TORONTO (miningweekly.com) – A recent independent report has highlighted the significant economic impact of Ontario’s mineral sector and found that all stakeholders – including miners, Aboriginal and other local communities, governments and supplier industries – benefitted from the sector’s activity.

The University of Toronto’s Rotman School of Management was commissioned by the Ontario Mining Association to assess the impact openpit and underground gold-mining scenarios in a relatively remote part of Northern Ontario would have on gross domestic product (GDP), employment and government revenue.

The school’s Peter Dungan and Steve Murphy of the Policy and Economic Analysis Programme authored the report and considered two hypothetic scenarios.

The first was to investigate the impact of building an openpit mine over three years at a capital cost of $750-million, while the second was to examine the impact on local economies of building an underground mine over the same period at a capital cost of $600-million.

The construction costs used in the study excluded all exploration, planning, permitting and other preconstruction expenditures.

The study found that an openpit mine would generate sales of $300-million a year, potentially for more than 20 years into the future, and employ 440 people on site with total compensation of $142 200 a worker.

The combined direct, indirect and induced economic impacts of an openpit gold mine were found to be “extremely large”. In its construction phase, the mine would add about $183-million to the Ontario GDP and generate more than 1 900 jobs a year. In its production phase, for each year of operation, the mine would add about $300-million to Ontario’s GDP and increase the province’s employment by more than 1 800 at a rate of compensation an employee well above the provincial average.

The combined impact on government revenues of a new openpit gold mine was also found to be significant. In the construction phase governments would collect $60-million a year from the mine’s direct, indirect and induced activity, while in the production phase, this would rise to $95-million a year. The provincial government’s share was about $25-million in the construction phase, and more than $38-million in the production phase.

For an underground mine, the study found that about $300-million in sales a year would be generated over an extended period, with on-site employment of 620 people and total compensation a worker of $145 500.

In the construction phase the mine would add almost $150-million to the Ontario GDP and generate more than 1 500 jobs in each of the three years. During production, the mine would contribute more than $330-million a year to the provincial GDP and generate 2 200 jobs a year, above the average compensation level.

In the construction phase of a new underground gold mine, governments would collect just under $50-million a year from the direct, indirect and induced impacts, with the provincial government receiving $20-million. In the production phase, all governments would receive over $100-million a year, with more than $40-million going to the provincial government.

LAYERED IMPACT

Just as a typical mine, whether openpit or underground, had multiple layers of activity, the study found that a new mine’s impact extended down to several layers below the economic activity at the mine site itself.

The first level down was characterised as the indirect impacts of the mine – the purchases that the mine needed to make to be built and undertake its production (its ‘inputs’), and also the purchases that the industries producing these inputs needed to make to facilitate their own production (‘inputs into inputs’), and so on, back along the production chain.

These indirect impacts involved the provision of transportation facilities to the mine, buying a range of accounting, financial and scientific services, and replacing machinery and equipment that wore out at the mine in the course of production. Also included were all the inputs required to produce the mine’s purchased inputs, for example, the replacement parts that would be needed to maintain the machinery at the mine, the steel that went into those parts and the energy and transportation services needed to produce the steel.

This ‘backward chain’ of inputs into inputs was found to be “quite extensive”.

The second level down could be termed the ‘induced economic impacts’. These were the economic impacts that resulted from the spending of wages and salaries by workers employed both directly by the mine and indirectly in all of the supplier industries. If these consumer goods and services were produced in Ontario, there would be further economic impact on the province.

Moreover, this level had a backward input chain to it as well, since consumer goods, or services, required their own inputs, which may also be produced in Ontario and generate further wage earnings.

The third level down was to consider the regional impact of a new gold mine where ‘regional’ for a mine in a relatively remote site needed to be considered as an area that was broad enough to include the nearest major town or city, as well as all the smaller communities within roughly the same distance.

Obviously, the mine’s own building or production activity was local, but so too would be at least some of the indirect and induced impacts identified at the first and second levels. The study found that a significant share of the impacts of a new gold mine stayed in the local area. For example, for an openpit gold mine in production, more than 1 350 of the 1 800 jobs generated were local. For an underground mine, almost 1 700 of the 2 200 jobs generated were in the broad local area.

Given that the mine was assumed to be located in a relatively remote area of Ontario, which is defined by the study as an area that “does not already possess much of the necessary infrastructure for mining production”, such as roads and electricity networks, the local impacts could be seen to some extent as a proxy for opportunities for Aboriginal individuals and businesses in the broadly surrounding area.

The authors said they had attempted to determine the skills mix for the jobs that had been identified as local. Some of these jobs would require considerable expertise. Such individuals were likely to come from outside the local area; however, part of their spending would encourage local activity.

But, an important share of the local jobs required less-specialised preparation or training that could be learned on the job.

For example, in the production phase of a new openpit mine, of the more than 1 350 local jobs, 25% would require only secondary school or specific occupation training and a further 12% would require only on-the-job training. Likewise, gold mines under way and planned were found to be already attempting to outsource services to local entrepreneurs and nurture new local supply and service enterprises.

At the fourth level down there were important but unquantifiable economic and social impacts that originated from a new mine. Most notable among these were the economic activity associated with maintaining the local community such as local government workers, teachers, police, fire and health care.

Beyond the employment impacts and encouraging local entrepreneurship, there would also be direct monetary benefits to Aboriginal communities through impact benefit agreements. Such agreements, however, could vary widely, were subject to intense negotiations and had historically tended to be confidential  – although changes to federal legislation were expected to make them more transparent in the future.

The authors noted that they had not attempted to quantify the monetary flows resulting from these agreements, but added that they would certainly occur and flow through to Aboriginal communities, which would add to the induced effects calculated purely from the respending of labour income.

The study also found that there were intangible benefits resulting from the provision of infrastructure, such as access roads and electrical grid connections, that were part of the costs of constructing either openpit or underground mines in remote locations. As with transferable skills, these remained behind to benefit individuals and the remote community even when the mine eventually closed down.