Ottawa foresees a prosperous future

“Clearly, the picture for the mineral producing side of the mining industry in Canada is much brighter than it was even a year ago and certainly brighter than three years ago,” said John MacDougall, parliamentary secretary to Jake Epp, minister of Energy, Mines and Resources Canada.

MacDougall, who represents a northern Ontario riding, was addressing the 1989 annual meeting of the Canadian Diamond Drillers Association (CDDA).

“We acknowledge juniors are being hurt by the downturn in the price of gold and the value of shares on the Vancouver stock market,” he said. “There’s no doubt a major discovery would reverse the stock market psychology and we would see a turnaround in this situation.”

Addressing the work of CDDA members, the MP said about 45% of total expenditures on field exploration for non-petroleum minerals are accounted for by diamond drilling. “Without diamond drilling, few mines would be opened,” he said, pointing out that records for surface diamond drilling were set in the 3-year period 1985-87. Record production

“In 1988, minerals and metals production totalled $21 billion, a record. Profitability is strong and real output per worker increased by almost 100% in five years,” said MacDougall.

“From 1986 to 1987, return on capital employed in the metal mining sector nearly doubled from 5% to 9%. And 1988’s profits are about 13% higher than 1987’s profits. After a number of years of decline, the industry’s proportionate contribution to GDP (gross domestic product) has again begun to increase.

“Investment is also increasing. In 1987, mining companies invested about $4.6 billion in Canada. Exploration expenditures alone amounted to well over $1 billion, a 70% increase over 1986.

“When the figures are in, we expect to see expenditures on exploration exceed $1 billion again in 1988. Data gathered by your association, which covers about 60% of the industry, show a continuing upward trend in drilling activity from 1986 to mid-1988.”

MacDougall said the Canadian mining industry has shown a resilience and vitality. “Producers are optimistic and have used a significant portion of increasing cash flows to reduce the substantial debt that was acquired during the recession.

“Although it is unrealistic to expect prices to stay as high as they are now for an indefinite period of time, we can anticipate prices will continue to be fairly robust over the next couple of years.

“The forecasts are that economic growth will continue, which in turn will give rise to high demand for industrial metals. We don’t expect a return to the conditions that prevailed in the early 1980s.

“Does this mean we can afford to sit back and relax? Of course not. But all of the participants in the industry can be proud of the tremendous work they have done over the past six or seven years.

“I believe the federal government can also take some pride in its contribution to the dramatic turnaround of the mining industry. The mineral and metal policy, introduced a couple of years ago by Gerald Merrithew, sent an important message to the industry. Quite simply, the message was, we will support, not detract, from your efforts to improve the prospects of your industry.”

The policy statement, he said, identified a number of government objectives, including:

— fostering the development of the minerals and metals sector as a foundation for regional economic development;

— promoting improved technological performance and increased international competitiveness in all facets of the industry;

— assisting workers and communities affected by industrial adjustment;

— facilitating enhanced mineral and metal exports and access to new and traditional markets; and,

— providing timely and accurate economic, technical and scientific information required by the industry and by the federal and provincial governments, labor and the general public. New incentive scheme

MacDougall said the Canadian Exploration Incentive Program (CEIP), the grant system for mineral exploration which replaced the flow-through depletion allowance scheme at the first of this year, “indicates both our commitment to the policy statement and our desire to use available resources efficiently and effectively.”

CEIP offers a 30% cash contribution on up to $10 million per year of eligible exploration expenses for each company. Only those exploration expenditures that have been financed through flow-through shares are eligible for CEIP grants.

“Between 1983 and the end of 1988, flow-through shares raised some $3 billion for mineral exploration in Canada and accounted for 60% of total Canadian exploration spending over that 6-year period,” MacDougall said.

“Analysis has indicated that, on average, every one million dollars spent on mineral exploration creates some 21 person-years of direct employment. This suggests the $3 billion worth of exploration financed with flow-through shares has in itself generated an estimated 63,000 person-years of direct exploration employment in Canada between 1983 and 1988.

