Key Economic Points About the Canadian Mining Sector – by Paul Stothart

Paul Stothart is vice-president, economic affairs of the Mining Association of Canada. He is responsible for advancing the industry’s interests regarding federal tax, trade, investment, transport and energy issues. This column was originally published November, 2009.

Late summer and fall are always busy times for the mining industry on the economic policy front. Typically, the Mining Association of Canada releases its annual “Facts & Figures” report in August and also prepares a formal industry submission in advance of the meeting of federal, provincial and territorial energy and mines ministers held each fall. The federal government’s pre-budget process also starts in late summer, launched with a submission deadline set by the Finance Committee. The key messages reflected in MAC’s ministerial comments, pre-budget views and “Facts & Figures 2009” follow.

The mining industry is important to the economy

The industry, as defined by Natural Resources Canada, contributes $40 billion to Canada’s GDP, employs 350,000 people, pays approximately $13.5 billion in taxes and royalties, contributes 19 per cent of Canadian exports and generates business for 3,140 supplier companies. It creates value in urban, rural and remote regions and its products are fundamental to modern life and to the emergence of clean energy technologies.

Aboriginal relations are important

The mining industry is the largest private sector employer of Aboriginal Canadians. Strong mutually beneficial relationships exist between Aboriginal peoples and mining companies in the diamond, uranium, oil sands and other segments, and there is potential to further broaden these relationships.

For their part, governments must invest in skills and education and must be cognizant of the Aboriginal Peoples’ desires for economic development. Government proposals to eliminate large tracts of northern land from resource development work against this desire.

Times are turbulent

The World Bank forecasts global growth of minus three per cent in 2009 and, like most sectors, the mining industry is experiencing turbulent times. Over the past year, the Canadian mining industry has closed or reduced operations in some 40 mines and reduced operations in 11 smelters in response to a supply demand imbalance associated with the global economic recession. Industry spending on mineral exploration has been slashed in half — from $3 billion in 2008 to around $1.5 billion in 2009. While positive signals are being seen in the industry, most mineral prices remain well below 2007 levels.

There is a need for some tax Improvements

On balance, the Canadian mining industry receives fair tax treatment. The flow-through share provisions, ability to deduct capital expenditures and declining corporate income tax rates are attractive features. Beyond these measures, there is a need to encourage greater exploration to increase levels of mineral reserves in Canada. Measures such as an investment tax credit would contribute to the modernization of processing facilities in Canada and help them compete with subsidized and state-owned companies in other countries.

Governments must support economic development in many ways

There is a need to streamline the processes and regulations that guide project development. In areas such as greenhouse gas emissions, there should not be federal-provincial duplication of regulatory or reporting requirements. Infra structure must be modern and efficient and able to serve promising resource areas in northern Canada.

Government investment in geological mapping is of fundamental importance — this spending should be significant and sustained. Underpinning each of these actions is the need for Canada’s natural resource ministers and departments to actively advocate for the industry as part of their core mandate.

The future looks promising for Canadian mining companies

Despite impressive growth over the past decade, many indicators suggest that China and India remain relatively undeveloped and offer staggering market opportunities for decades to come.

Canada will benefit from the mineral and metal prices associated with this strong global demand. As an investment destination, Canada features low political risk, stable energy supply and a skilled mining workforce. The Canadian mining industry is diversified with strengths in oil sands, potash, uranium, gold, diamonds, nickel and iron ore, among others. This helps provide stability to cyclical commodity-specific movements.

For the above reasons, Canada is likely to remain a strong and competitive producer of minerals and metals. The Canadian economy will benefit from this production and from the high prices associated with the growing demand in developing countries and resumed demand in the United States and Europe.