Dec 9, 2010 5:00 PM - 0 comments

CAPITAL SPENDING: OMA outlines plans worth $8.5-B in Ontario

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By: Peter McBride*

New mines and mine expansions are reinforcing the mineral sector's role in the foundation of Ontario's economy. Ontario's economy is going through the pains of transformation as it moves from a manufacturing base to a service and knowledge base. However, as when there was an earlier shift from agriculture to manufacturing, mining was there to cushion the adjustment and help society adapt.

Currently, mining companies are proceeding with major growth plans in many parts of the province. If we look back two years and forward about three, an incomplete list will show that mining is investing more than $8.5 billion in capital expenditures - this is in addition to operating expenditures and exploration activities. We are not sure other private sectors of the economy can match this level of recent activity on the capital spending front.

De Beers Canada made capital expenditures of $1 billion to bring the Victor mine, near Attawapiskat, Ontario's first diamond mine, into production in 2008. The Victor mine is expected to have a positive impact on Ontario's gross domestic product (GDP) of $6.7 billion and a $4.2 billion GDP contribution to the economy of northern Ontario. Xstrata Nickel invested $927 million to bring its Nickel Rim South mine in Sudbury into operation in 2009.

The big mining sector capital expenditure announcement in recent weeks was Vale's plans to invest $3.4 billion in Sudbury. The company is spending $200 million to upgrade the Clarabelle mill, $360 million to bring the Totten mine into production and $1.5 billion to $2 billion on an atmospheric emissions reduction (AER) project to cut sulphur dioxide emissions by 80%. Further investments are being made in mining studies on the Copper Cliff Deep project, Creighton mine and a number of potential low grade, near-surface nickel-copper deposits.

"The investment program we are pursuing is an indicator of the bright future we see for Vale in Canada," said Tito Martins, CEO for Vale Canada and executive director base metals for parent company Vale. "The dollars invested here will improve environmental performance, unlock new market opportunities, increase efficiencies and strengthen our global competitiveness for years to come."

The golden potential of Ontario's geology is also attracting numerous investments. Detour Gold is making capital expenditures of $1.1 billion to bring the Detour Lake gold mine, located about 150 km northeast of Cochrane, into production. During construction, this will create 1,200 jobs and when the mine is in production in 2013, it is expected to employ about 500 people. The positive economic impact for Ontario for the life of the mine will be more than $8 billion.

In the Kirkland Lake area, Northgate Minerals is investing $339 million to bring its Young-Davidson project into gold producer status by 2012. The mine is near Matachewan. Kirkland Lake Gold is making capital expenditures of $56 million to expand production at its mine from about 50,000 oz of gold per year to 200,000 oz of gold per year by 2012.

Also among existing bullion producers, Goldcorp has earmarked $350 million in capital investments for Red Lake, $335 million for its Porcupine operations in the Timmins area and $390 million for Musselwhite. Lake Shore has invested $186 million to bring its Timmins West gold mine into production and further investment on the adjacent Thunder Creek property is expected.

Elsewhere in Ontario, Quadra FNX is putting $200 million into Sudbury area expansions, and North American Palladium, north of Thunder Bay, is making capital expenditures of $270 million on the expansion of the Lac des Iles mine. Wesdome, St Andrew Goldfields, Richmont and almost every gold mine has expansion programs and feasibility studies for growth underway.

Not included in the total of more than $8.5 billion in mining sector capital expenditures in Ontario are industrial mineral producers and massive capital expenditures for the development of the Ring of Fire area. Cliffs Natural Resources has announced its plans to develop its chromite deposits and a ferrochrome processing operation in Ontario. Prefeasibility studies are underway with a projected startup sometime in 2015. Also, Noront continues to assess its high-grade nickel, copper and platinum group metals and chromite properties in the Ring of Fire region.

Between the combination of committed capital and what is anticipated, Ontario's mining industry is poised to increase and enhance its already strong contributions to the economy and society of Ontario. An economic study by the University of Toronto -- Ontario Mining: A partner in prosperity building (economic impacts of a representative mine in Ontario) -- shows that the direct, indirect and induced economic impacts of a mine are extremely large.

"In its construction phase the mine adds about $140 million to Ontario GDP and generates 2,000 jobs annually. In its production phase, for each year of operation, the mine adds approximately $280 million to Ontario GDP and increases employment by almost 2,300 at a rate of compensation per employee well above the provincial average."

The capital expenditures by Ontario Mining Association member companies for responsible resource development noted above and ones in the planning stage are destined to provide the reality to theoretical economic studies with employment, infrastructure development, entrepreneurial opportunities and tax revenues to benefit all Ontarians