Capital spending and the proposed mining-related investment that lies ahead – by Paul Stothart (CIM Magazine – December, 2011)

Founded in 1898, the Canadian Institute of Mining, Metallurgy and Petroleum (CIM) is a technical society of professionals in the Canadian minerals, metals, materials and energy industries.

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

The single most important contribution that companies can make to Canada is in the form of capital expenditure. In the mining sphere, capital spending pays for new mine construction and increases to existing mine capacity. It generates process and technology improvements and the modernization and expansion of mills, smelters and refineries.

It leads to the implementation of new product lines and improved energy efficiency and environmental performance. When companies commit to a particular capital spending program, the direct result is new jobs, contracts and production, as well as more modern and productive facilities.

Capital spending plans are driven by an array of variables, including: projected future global market demand and mineral price trends; degree of confidence in existing plant capacity; level of comfort with host government rules and regulations; and the state of a company’s existing financing capabilities.

In 2010, the Canadian mining industry made capital investments of $12.6 billion – up 30 per cent from the economically turbulent previous year – and a further 30 per cent increase is projected for 2011. At mine sites, around two-thirds of capital spending is related to construction and one-third to machinery and equipment. This ratio is reversed at the smelting/refining stage where only 20 per cent of spending is on construction and the remainder directed towards machinery and equipment. Of note, a further $4.6 billion was spent by the mining industry in 2010 on “repairs,” generally of machinery and equipment.

In 2010, the largest capital expenditures in the metal mining sector occurred in gold-silver mines ($2.1 billion), copper-zinc mines ($940 million), nickel-copper mines ($870 million) and iron ore mines ($700 million). The coal mining industry invested $620 million in capital spending, while among the non-metallics, potash companies invested $2.4 billion and diamond firms $350 million. In the oil sands, which remains among the world’s leading capital investment hubs, some $11.2 billion was spent in 2010 with $14.3 billion projected for 2011. Oil sands spending is entirely captured within the oil and gas sector, although some portion, probably around half, relates to construction and expansion of oil sands mining facilities.

Capital investment in recent years has led to the opening of the Duck Pond, Chisel North and Voisey’s Bay metal mines, the Wolverine coal mine, the Victor and Snap Lake diamond mines, and several gold mines, among others. During mid-2011, the Mining Association of Canada drew upon existing websites, press releases and financial statements to compile an estimate of the amount of capital investment in Canada being proposed by the mining industry over the coming decade. In total, some $136 billion in mining-related projects have been proposed for the coming years. This figure includes multiple billions of dollars in projects in each of the following regions:

  • Nunavut: gold and iron ore projects by Newmont, Baffinland (ArcelorMittal) and others.
  • Northwest Territories: rare earth, diamond and gold projects by Avalon, De Beers, Fortune Minerals and others.
  • British Columbia: coal mines and gold-copper investments by Teck, Imperial, Taseko and others.
  • Alberta: mined oil sands projects proposed by Suncor, Syncrude and Shell.
  • Saskatchewan: diamonds, potash and uranium proposals by Shore Gold, BHP Billiton, Cameco and others. 
  • Ontario: nickel, gold and palladium proposals involving Vale, Goldcorp and others. 
  • Quebec: diamond, nickel and gold projects involving Stornoway, Agnico-Eagle and others. 
  • Newfoundland and Labrador: a nickel processing plant investment by Vale.

Most Canadian regions offer exciting potential for new mines. For example, the Legacy potash mine is expected to open in Saskatchewan in 2013, while the Cigar Lake uranium project is presently scheduled to start production that same year. In diamonds, the Chidliak project on Baffin Island, Gahcho Kue project in the Northwest Territories, Aviat field in Nunavut and Renard project in central Quebec all offer promise, with the latter project likely the most advanced.

Beyond the private sector, it should be noted that government can also play an important role through capital investment. The ongoing extension of the Highway 37 transmission line in northeast British Columbia is a good example of the positive impacts of public infrastructure investment. This capital cost of $400 million will enhance the economics of an estimated $15 billion in mineral projects.

Similarly, the planned extension of the Route des Monts Otish (Route 167) in northern Quebec, which is part of the Quebec government’s $80 billion Plan Nord initiative, will improve future prospects for development of gold, diamond, copper and uranium projects in the province’s North. It will also create thousands of jobs and benefit remote communities. This type of government involvement opens up new regions for development.

While many of these projects within the $136 billion estimate will undoubtedly face obstacles and delays, this figure nonetheless gives a sense of the scale of mining-related jobs, supply contracts and tax revenues that potentially lie ahead in all Canadian regions.