Mining Association of Canada Policy Document (April 14, 2011): Canada’s Mining Industry – Contributions, Challenges and Recommendations

The mission of the Mining Association of Canada is to promote, through the collective action of members, the growth and development of Canada’s mining and mineral-processing industry, for the benefit of all Canadians.

(A) Economic Impact of the Canadian Mining Industry

The mining industry contributed $32 billion to Canada’s GDP in 2009, employing 306,000 workers in mineral extraction, smelting, fabrication and manufacturing, and providing business to over 3,200 suppliers of engineering, environmental, financial and other expertise. In the years leading up to 2008, industry was paying an annual average of $10 billion in taxes and royalties to federal and provincial/territorial governments.

Although a drop in commodity prices brought this figure down to approximately $6 billion in 2009, tax and royalty payments are now increasing, and are expected to return to, or go beyond, pre‐2008 levels. While the industry is important in small communities, it also generates prosperity in our larger cities – Toronto (finance), Vancouver (exploration), Montreal (aluminum, iron ore), Edmonton (oil sands), Calgary (steelmaking coal) and Saskatoon (uranium, potash) have all emerged as global mining centres in particular areas.

On the international scene, the industry accounts for 19% of Canadian goods exports, with multi‐billion dollar exports in a dozen commodities. Over half of the freight revenues of Canada’s railroads are generated by the mining industry – high portions of Canada’s port and marine revenues are also attributable to the industry. The industry accesses new capital, ideas and opportunities through high flows of inward and outward investment. Canadian mining companies have $56 billion in investment abroad as of 2009, while there was $74 billion in foreign direct investment in Canada.

(B) Progress in Social and Environmental Areas

The Canadian industry places a high priority on social, environmental and health and safety issues. The industry’s Towards Sustainable Mining (TSM) initiative includes performance targets in four key social license areas as well as policies being developed on biodiversity, Aboriginal relations and mine closure.

Canadian firms and MAC are also involved in important dialogue and research initiatives through which the industry addresses water quality and tailings management issues.
Canadian mining companies are agents of development around the world. Their work in developing infrastructure and workforce capacity provide real and lasting benefits to local populations.

(C) Challenges and Recommendations

While times are good, neither Canadian political leaders nor businesses can afford to become
complacent. There remain some areas where Canadian governments could continue to improve the investment environment supporting the industry. There are four general areas where federal political leaders and parties should focus their attention.

1. Overall Competitiveness and Taxes

There has been a significant decline in Canadian mineral reserves over the past 25 years, particularly in zinc, silver, copper and nickel. At the value‐added stage, Canadian smelters and refineries are also facing competitiveness pressures from China and other low‐cost regions. Despite these pressures, value‐added manufacturing in Canadian mining need not necessarily diminish. With appropriate tax measures, including the following, Canada can continue to build strong mineral reserves and have an important presence in value‐added activities:

• Accelerated capital cost allowance measures should be developed to encourage investment in
the modernization of mineral/metal processing facilities – such measures would also serve to
enhance productivities and environmental performance.

• A deep drilling investment tax credit applied to exploratory drilling and mineral development
within a defined proximity of existing production areas should be developed as a means of
enhancing the level of proven Canadian mineral reserves.

• The need for significant government investment in geological mapping, particularly in the
north, should be seen as an ongoing and fundamental responsibility for the national
government of a mining country.

• The existing super flow through share incentive encourages investment in mineral exploration
and should be maintained beyond 2012. The Canadian mining industry faces a range of technological challenges in exploration, extraction, processing and waste management and, in this regard, has recently established the Canadian Mining Innovation Council. The federal government should be prepared to support the innovative future of the mining sector on a scale seen in comparable high‐innovation sectors. The intent of these programs and proposed measures would be to help discover deep ore deposits, to extend the reserve life of existing mines, to enhance the raw material supply chains for value‐added facilities and to encourage
capital investment in efficient companies and facilities.

2. Regulatory Issues

Greenhouse gas (GHG) policy issues have gained visibility in Canada in recent years and are of
fundamental importance to the industry. While the mining industry is agnostic regarding the best instrument there are a number of principles that should be reflected in government policy. For example, GHG improvement targets should be realistic and achievable, with sufficient lead time to allow for technological development and capital investments. Any federal systems or mechanisms designed to help meet GHG targets should be operational well before the target dates take effect.