“A high proportion of this flow- through exploration spending and associated employment (more than two-thirds of it) was concentrated in 1987 and 1988.

“Over the six years, from 1983 to 1988, nearly 300 new metal deposits have been discovered in Canada. On the basis of the 60% of total exploration spending having come from flow-through sources, some 180 of these discoveries could be attributed to the flow-through share program.

“In addition, flow-through funds have contributed to the advancement of exploration on an even larger number of deposits discovered prior to 1983, including former mines in which all of the economically viable ore was believed to have been mined out.

“The known size of some of these earlier discoveries has increased considerably. Some mines, which had been shut down, have been re-opened because of flow- through-funded exploration.

“Mines on 60 mineral deposits where exploration was financed, at least in part, with flow-through shares have either come into production since 1 983 or are currently being prepared to do so.

“Preparing these deposits for production has resulted in an estimated $1 billion to $2 billion of mine construction expenditures, including construction jobs. And that does not account for the many other jobs such expenditures have created or will create, directly in the development of new mines and indirectly in other parts of Canada.

“During their commercial life, these 60 new mines will generate about 6,200 direct production jobs and provide a total of at least 100,000 person-years of work over some 15 years, typically in remote areas of Canada where job opportunities are limited.

“Flow-through funding has yielded still other benefits. Cutbacks in mineral exploration spending are an easy way for mining companies to reduce costs during periods of low profitability that result from declining metal prices. This has traditionally resulted in layoffs of exploration personnel, most of whom leave the industry permanently.

“When the prices of metals dropped sharply in 1981 and 1982, and interest rates rose to high levels, profitability of most producing Canadian mining companies, especially those with large debts, plummeted.

“The availability of flow- through-share funding, beginning in 1983, helped preserve Canada’s pool of experienced explorationists. Without funding of exploration with flow-through shares, it is likely that close to half of them would have been laid off and many of those permanently lost to the industry.

“So important was flow-through financing during this period of the early ’80s that, according to a recent editorial in The Northern Miner, it was flow-through funding that kept the industry alive.

“In 1988 alone, flow-through shares raised over $900 million for exploration. This resulted in an estimated 25,000 direct exploration, development and production jobs. Without flow-through share funding, most of t
hese jobs would not have existed.

“Finally, over the 15 years prior to 1983, junior mining exploration ranged from $25 million in poor years to $150 million in good years. With the ability to flow-through earned depletion, exploration by junior mining companies increased from $75 million in 1983 to over $1 billion in 1987.

“Thankfully, interest in exploration for base metals, which dropped off markedly, is being rekindled.

“Despite the current vigor of the industry, and despite the proven effectiveness of flow-through financing, concerns have been expressed about the immediate prospects for mineral exploration in Canada. There are those who conjecture that exploration expenditures will be down significantly in the near future and that somehow CEIP will be to blame.

“The Northern Miner editorial I referred to earlier captured this sentiment when it stated that `. * * the very investment incentive that was hailed as having saved the junior exploration industry a short two years ago is now being invoked to explain the myriad of failures that have resulted since then.’

“The editorial, correctly in my view, went on to disagree with this criticism. Clearly the steep declines in the price of gold and the VSE have had a significant impact on the ability of juniors to raise flow- through share funding.

“CEIP and flow-through financing were designed to help companies face the risks inherent in the industry and keep it competitive. As the data shows, the program works. It allocates funds better and it ensures those funds are used more wisely. “According to the Mining Association of Canada, CEIP is an important means of stabilizing mineral exploration activities over the down phase of the cycle so that employment in communities and regions dependent on minerals exploration can be maintained * * * CEIP should be kept in place to maintain a vigorous junior mining sector.”

MacDougall said the federal government is not now in a position to offer much in the way of incentives. “Its financial room to manoeuvre has shrunk too much,” he said.

“For many industries, including mining, the question now is not how much more can the government give, but rather, can the government afford to give industry any resources at all. Program justification, not program enrichment, is the name of the game these days.”

]]>