Ring of regulations

Mining ventures need infrastructure to proceed yet governments stymie their development through regulations and impediments

Canada’s long-awaited mining powerhouse, the Ring of Fire, promised major economic development and employment opportunities for northern Ontario. Communities rushed to ready themselves for the coming boom in jobs and lobbied hard for the placement of the sought-after chromite smelters and associated infrastructure.

But despite its promises and potential, the Ring of Fire has fallen victim to delays and setbacks, sparking an industry-wide debate of who is to blame. The mining industry has grown increasingly uncertain about investing in Canada and has identified the provincial and federal governments, Aboriginal communities, commodity prices, and the environmental lobby as major contributing factors to this uncertainty.

Beyond the speculation of the causes of the Ring of Fire delays however, new data collected in the Grant Thornton International 2014 Global Mining Survey paints a larger picture of the infrastructure challenges faced by this industry and demonstrates that delays are not unique to the Ring of Fire, but rather threaten the sustainability of the broader Canadian mining industry.

Causes of Ring of Fire delay are in no way unique; natural resource economy at stake

Building and maintaining adequate infrastructure has been of paramount importance to much of Canada’s economic development and the need for investment in infrastructure to advance remote mining projects is not exclusive to Canada. World class deposits in Africa and Australia, for example, are as equally remote as some of Canada’s resources and similarly require railroads, ports, bridges, transmission lines, and haul roads to get product to market.

The increasingly cumbersome Canadian regulatory environment and public scrutiny of new linear infrastructure corridors that compound the existing physical and financial challenges contribute to deterioration in Canada’s competitiveness in the global capital marketplace. Pipelines used to ship oil and gas experience a very similar challenge. Without a diversified pipeline network, new oil and gas developments become less likely. Likewise, without access to markets via physical infrastructure, there will be fewer new mining projects, employment and spin-off economic activity. According to our report, 76% of Canadian junior miners indicate that their projects either cannot move forward or cannot reach their full potential in a reasonable timeframe without significant additional infrastructure developments.

For all the announcements about infrastructure investments by federal and provincial governments, staggeringly only 3% of Canadian junior miners believe they receive adequate support from the federal government for their mining businesses and only 26% report provincial support. While both levels of government have expressed their desire to support mining projects across the country, in order to execute on that they need to support new infrastructure developments. This support must come in the form of both financial investment and the investment of intangible resources and supports, such as efficient permitting and approval processes, to create a political environment that drives economic growth by encouraging mining investment.

Nearly 75% of Canadian mining companies surveyed indicated that increased government regulations are constraining their ability to grow, and 85% indicated that potential changes to mining taxes and to land-rights legislation were a significant or major cause of uncertainty for the mining sector in Canada. Clearly mining companies in Canada see too many deterrents to investment and not enough economic incentives to take the risks that historically have enabled Canada to turn its natural resource endowments into wealth for all citizens.

A stronger political environment would implement tax policies designed to encourage mining investment, ensure that labour rules were supportive, and provide a clear and predictable Aboriginal engagement framework consistent in both approach and expectations across the country.

Public-private partnerships on infrastructure developments are necessary to ensure governments have a say in planning new infrastructure construction and ensuring access for both the public and other commercial interests. While industry is often willing to be the sole funders of infrastructure, as is the case in the Ring of Fire, governments are rightfully reluctant to approve the construction of hundreds of kilometres of private roads or transmission networks when they could be shared to meet public needs. Government involvement is especially important for managing growth in Canada’s north, with opportunities like the Ring of Fire and the proposed Baffinland iron mine, as public-private partnerships allow governments to implement long-term development plans and influence the locations and methods of population growth.

While these investments are costly and the return on investment will often take decades to manifest, the Ontario Chamber of Commerce recently reported that the first 10 years on development to Ring of Fire would generate $9.4–billion of GDP, sustain 5,500 full-time jobs and generate $2-billion in combined government revenue for federal, provincial, and municipal governments. With the costs of transportation infrastructure for the Ring of Fire estimated around $2-billion, and government revenues expected to reach $6.7-billion in the first 32 years, the investment potential is clear. To this end, during his visit to the Prospectors & Developers Association of Canada 2014 Convention this week, Prime Minister Stephen Harper stated that the Government of Canada is looking to determine how to “marry private infrastructure needs with long-term public infrastructure use” so that we can reach “arrangements that are beneficial to both sides.”

While the causes of the delay to the Ring of Fire’s development have been widely debated, they are in no way unique to the region. Canada’s natural resource economy is in danger of entering a major divestment phase if action is not taken to improve access to critical infrastructure. This industry has been—and can continue to be—a tremendous driver of employment and economic development throughout Canada, making governments’ return on investment in infrastructure certain. It’s time for federal and provincial governments to take a look at their relationship with the mining industry and set a new course to promote and advance the industry by helping to meet their infrastructure needs and creating a more attractive environment for investment. Inaction in this area would come with immeasurable costs and could create an environment that would be difficult to reverse.

Mark Zastre is Global Mining Leader, Grant Thornton International.

http://opinion.financialpost.com/2014/03/03/ring-of-regulations/