[Ontario Mining] Losing Ground – Karen Mazurkewich (Originally published in Financial Post Magazine, April 2010 issue)

The National Post is Canada’s second largest national paper. article was originally published in the Financial Post Magazine’s April, 2010 issue.

For an extensive list of articles on this mineral discovery, please go to: Ontario’s Ring of Fire Mineral Discovery

Ontario Premier Dalton McGuinty, who stated in a February news conference that “we are not going to succeed in Ontario by pulling stuff out of the ground,” has changed his tune. “There is a tremendous amount of excitement over the economic potential of the Ring of Fire,” says Michael Gravelle, Ontario’s Minister of Northern Development, Mines and Forestry.

In Bygone Days, Good Bush Gear And Decent Maps Were A Mining Firm’s Greatest Assets. Today, Regulation And Bureaucracy Rule The Industry. Is Canada Paying The Price?

Don McKinnon, a grizzled prospector from Timmins, Ont., sports a whopping gold nugget on his finger — proof of his prodigious finds. The 80-year-old owns a stake in the nearby Hemlo gold mine and is still very much a player in the Canadian mining industry. He remembers when the staking was hard and the regulations were easy. To get a leg up on the competition, the hoary miner wasn’t above “dirty tricks” like buying up all the mine ministry maps in town. McKinnon still displays the 40 pairs of snowshoes he bought in the winter of ’79 to thwart competing prospectors during the Hemlo staking rush, and tells tales of being stalked by polar bears in the Far North.

But ask him his thoughts on the industry today, and he simply growls: “it’s tougher.” These days, McKinnon leaves the finer points of the mining business to his 27-year-old son, Gordon, president of Canadian Orebodies Inc., which has large claims in the James Bay Lowlands. The younger McKinnon doesn’t spend nights in the bush with a pick-axe. To be a player, junior miners need ample knowledge of stock market and the ability to negotiate impact benefit agreements with First Nations. In Gordon’s case, the list also includes overseeing an survey on caribou migratory patterns — a project he funded as part of an exploration deal in northern Ontario.

While his father still relies on his massive collection of topographical maps, Gordon eagerly awaits Ontario’s new regulations that permit online mapping. It’s staking made simple, but at a price: more bureaucracy. He processes more paper in a week than his father did in a year. “Before, the government saw a new mine as a new revenue stream; now they put us through hoops,” says the younger McKinnon.

Mining was the early economic engine of this nation, and swaths of Bay Street’s wealth can be traced back to prior generations of wheeler-dealers. The mining giants that emerged over the years — Barrick Gold Corp., Falconbridge Ltd., Noranda Inc., Inco Ltd., Teck Resources Ltd. — are also indelibly etched in Canadian history. But many of those icons have disappeared, swallowed up by foreign entities. Today’s biggest player, Barrick, doesn’t even mine in this country anymore — if you exclude last vestiges of gold it’s scraping out of its Hemlo property. And while Canada remains the top destination for exploration in the world, exploration dollars spent in the country as a percentage of worldwide budget spent by the top 10 players has slipped from 27% in 2004 to 16% in 2009, according to Halifax-based research firm Metals Economics Group.

The simple reason for much of this change is that miners are going outside Canada, because that’s where the richest deposits are. But there are reason beyond that — rising energy and labour costs, First Nations’ protests, a provincial stealth tax on diamonds in Ontario and moratoriums on exploration.

Mining is part of our legacy, but how important a role it will play in our future is becoming less certain. Canada has eight mining companies that rank in the global top 40, but six of those companies mine gold. Precious metals now trump traditional base-metal mining in this country, and a collapse in the gold prices could spell disaster. The industry’s image has also been tainted by negative publicity generated by Bill C-300, a private members bill in Parliament seeking to grant the federal government new powers to investigate complaints made against Canadian resource companies working in foreign countries. Add an uncertain regulatory climate into the equation, and industry old-timers like McKinnon now query whether Canadians still wants to be a mining nation. One producer in the Fraser Institute’s 2008/2009 annual Survey of Mining Companies went so far as to argue: “The dismantling of Canada’s position as a global mining leader has been appalling.”

But is Canadian mining really losing ground? To be sure, calls for investigations into payments made by Calgary-based Blackfire Exploration to local officials in Mexico, plus attacks by environmentalists on Barrick’s operations in Papua New Guinea, have fanned debate around Bill C-300 and publicly blackened the industry’s eye. But Canadians don’t appear to be throwing the baby out with the bath water. An Angus Reid poll, commissioned by the industry in December, found that 25% of Canadians are strong supporters of mining compared with 15% flatly against, and that 96% believe mining is important to the economy.

