Mining in Canada has undergone a profound change and is now one of the world’s most dynamic and technologically advanced industrial sectors. With its strong links to other high-tech industries, both as a user and supplier of technologies, it is a driving force in Canada’s knowledge-based economy. The industry continuously innovates in an environment of high risk and ongoing structural change. For example, demand and prices for minerals and metals fluctuate widely, outcomes in exploration and development are uncertain, and foreign and domestic political situations are often unpredictable.
To improve competitiveness, the Canadian mining industry has focused on reducing costs, increasing productivity, and expanding into new markets with new product lines. And it has succeeded by making important technological advances.
A report titled Mining Innovation: An Overview of Canada’s Dynamic, Technologically Advanced Mining Industry examines advanced technology investment and its use in the mining industry over 15 years. Commissioned by the Mining Association of Canada, the report not only details the sector’s technology investment; it also concludes that this investment has made the mining industry one of the most productive in the nation.
Prepared by Ottawa-based Global Economics, the report focuses on the key technological advances in the minerals and metals sector, particularly in information technologies (IT), and how these have contributed to the industry’s impressive productivity performance. The report finds that new technologies in mining have created growth and innovation.
Canadian mining has all the characteristics of a dynamic, technologically advanced industry. The primary metals sector had the highest overall ranking in Canada for use of advanced technologies between 1989 and 1998. Total factor productivity grew by 3.1% in the mining sector between 1984 and 1998, almost three times Canada’s overall productivity growth and a healthy distance ahead of U.S. productivity growth. The mining industry is one of the largest investors in Canada: investment in mining and oil-and-gas extraction is expected to be 15.5% of total private and public investment in 2001. The mining industry creates high-tech jobs in which a large percentage of workers have post-secondary education.
The most important advances have been in the application of IT. Some of these are outlined below:
– New technologies in exploration increase productivity and minimize damage to the environment. Exploration innovations include global positioning systems, airborne geophysics and low-impact seismic methods;
– Faster, more accurate drilling and blasting in emerging underground telecommunication systems, such as “tele-mining,” lead to higher ore recovery and profitability. Health, safety and workplace quality also improve. Automated load-haul-dump fleets lower operating and maintenance costs;
– Internet technology has improved information exchange with third parties and remote sites. Operations and maintenance are more integrated, and maintenance costs — the single largest controllable expense in mining operations — are lower.
– Fifteen of the world’s largest mining companies (including Alcan, Inco, Noranda and Barrick Gold) have formed a global online exchange to reduce procurement costs.
– Some of the most important innovations involve the organization and management of mining and quarrying facilities that come with information technologies. The rapid pace of change increases the importance of multi-disciplinary knowledge and generic skills.
Beyond 2000, global communications systems and so-called e-commerce are expected to radically transform business procedures. Also, Canadian mining industries are directing their product lines more toward higher value-added downstream products. Higher margin specialty products used in new technological innovations have growth rates several times than those reported for base metals demand. New products have contributed to sustainable development because their higher value-added makes them easier to transport, and they’re designed with an awareness of their environmental impact. Technological innovations outside the industry have also created new demands for currently mined metals; consider that it takes 37 minerals and metals just to turn on your computer, including gold, nickel, aluminum, zinc and iron, which are some of Canada’s more notable metals. Indeed, the “top 10” metals produced in Canada are widely used in the high-tech industries.
Important links are growing between the mining sector and other high-tech sectors. Mining innovations draw on new technologies from the medical, space and military fields. For example, the Geological and Environmental Mapping system is an IT that uses airborne imaging to create a knowledge base relating to surface oil detection. Reverse technology transfers have also occurred, such as a zero-gravity drill, which will be used in space and might have further applications for deep-sea exploration. Canadian firms sell to mining companies about $570 million of environmentally related products each year, 40% of which are exported.
Most of the goods and services demanded by mining companies are specialized products that are largely technical or scientific. More than 2,200 firms based in Canada supply specialized mining goods and services, and the market is rapidly expanding. Also, Canadian companies serve 70% of the world’s markets for airborne geophysical equipment, and Canadian geophysical equipment manufacturers, software developers and data interpretation companies have captured 60% of the world market.
The economic spinoffs are substantial. Mining production and investment generate direct demand in supplier industries. A $1-billion increase in output in mining and primary metals directly increases the demand for goods and services in Canada by $615 million. The original $1 billion increases demand by $839 million when subsequent rounds of expenditures are taken into account. One billion dollars of investment in mining and primary metals directly increases demand by $993 million.
If the Canadian minerals and metals sector is to remain a world leader in the new economy, it must continue to be innovative. This can only be achieved by ensuring that Canada’s fiscal policy remains competitive and by removing disincentives to innovation and investment.
The federal government has contributed to an innovation-friendly environment by adopting macroeconomic and structural policies that have created a framework for economic growth. Meanwhile, foreign jurisdictions have become more tax-competitive, and our current domestic tax regime is losing ground.
Corporate tax cuts have a clear impact on investment, productivity and economic growth if they are applied in a balanced and fair way. Excluding mining from the recent federal corporate tax rate cut sends a negative signal because there is an assumption that mining already benefits from selected incentives in the current tax system and thus has a lower effective tax rate. However, the resource allowance is not an incentive: it was put in place to compensate for provincial mining taxes and royalties. A repeal of the resource allowance in exchange for a 21% corporate tax rate would leave the industry worse off. Allowance and Canadian Exploration Expenses reflect inherent risks of large capital investments and exploration that occur in the mining sector.
Federal and provincial governments collect $4.8 billion annually in capital taxes. Capital taxes, such as the so-called large corporation tax, are “profit-insensitive” because they apply to the asset base of corporations rather than to profits. Capital taxes make research and development, as well as exploration, more difficult to fund, because the taxes cut more deeply into profits or add to losses during downturns — an important concern for mining, as the industry is highly cyclical. Also, capital taxes punish innovation by taxing investments in new technologies. An inconsistency in Canada’s innovation policy is thus created: the early stages of innovatio
n are encouraged through generous tax credits on research and development, but the adoption of innovation is discouraged with the capital tax. Mining is doubly affected because of its high level of investment and innovation and because mining and smelting companies tend to be large. Other profit-insensitive taxes, such as payroll taxes, property taxes and user fees, also discourage innovation in the mining sector.
While discussions continue on these important issues, Canada’s tax competitiveness is eroding. Reform is needed now. The federal government should extend the corporate tax reduction that was announced in the 2000 budget to the mining sector and preserve the current federal tax provisions provided to the minerals and metals sector, while eliminating the large corporation tax.
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