TORONTO (miningweekly.com) – A new study has found that the cost to explore and build new mines is as much as 2.5 times higher in northern Canada, mainly as a result of a lack of critical infrastructure.
The study, titled ‘Levelling the Playing Field’, found that the cost of mineral exploration and building and operating mines was significantly higher in remote and northern regions of Canada's provinces and territories, with the cost premium directly linked to the lack of infrastructure in these areas.
The Mining Association of Canada, the Prospectors & Developers Association of Canada, the Association of Consulting Engineering Companies – Canada, the Northwest Territories (NWT) & Nunavut Chamber of Mines and the Yukon Chamber of Mines produced the report, which defined ‘north’ or ‘northern’ to include Canada's territories, as well as remote and northern regions of the provinces.
Unlike many of their southern counterparts, companies operating in these remote areas needed to invest in costly, critical infrastructure such as ports, power plants, winter and permanent roads, and accommodation facilities. In many cases, there were also sparse populations or no people for hundreds of kilometres from the project or mine.
According to the study, capital costs were found to be higher for certain commodities, with base metals projects costing 2.5 times more, gold mines double and diamond mines 15% to 20% more.
Exploration costs corresponded directly with the distance from transportation infrastructure, with the most remote project costing six times that of the least remote project.
The Canadian mining industry was an integral part of the nation's economy, contributing $54-billion to Canada's gross domestic product in 2013, and employing more than 380 000 people across the country. Direct mining employment and mining output across the northern regions of all provinces neared 16 000 workers and exceeded $3.4-billion, respectively, in 2011.
In the territories, recent data indicated that mining accounted for about 15% of overall employment in the Yukon, NWT and Nunavut combined. However, sustaining these benefits for future generations would require integrated, innovative policy responses by governments to create an attractive investment climate.
Despite Canada's current leadership in mining, the report noted that two main indicators suggested that the industry's long-term viability was in jeopardy, namely that reserves for several base metals had declined significantly since the 1980s, while output volumes of key commodities had also been declining relative to other mining countries.
Resolving these issues would revolve around increased exploration activity to make more discoveries as a means of replacing declining reserves and then bringing new and existing discoveries into production. Remote and northern parts of Canada held the key to resolving both challenges, the report found.
Recently, Canada’s governments had started to bring a sharper focus on economic development in the North. The federal budget for 2015, for example, proposed to increase the borrowing limit for the NWT government to $1.3-billion and to $650-million for the government of Nunavut , while the extension of Canadian Exploration Expenses to include community consultation expenses would reduce the costs of exploration.
Community consultation expenses were intended to give the territories greater flexibility in exploring future investments, including in infrastructure to support resource development and economic growth. Quebec's Plan Nord was another strong commitment to northern development and this government's recent commitment to extend Route 167 to the Renard diamond mine was the kind of initiative required to enable new mineral exploration and mining development.
However, the study revealed further strategic investments were warranted to overcome the cost burden and make the region more competitive for global mineral investment. In the absence of additional public infrastructure investments, the authors recommended taxation policy reform for both the exploration and production phases of mining that would help level the playing field for companies seeking to work in remote and northern regions of Canada.
To support exploration, the group advocated for a new and enhanced federal Mineral Exploration Tax Credit for projects in remote and northern parts of Canada at 25%, against the current 15%, as well as financial incentives to make the costs of drilling for early stage exploration projects more economically feasible.
To support mining companies to build and operate in remote and northern areas, the group recommended a base 10% investment tax credit, in addition to either a 15% investment tax credit for eligible infrastructure, or a pardonable 25% conditionally repayable contribution for infrastructure investments.
Flexibility was required to enhance the project economics for companies in both taxable and tax-limited positions.
With infrastructure being a critical need, the group also recommended the establishment of a northern infrastructure investment bank in the territories for mine-related infrastructure that generated public benefits, but did not meet the "public use" criterion of existing federal programmes.