Mining’s economic story also varies by province. Quebec has held top spot in the Fraser Institute’s survey of the world’s mining jurisdictions since 2001. But British Columbia and Ontario have now been overtaken by Chile in overall ranking. The picture gets a little bleaker for those provinces when the institute measures mineral potential against current regulations and land use restrictions. B.C. and Ontario drop in the ranking to 44 and 32 respectively, while Chile rockets to first place, beating even Quebec.

That particular measurement underscores what miners in Canada have long been carping about: the nation’s byzantine regulatory practices. Take the environmental assessment process of Taseko Mines Ltd.’s gold-copper Prosperity Mine near Williams Lake in central British Columbia. The environmental assessment, which started in 1995 and cost the company $100 million, came in at a record 3,000 pages in length.

Once the provincial government received the final report, it took nine months to give the project the green light. But Taseko still does not have a thumbs up. The federal government, which is also supposed to do its own environmental assessment, is still deliberating. One project: two environmental assessment plans. It’s no wonder that no new major metal mine has opened up in British Columbia since 1996, and at least six projects are in regulatory limbo. The province is ranked in the Fraser Institute’s bottom third of mining jurisdictions with “room to improve.”

“Miners want a stable, clear mining policy,” says Fred McMahon, who co-wrote the Fraser survey. “They don’t want to spend money on projects and later learn they can’t mine there.” It’s not that they balk at robust regulations, he adds. They simply want to know which areas they can go or can’t go right up front.

According to Don Ross, principal of Jones Gable & Co., a Toronto-based brokerage firm, red tape is strangling the golden goose. You must ride the wave of interest. “And in mining, interest can quickly wane,” says Ross. If companies cannot get permits in reasonable time, he adds, they will lose investment.

While environmental assessment plans are onerous, the single most important regulatory issue facing the Canadian mining industry today is the relationship between the mining community and First Nations. That, more than anything, is driving away investment, according to Warren Irwin, president and chief investment officer of Toronto’s Rosseau Asset Management. An early investor in Noront Resources Ltd.’s Eagle One mine in the James Bay Lowlands, Irwin says he’s put no new investment dollars to work in the province lately because the battles with First Nation groups are creating a climate of uncertainty. “Ontario thinks of itself as a stable world-class mining jurisdiction, but the reality outside is that it can get pretty lawless for exploration companies, and the government has been turning a blind eye to it,” says Irwin. “As a direct result of the uncertainty in investing in mining in Ontario we have been forced to go to other jurisdictions for investments.”

Jim Trusler, chief executive of Platinex Inc., knows about that. When Platinex could no longer access its site on Big Trout Lake, 1,000 kilometres north of Thunder Bay, because the local Kitchenuhmaykoosib Inninuwug First Nation wouldn’t let their float planes land, he saw millions of investment dollars go up in smoke. “I almost thought we were in a Third World country,” he says.

The dispute dragged on, forcing the government to finally settle the issue. Last December it bought out Platinex’s claim for $5 million, and it has once more updated its 141-year-old mining act to enshrine aboriginal treaty rights. If Trusler could do it all over, and had the “wherewithal,” he would “have put an exploration team into the (aboriginal) community so the community would be aware what was going on.” But that is hindsight, and in many parts of Canada, mineral exploration and blockades go hand-and hand.

In 2004, a Supreme Court of Canada ruling put the onus on the provinces to consult aboriginals on the impact of land use. Aboriginals could not veto land-use decisions but could weigh in on the consequences of mining activity and the benefits they should receive. That decision had little impact on Quebec. The province has been ahead of the curve in the mining industry. It has had mechanisms in place to deal with some of the aboriginal issues since 1975, first through the James Bay and Northern Territories Treaty, and then through the 2002 La Paix des Braves amendment that provides for revenue sharing and joint management of mining and other resources on traditional Cree lands.

Mining executives such as Sean Roosen, CEO of Montreal-based Osisko Mining Corp., commend Quebec as a “stellar place to do business,” due its generous tax rebates and certainty surround aboriginal land-rights. On that issue, however, provinces such as B.C. and Ontario have been slower to address aboriginal issues. Ontario, through its inaction, has placed the burden of negotiations squarely on the mining communities shoulders.

