ELECTION ’93 — MINING FOR ANSWERS — Tough environmental

In preparation for the Oct. 25 federal election, The Northern Miner asked representatives of four of the main political parties to respond to a series of questions pertaining to mining. All representatives were asked the same five questions, which were devised with the assistance of The Mining Association of Canada, the Prospectors and Developers Association of Canada and Watts, Griffis and McQuat. The following interview with MP Jean Charest, deputy leader of the Progressive Conservative Party of Canada, is the last in the series.

* Do you support the retention of a federal department responsible for mines?

Yes, I do, for several reasons. First, the mineral industry is vital to the Canadian economy. This industry contributes approximately $21 billion to our gross domestic product and provides some 350,000 jobs in 115 communities across Canada. Secondly, although the provinces have jurisdiction over natural resources under the constitution, there will always be federal aspects related to mining, for example in areas of taxation, environment, federal Crown lands and regulatory and trade issues. Although mining itself is a domestic activity, the minerals and metals market is international and there are numerous international issues relating to market access which need to be monitored and addressed.

* Although the matter falls within provincial jurisdiction, does your party support the decision by British Columbia’s NDP government to transform the Tatshenshini-Alsek wilderness area into a park and thereby prevent Geddes Resources from mining the $8.5-billion copper-gold deposit known as Windy Craggy? How do you blend the concerns of environmentalists and the under- informed public with those of the mining community?

There should be no doubt in anyone’s mind that the mining industry is vital to Canadians, a fact recognized by governments. Windy Craggy is a unique case which should not be interpreted as a rejection of the mining industry. The Tatshenshini-Alsek area represents a textbook case of the difficulties inherent in managing diverse resource uses as the area combines high mineral potential with outstanding wilderness and recreational potential. The federal government recognizes the right of provincial governments to manage mineral resources and decide land use. In addition, the federal government respects the British Columbia government’s decision to seek World Heritage Site status for the Tatshenshini-Alsek provincial park. Premier Michael Harcourt has asked, and the prime minister has agreed, to place the nomination before the World Heritage Committee once we have received the documentation from the provincial government.

With respect to the second part of your question, although I would not want to characterize anyone as under-informed, I would agree that members of the public are not well-informed. The public has certain perceptions of the mining industry which, although widely held, are not always accurate. I think industry, government and the press all have an important role to play in improving public awareness of the importance of mining to Canada. * Most provinces require mining companies to pre-plan for mine reclamation by setting aside money in trust funds for several years. While these companies support reclamation plans to safeguard the environment, the requirements drain investment capital resources when they are most needed to start up new mining enterprises. Do you support the mining industry’s call for federal tax changes to allow companies both to protect the environment and allow funds to accumulate and earn interest free of tax, similar to a registered retirement saving plan (RRSP)?

The question that has been discussed quite openly is the tax treatment to accord to payments by companies into funds mandated by provincial governments, ahead of the time when the funds would be required for actual expenditure on mine reclamation. Industry is asking for the so-called RRSP solution, which would involve a tax deduction for payment into trusted funds, as well as non-taxation of the earnings in the funds while they accumulate in the years before they are required for mine reclamation. There seems to be general acceptance that payments into these funds should be made accessible. The answer to this question is, of course, one for ministers of finance at the federal level and also at provincial levels. I don’t need to emphasize that such initiatives could be costly to the federal and provincial treasuries, especially because they have to be extended to other sectors of the economy. The outcome of this issue depends on current discussions and negotiations between federal and provincial finance departments and industry on the tax treatment of the accrued fund earnings. I don’t think we know yet what will be the result of these discussions, but I am hopeful that a satisfactory settlement of this important issue can be reached soon. * Will the government of Canada reintroduce flow-through share funding or other tax incentives to generate much-needed investment in mineral exploration?

Flow-through share funding still exists, so there’s no question of reintroducing it. Under current tax rules, the 100% writeoff for exploration expenditures can be fully transferred to the investors who buy flow-through shares. However, the removal of earned depletion under tax reform has somewhat diminished the attractiveness of flow-through to investors. But the essential idea of flow-through continues to govern the tax treatment in junior exploration.

Recently, we made some changes to the Income Tax Act to clarify the scope of these provisions. For example, the explicit inclusion of diamonds in the “mineral resource” category makes it clear that exploration for diamonds qualifies for flow-through share treatment. And I find it encouraging that a number of provincial governments have introduced their own flow-through share programs.

