Mining escapes NDP budget, but interest rate fears grow

The mining sector escaped relatively unscathed recently from an Ontario New Democratic Party budget that will drive the provincial deficit up to $9.7 billion in fiscal 1991-92.

In a bid to bolster revenues, the Ontario government has placed a cap of $10 million on the 3-year mining tax exemption which previously applied to new mines brought into production after May 20, 1987.

As a result, mines that officially started producing after April 30, 1988, won’t get the benefit of the full exemption because the new cap applies to income earned after April 30, 1991.

Mining companies, particularly those with open pit operations, will also be affected indirectly by a 1.7 cents tax increase on gasoline and diesel fuel. But a number of industry representatives interviewed by The Northern Miner described these new measures as “minor irritants” that won’t have much effect on operating companies.

Noranda (TSE) Vice-President Richard Anderson said he is much more concerned about the long-term effect on interest rates of the government’s decision to increase the deficit to record levels.

Due to high interest rates, Noranda paid out roughly $500 million last year to service a long-term debt load that has risen to $4.4 billion. The Toronto-based resource company, which owns 50% of nickel miner Falconbridge, is extremely vulnerable to any future changes in interest rates.

“If higher revenues were being used to kick the economy into gear, then that’s fine,” said Robert Ginn, a senior associate at Toronto engineering firm Watts, Griffis and McOuat. “We aren’t working in the right direction to create jobs,” said Ginn. A former president of the Prospectors and Developers Association of Canada, he described the fuel tax increase as “an added burden of cost that the industry can’t sustain.”

While other mining executives say they didn’t expect the tax exemption on new mines to last, they claim the decision to put limits on it undermines confidence at a time when the industry is suffering from a slump in exploration.

“The decision doesn’t do much to make people count on government programs,” said Barry Dent, a tax accountant at Toronto-based Ernst and Young. “One might have expected that mines brought into production within three years of the day the exemption was introduced would not have faced a cap,” he said.