The Ring of Fire — currently the scene of staking rush in the James Bay Lowlands — is now thought to have the world’s best deposit of chromite ore, which when processed is a key ingredient used to make stainless steel. It also appears to have an abundance of minerals including platinum, copper and gold. Such riches have made it a political hot potato. There has been a tug-of-war over the protection of the boreal forest, primarily a stomping ground for the migrating herds of caribou. Two years ago, the provincial government placed a development moratorium on 225,000 square kilometers of the sub-arctic region — a move that angered mining companies already working in the area. But of more concern are blockades of the landing strips at Koper Lake and McFaulds Lake that services the mining firms in the region — particularly Noront Resources Ltd., which suspended its winter drill program this year.

The blockade had been brewing for years — in part because the local communities are still struggling to deal with the onslaught of stakers. “My community is in confusion how to react to the rush,” says Cornelius Wabasse, chief of the local Webequie First Nation. “We are looking for answers about how to deal with this.” Noront, meanwhile, has tried to tread softly. Despite the inconvenience of the blockade, which has already lasted more than two months, it is supporting the chiefs. This past March, Wabasse and some band councillors attended the annual Prospector’s and Developer’s Conference (the Canadian mining’s largest event), the councillors as guests of Noront.

Communications, obviously, is key to cooling disputes between First Nations and mining companies. But companies can only be expected to go so far due to the nature of the industry, says Frank Smeenk, president and CEO of KWG Resources Ltd., which is the major owner of a major chromium deposit in the region. Mining “by its very definition is competitive and secretive — it has to be,” he says That’s not to say he is not sympathetic to the First Nations’ plight. “We want to ensure (that aboriginal groups) have some benefits, everyone is empathetic to that.” He just believes miners have been “caught in the middle” on issues that are between the province and First Nation leaders.

At least the larger economic woes of the past 18 months, appears to have woken the governmental beast. Ontario Premier Dalton McGuinty, who stated in a February news conference that “we are not going to succeed in Ontario by pulling stuff out of the ground,” has changed his tune. “There is a tremendous amount of excitement over the economic potential of the Ring of Fire,” says Michael Gravelle, Ontario’s Minister of Northern Development, Mines and Forestry.

In addition to enshrining treaty rights in it mining act, Gravelle says his government is “working towards creating a dispute-resolution process, the first of its kind in Canada.” In the interim, his goal is facilitate more memorandums of agreement like the one signed this year between seven First Nations groups and Brett Resources Inc. for the exploration and development of the Hammond Reef Gold Project near Atikokan.

B.C. has also changed tack. The Gordon Campbell government has done a lot in the past six years to bring mining back from the brink, says Pierre Gratton, president and chief executive of the Mining Association of British Columbia. In 2001, exploration activity hit an all-time low of $25 million, but rebounded to $416 million in 2007. That figure has fallen back to $154 million last year because of the economic climate, “but our prediction is that exploration should recover in 2010,” says Gratton.

Meanwhile, Randy Hawes, B.C.’s Minister of State for Mining, says the industry is now a top priority, right up with oil and gas. The devastating impact of the pine beetle in British Columbia has devastated the northern communities that rely on the forestry industry, and these areas need to transition, says Hawes. And the best paying industrial jobs are in mining. So in addition to the new three-year flow through tax credit it recently announced, the province is hoping to service the industry by investing “hundreds of millions” to bring power into the northwest. B.C. has also taken a page from the Quebec government, recently approving a framework for revenue-sharing agreements.

In the last decade, there has been no major mine operating in the province, but “we expect more than a doubling of the gross revenues from mines in the next three to four years,” says Hawes, who cites potential mine sites including the Afton project in Kamloops and the Copper Mountain mine near Princeton which are both under construction. The proposed Mount Milligan copper-gold mine in north central B.C. near Fort St. James is still facing opposition from the Nak’azdli First Nation, which staged protests in November, but the McLeod Lake band, which may have a stronger claim, are close to a revenue-sharing agreement with the province. “We are on the verge of a renaissance,” says Gratton.

Back in Toronto, Gordon McKinnon is still mulling over his claims in the Ring of Fire region. Back in 2007, before the stock market crash, “all you had to say was that you were staking claims and your shares would double,” says McKinnon who raised $3 million at the time. The economic crisis forced him to stall development to conserve cash. Now he’s waiting and watching the drama play out between the First Nations, Noront, KWG Resources and the government before he goes back in. Sitting in his son’s Bay Street office, Don McKinnon gives a derisive snort about the delays. But for the younger McKinnon the delays are business as usual — for now. “If we don’t want to be blockaded, it’s better to stay away,” he says.