Investors do not only look at incentives. They are also influenced by mineral commodity prices and stock market conditions for junior companies which, with some exceptions having to do with the gold rally, have not been overly impressive for some time now.

Another important ingredient is that hot new mineral discoveries can often do more for the level of junior exploration activity, and for its focus and effectiveness, than any incentives. In this connection, the current diamond plays in the Northwest Territories are stimulating great interest on the Vancouver Stock Exchange with regard to junior exploration companies. Indeed, this strong interest in diamonds has also been the main factor behind an increase in the level of flow-through financing this year. In fact, it appears that the level of flow-through financing in 1993 could easily reach $90 million, doubling last year’s total of $45 million.

In summary, while the competitive position of all aspects of Canada’s mining industry, including exploration, is a major concern, I’m not sure that incentives are the solution. I appreciate that the industry has been through a tough period, but I see some encouraging signs for a turnaround. * Canada’s mining sector provides some 400,000 direct and indirect jobs and contributes 19% to our gross national product (GNP). What steps can we take to halt the erosion and possible fatal decline of Canada’s mining industry? If we fail, with what can we replace it? Where do you think the industry has been falling down on the job?

Although your figures could be debated, there is no doubt that mining is important to Canada. Canada is among the top five producers in at least a dozen important metals and minerals. As you know, we lead the world in the production of uranium and zinc, and are second in the production of nickel, gypsum, potash, sulphur, asbestos and titanium. We are significant world producers of copper, gold and silver. And we have a major portion of the world’s coal trade. Add to this the jobs in processing, transportation and in the supply of services of various kinds to the mining industry, and it is clear that mining is a significant player in the Canadian economy. Specifically, the department of Natural Resources Canada estimates that the minerals industry provides some 338,000 jobs in 115 communities across Canada and contributes $21 billion to our GNP.

However, the international conditions influencing investment in mineral exploration and mine development have changed significantly in recent years. Major legislative and policy changes affecting trade and investment have made other countries seem more attractive for mineral investment capital. This trend, together with cyclical factors, has resulted in sharply reduced mineral investment not only in Canada, but also in the U.S. and Australia. In general, Canadian producers have been able to maintain their competitiveness by adopting new mining methods, employing advanced technology and implementing cost-saving measures. There are, of course, high-cost producers and they are always vulnerable, particularly during cyclical downturns such as we are currently experiencing. I am also aware that Canadian metal producers are facing real difficulties as a result of increasing world inventories and depressed commodity prices, particularly for nickel and aluminum. This is due in part to increased metal exports from Russia and the former east bloc. A decline in consumption in the former U.S.S.R. has been a major factor in that country’s increased exports to the West.

While metal supplies have increased, metal demand has been affected by a prolonged recession within the major economies of the OECD (Organization for Economic Co-operation and Development). This has resulted in metal prices falling below the cost of production, which has meant substantial losses for Canadian metal producers. Although times are currently tough, I fully expect this industry will turn around as Canadian and world economies improve. The mining industry has an essential contribution to make in the renewal of Canadian and American economic prosperity. As well, the recycling capabilities of the industry are making a significant contribution to sustainable development and this is having an impact on our own natural resources base.

You asked what we can do to strengthen Canada’s mining industry. I believe much of what we have been doing over the past few years, even on the environmental front, will pay major dividends in the years ahead. Some of the things which appear to reduce Canada’s attractiveness at the moment, for example establishing and enforcing appropriate environmental regulations which deal with legitimate concerns, will inevitably confront Chile, Mexico and other currently popular mining targets a few years down the road. By tackling some of the difficult issues head-on right now, Canada is building the awareness, the skills and the decision-making structures to accommodate legitimate environmental demands in the mining industry and elsewhere. This will help to build public trust in the industry. We also need to educate the general public, whose view of mining is, even today, informed by outdated stereotypes.

Canadian companies have implemented production cuts, temporary closures and layoffs as a survival strategy in response to continued low metal prices. I do not think our industry has fallen down on the job — and I don’t think the industry can be replaced in Canada. Furthermore, I fully expect things to improve as the economy starts to pick up.

— Lisa Murray is a 7-year veteran of politics at the federal, provincial, municipal and consular levels. She is currently at Watts, Griffis and McOuat.