to people who will write a cheque to finance a project and they will often bring up something that’s 15 years old. The other thing is B.C. is difficult just structurally. We’ve got lots of access problems, power problems, port issues, combined with the fact that we’re not working in a really rich mineralized environment.
GIRAUD: But we have great advantages in B.C. as well: we have a cluster here of about 800 or 900 mining companies, the expertise is here, we’ve traditionally had less expensive power, we have some not bad geology and we have stability. What are the challenges? Our permanent environmental assessment strategy is very cumbersome, we have some political instability in terms of who has say on the land and we have some human-resource problems.
So is B.C. better or worse than other regions? The proof is in the pudding: it has been a while since we’ve had a major new metal mine in this province. To get to that, we probably need to reapproach how we think about mining so that it’s not just something where if you get over this big hurdle and you’re lucky, you’ll get a mine.
Haven’t we made progress there already? Isn’t the Campbell Liberal government much more friendly toward mining?
LYONS: I want to be very blunt about this: it is not the Campbell government or the NDP government; it is government. In 2001 when the current government was elected, the world didn’t all of a sudden change. Yes, we got lower taxes, but we have federal and provincial laws for environmental assessment, mining permit laws, the fisheries act. We have systemic problems that go back 25 to 30 years. So I don’t want to blame politics. I say we have a cumbersome bureaucratic process that is basically oriented around “no” rather than “yes.”
GIRAUD: This is a really critical point. You can sit there and say, “We’re going to get the Olympics,” and, “We’re going to be the most environmental jurisdiction in North America.” Why can’t we do the same thing with something that’s built this province and say, “We’re going to permit a half-dozen new mines in this province in the next decade”? But we need a change of culture. We need the political will to say, We’re going to do this. We’re going to get to “yes.” Now it’s, “We’re going to be passive and you’re going to have to jump over these hurdles and then maybe you’ll get your mine.” But the hurdles are too huge. This is not something where you can lay the blame on Harper or Campbell or anybody like that. It’s a culture issue.
With no new metal mines in B.C. since 1996, are we talking about an industry in decline?
GIRAUD: It’s a yes-and-no answer. Some of the mines are getting close to the end of their lives. And unless new mines come on to replace them, yes, on a strict measurement side, the industry will be declining. Conversely, there’s a significant amount of exploration going on, and there are some great opportunities. We estimate between 25 and 30 projects in this province that could become mines are somewhere in the environmental testing or permitting process. And when I talk about political will or societal will to open a few extra mines in this province, that could mean the difference between recession and not. It’s that significant. We’re talking billions of dollars of capital investment and construction. Thousands of jobs. Building communities. The upside is huge.
BOGGIO: And think of the jobs through this province to support the mining industry around the world and those head offices that are here. Those 800 or 900 companies that you mentioned – those are located here and they’ve stayed here for a reason. And those are just the exploration and operation companies. On top of that you have engineer consulting firms, service providers, drilling companies and the like that have chosen to make their head offices in B.C. because it made sense for them to be here.
GIRAUD: This cluster in B.C. is our greatest competitive edge. But that cluster needs to be nurtured, because if it isn’t, there’s no real reason why these companies need to be here.
But can’t we maintain that expertise without having to go and dig holes in the ground in B.C.?
GIRAUD: Fundamentally, everything we purchase comes from metal. Now we can choose to get those materials from China or Australia or anywhere else in the world, or we can choose to get them here where the standards are the best, where we have the expertise, and it’s in our backyards. Or we can make it somebody else’s responsibility and we can pay them for it.
BOGGIO: And if we are to have these products in our life, aren’t we better off when we encourage development in areas where we can watch over the environmental issues? Why don’t we have that development occurring where the legislation is sufficient to be able to protect the environment? You look at China, for example: almost 7,000 privately held coal mines and reports that 250 or more people die each week in these coal mines. Do you want your steel being made from coal mined in China or would you prefer to have it come from the Fording properties in southeastern B.C.?
Considering those 20 or 30 projects in B.C. in the permitting process, what are the odds of even one of these actually becoming a mine?
BOGGIO: The chances of them actually getting permitted are very low because there are so many hurdles to cross. Many of those factors are the same around the world: the metal prices, the ability to finance, dealing with the indigenous issues and finally whether you have a community that welcomes you or a community that fights against having you in their area. Everybody deals with those around the world, and some governments are more difficult than here.
LYONS: The one thing that we do not have at any level of government in Canada is a restricted time line. Tulsequah Chief is a very good example: they’ve been in permitting for 12 years with two court challenges. From an industry point of view, it’s problematic that it takes that long. If you go to permit something in Chile and you don’t hear back within a prescribed time limit, you have your permit. And Chile’s got great environmental laws; they’re mostly written by Canadians. In Canada there is no urgency to move projects to a “yes” or a “no.” And I will tell you over and over again, the industry doesn’t mind “no.” Say “no” and let us move on with our lives and our shareholders’ capital. But to waste five, six, seven, eight years because the bureaucrats in the government cannot make a decision or don’t want to make a decision doesn’t do anybody any good.
BOGGIO: And arguably, some of those properties could be in development just now, could be employing people to construct the mills and facilities, if not for the fact that they’ve been held up in a permitting process. And my fear is that in 2009 we’ll have the opportunity to see just how important mining and extracting industries are to this province. Because if we have the continued depressed metal prices we’re hitting now, you’ll see companies reacting very quickly in order to survive. There will be people laid off. There will be whole communities that won’t be working. There will be a reduction in revenues to this province, which provide those services to people in our province.
GIRAUD: So here is the optimistic point of view, and because this is the mining sector, with thousand-to-one odds, you’d better be an optimist: if the federal government decides that it’s going to work to get to “yes,” if the provincial government decides it’s no longer going to be passive, it’s going to get to “yes,” I believe that when the market comes back we can get some of those projects built and get some people to work in the province. But it’s going to take that political will.
LYONS: I think we’ll make progress. If we have consistent policies applied consistently in a reasonable economic market, there is no reason why we can’t have a vibrant mining extracting industry.