Ontario Auditor General Releases 2015 Annual Report: The Section on Northern Development and Mines and the Ring of Fire (December 2, 2015)

http://www.auditor.on.ca/en/

For the entire chapter on the Ministry of Northern Development and Mines, click here: http://www.auditor.on.ca/en/reports_en/en15/3.11en15.pdf

1.6 Ring of Fire

The Ring of Fire is a mineral-rich area located in Northern Ontario in the James Bay lowlands, about 500 kilometres northeast of Thunder Bay. This is a remote area with no infrastructure linking the region to existing roads, rail or electricity.

The area is approximately 5,000 square kilometres, with most mineral discoveries to date located within a 20-kilometre-long strip. See Appendix 2 for the geographical location of the Ring of Fire.

Early exploration in the region in 2001 identified significant deposits of nickel, copper, zinc and platinum. However, it was the discovery of North America’s first commercial quantities of chromite in 2008 that attracted more intense interest to the area. Chromite is a mineral used to make ferrochrome, an alloy that is essential in making stainless steel, which is in high demand worldwide.

It is estimated that the chromite deposits hold at least 220 million tonnes, which would make it one of the richest deposits in the world. The chromite and nickel deposits alone in the region are estimated to have a potential value of $60 billion.

1.6.1 Ring of Fire Secretariat

In 2010, the government established the Ring of Fire Secretariat to work and consult with Aboriginal Peoples, northern Ontarians and the mining community to encourage the sustainable development of the Ring of Fire. The Secretariat has 19 full-time staff working in offices in Sudbury, Thunder Bay and Toronto. Since it was established in 2010, the Secretariat has incurred over $13.2 million in operating expenditures.

It has also distributed $15.8 million in transfer payments to Aboriginal communities for capacity building (for example, operational support, and education and training initiatives to develop their ability to participate in the mining sector) and other funding support.

This other support includes funding a local liaison position on the reserves, as well as funding the negotiation of the Regional Framework agreement between the province and the nine Matawa First Nations impacted by resource development in the area.

This Regional Framework agreement outlines how the province and these nine First Nations communities are to work together on shared priorities, including long-term environmental monitoring, infrastructure planning, social and economic development, and resource revenue sharing.

1.6.2 ROF Infrastructure Development Corporation

In response to the infrastructure challenge of the Ring of Fire, the government also created the ROF Infrastructure Development Corporation in August 2014. Its objective is to bring Aboriginal communities and the public and private sectors together to:

• create partnerships to encourage exploration and development in the Ring of Fire;
• make decisions about investments for building transportation infrastructure (including how to best use the $1 billion that Ontario committed for Ring of Fire infrastructure in its 2014 budget); and
• promote and foster economic development for Aboriginal and non-Aboriginal peoples in the Ring of Fire.

Summary

Our audit found that the Ministry has not been effective in encouraging timely mineral development in the province. While a drop in mineral prices in recent years has had an impact on mining activities in the province, Ontario is ranked near the bottom in Canada with respect to attracting mining-sector investments.

According to the 2014 edition of a Fraser Institute annual survey of mining and exploration companies, Ontario ranked ninth among Canadian provinces and territories in investment attractiveness in mineral exploration, even though it has one of the lowest mining tax rates on income from mining operations in Canada.

Ontario has a marginal effective mining tax rate of 5.6%, compared to a national average of 8.6%. Exploration spending in Ontario peaked in 2011, and has since dropped by over 50%.

Discovery of the rich Ring of Fire mineral deposit in a remote area of Northern Ontario is one of the province’s greatest mining opportunities in recent years. We noted that the Ministry has worked diligently to establish a regional Framework agreement with Aboriginal communities that lays out a community-based negotiations process
for development in the Ring of Fire, and has been funding education and training initiatives to build the capacity of Aboriginal communities to fully participate in future opportunities in the mining sector.

However, the area is still not close to being ready for production since its discovery in 2008, and we found the Ministry has no detailed plan or timeline for developing the region.

We also noted the Ministry lacks adequate processes to manage mine closure plans and the rehabilitation of abandoned mines. In particular, closure plans are neither properly reviewed when first submitted, nor subsequently updated on a regular basis to reflect current costs and standards.

In addition, the lack of updated information on existing hazards and rehabilitation costs, and a lack of consistent funding, made it difficult for the Ministry to develop a comprehensive rehabilitation strategy for abandoned mines.

Among our specific findings:

• Ministry’s marketing strategies may be ineffective: While the Ministry attends about five trade and investment events a year, and relies on other ministries for some of its other marketing activities, it has undertaken no assessment of the effectiveness of these activities in attracting investors. For example, although performance targets are set for generating contacts and meetings to discuss investment opportunities in the province, the Ministry has not consistently tracked whether these meetings or contacts led to any significant investments in the province.

• Ministry is slow to make geosciences information available to mining industry: We reviewed the Ministry’s list of mapping projects scheduled to be completed by 2014, and found that over one-third were behind by an average of 19 months. In addition to publishing its own geological maps and reports, the Ministry also makes available to the public all geological assessment information submitted by prospectors. However, at the time of our audit, we noted that over 1,250 geological assessments dating back to 2013 had not yet been made publicly available online through
a searchable database. As a result, this technical information was not easily accessible to potential developers to help them identify opportunities for mineral exploration and development.

• Lack of clarity on duty to consult with Aboriginal communities slows investment: Potential investors have to provide Aboriginal communities with information on the impact of mining projects, and ensure that any concerns raised by the communities are addressed. Mining industry associations told us this delegation to the private sector can discourage investments because of the high cost of travelling to many remote Aboriginal communities, and because it was not possible to anticipate either the length of time required to complete consultations, or the outcome of those consultations.

• Little infrastructure development of the Ring of Fire to date: The remoteness of the Ring of Fire requires significant infrastructure investment to open access to it and to encourage development in the region. There are also more than 10 First Nation communities or reserves in the region that that must be consulted on any development of the Ring of Fire.

In 2010, the Ministry established the Ring of Fire Secretariat to lead the overall development of the region, including co-ordination of infrastructure development and Aboriginal consultation. In addition, in 2014, the provincial
government committed $1 billion to infrastructure in the region, contingent on matching funds from the federal government.

However, the federal government did not commit to match the funding due to the lack of detailed plans for development. It directed the provincial government to apply to the New Building Canada Fund once it has plans for
specific infrastructure projects in the region. The province remains committed to spending $1 billion in the region, but none of the committed funding has been spent to date and, in any case, the provincial commitment alone
will not be enough to meet the region’s infrastructure needs.

• No minerals yet extracted from the Ring of Fire: In 2013, a large international mining company that held the rights to explore and potentially develop the chromite deposits in the Ring of Fire pulled out and sold most of those rights to a Canadian junior mining company. The Canadian company has no current plans to develop these chromite holdings. Other potential investors cannot mine most of the chromite in the region unless the Canadian company agrees to sell its rights.

For the entire versio of this report, click here: http://www.auditor.on.ca/en/reports_en/en15/3.11en15.pdf

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