For a federal‐provincial perspective, the eventual federal plan should be coordinated and consistent – and not present conflicting targets, processes and reporting obligations. Mining, like other sectors, is also concerned that consumers may be largely unaffected by proposed plans – this would serve to place an undue burden upon the industrial segment of society which contributes a minority of Canada’s emissions.

In terms of regulator review of proposed mining projects, while the industry is pleased with the
progress by the Major Projects Management Office and the Northern Projects Management Office, there remains scope for governments and departments to improve their project review processes and timeliness. Recent reports describe Canadian processes as being costly, cumbersome, inconsistent, and unfair.

Canada’s mining industry is particularly concerned with the uncertainty and inconsistency that arises from the absence of compliance mechanisms under key federal legislation. For example, companies are left to rely on due diligence defense to demonstrate compliance with the Fisheries Act, the Species at Risk Act and the Migratory Birds Convention Act, without all the guidance or regulations that Parliament had intended to be developed. Government must make implementation of its legislation a priority and ensure that adequate resources are allocated to do so in a timely way.

With respect to the related issue of tailings management, it should be noted that the deposition of materials such as tailings is a fundamental necessity for most mines. The consideration of using natural lakes for tailings disposal is limited and site‐specific and occurs only after a rigorous regulatory review process. This is similar to the approach in Scandinavia and other comparable geographic regions. MAC would be pleased to provide further information on this issue.

3. Aboriginal and Northern Development and Human Resources

Canada’s mining industry is the largest private employer of Aboriginal peoples and very likely has had the most success of any Canadian sector in working effectively and successfully with First Nations. Toward this end, MAC signed an MOU with the Assembly for First Nations in the spring of 2009 and has also developed the TSM architecture needed to help guide company undertakings in the area of aboriginal and community relations.

At the company level, bilateral agreements with Aboriginal groups facilitate progress on extractive projects while providing literacy, training, employment, and financial sharing benefits. There are over 50 impact benefit agreements in place and numerous other significant participation initiatives underway relating to mineral extraction projects – these involve many leading mining companies. What is required is a clear approach by governments on consultation and accommodation of First Nations, efficient resolution of First Nation land claims and a strategy to encourage Aboriginal participation in mining.

There is also a need for investment in infrastructure. The mining industry is one of the largest
customers for Canada’s transportation sector and it is important that products be moved to market efficiently and at competitive prices. Transportation infrastructure must be modern and in some cases, such as northern Canada and the Pacific Gateway, there is a need for significant government investment. Similarly, companies are facing increased energy management challenges related to rising energy costs and availability of electrical capacity. Strategic investments in transportation and in power generation/transmission capacity can also serve to open up new regions for development. For example it is estimated that a power line into NWT and Nunavut could enhance exploration as well as development in over a dozen mineral deposit areas.

It is estimated that the Canadian industry requires an estimated 100,000 new workers over the next decade as the skilled core of the industry reaches retirement age. Governments at all levels need to work with industry, educational institutions, Aboriginal peoples and other stakeholders to address the sector’s skills training, mobility and immigrations needs. In this respect, the federal government’s support for the work of the Mining Industry Human Resources Sector Council is valuable.

4. Corporate Social Responsibility

In 2007, the Advisory Group on Social Responsibility (CRS) produced a report containing a number of recommendations aimed at improving the performance of the extractive sector in developing countries. The Advisory Group was comprised of representatives from industry, labour, the socially responsible investment community, civil society and academia. In 2009, the federal government introduced a CSR Strategy for the Canadian International Extractive Sector.

MAC member companies have long demonstrated their commitment to CSR through programs such as TSM, IFC Performance Standards, the Voluntary Principles on Security and Human Rights, and many others. The Mining Association of Canada and its members look forward to working with Government on enhancing the CSR Strategy.

Mining Sector Contributions

Contribution to GDP $32B

Contribution to Exports $66B

Mining industry payments to governments $5.5B

Exploration Expenditures in Canada $1.7B

Direct Employment 306,000

Average Weekly Earnings $1350

Number of Supplier Companies 3223

Portion of Canada’s Rail Freight Revenue 50%

Number of Producing Mines 196

Non-ferrous Metal Smelters and Refineries 33

Companies listed on TSX 1434

R& D Expenditures (2006) $615M