Mr. Harper, Tear down this wall! – by Stephen Stewart (Mining Markets – August 15, 2014)

Stephen Stewart is a managing partner of the natural resource private equity firm Minvest Partners in Toronto.

Canada’s mining sector needs clear, consistent rules to thrive

Mining has been an integral part of Canada’s social fabric for well over a century and accordingly we have cultivated an abundance of talented geologists, engineers, technicians and financiers who give us a tremendous competitive advantage. Yet many of these professionals sit by idly, frustrated with what amounts to an inability to broaden Canada’s mineral wealth, while other nations position their natural resources to prosper in a globalized economy. Our abundance of oil remains thwarted from transport to any one of our three oceans, and world class orebodies lay dormant as disorder surrounds their required infrastructure.

While Canada’s natural resource industry needs to look inwards in order to analyze and exit its current depressed state, the rulemakers — ie. the federal and provincial governments, as well as any number of regulatory bodies — need to work towards a regulatory system that is meant to safeguard without injuring those it seeks to protect.

Understanding risk is fundamental to investment in natural resource projects so the investor, when making capital allocation decisions, can quantify the risks versus rewards. When projects operate within a congested and opaque regulatory environment, investors balk and follow the path of least resistance away from the unknown. The groundswell of politicized agendas, which layers on increased regulation, have created uncertainty, which delays the advancement of countless resource projects and their related infrastructure.

Accordingly, the rulemakers need to clearly articulate a defined game plan so that the exploration and extraction industry has a transparent and reliable constitution that business and investment can rely upon to make well-informed decisions. Risks inherent to the exploration and extraction industries are already substantial, without the addition of such extrinsic and synthetic risks.

Such imperious regulation can be compared to over taxation. The economist Arthur Laffer’s famous Laffer Curve elegantly depicts how both 0% taxation and 100% taxation equal 0% tax revenue. Laffer was illustrating the state’s necessity for taxation to function, while noting that if the rulemakers got too greedy, they would bite off their own heads. The conclusion seems obvious. . . not too much and not too little, or what Laffer deemed optimal.

The moral of the anecdote is that in a world where mineral extraction is a necessity, there has to be a co-operative balance from the effects of industrial activity and environmental disturbance. So Canada must strive for the point that delivers the materials needed to prosper, while maintaining a shared environment. With the era of responsible development and extraction upon us, industry players understand the value in doing things right. Exploration and extraction does not equal environmental destruction, as the technology and the knowledge exist to explore and develop projects optimally. The mistakes of previous eras have been learned from as the consequences have been felt.

No one would advocate for development as it was done during the Sudbury era, yet the industry is still stigmatized for errors of the past. Accidents will inevitably happen, but responsible exploration and extraction deserves to be viewed as a powerful tool that can make Canada a global leader and uplift those who are fortunate enough to be in its vicinity.

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