Editorial: Making the case for subsidizing Arctic work

Five industry groups focused on mining and mineral exploration in northern Canada have produced a timely report that quantifies the extra costs of carrying out work in Canada’s remote Arctic and sub-Arctic areas, and makes recommendations on how various levels of government can encourage mining activity in these places.

Called Levelling the playing field: Supporting mineral exploration and mining in remote and northern Canada, the report was produced by the Association of Consulting Engineering Companies Canada, the Mining Association of Canada, the Northwest Territories and Nunavut Chamber of Mines, the Prospectors & Developers Association of Canada and the Yukon Chamber of Mines.

They describe a “hefty cost premium” associated with working in remote and northern parts of Canada, and the challenges that industries in southern Canada don’t have to face: remoteness, severe weather, undeveloped infrastructure, and in many cases, sparse or no populations for hundreds of kilometres.

The main — and not particularly surprising — finding, backed up by empirical evidence, is that the “cost premium for both exploration and mining is directly linked to the transportation deficit” in remote and northern Canada, and that the “primary driver of cost variation was the distance of a project from the transportation infrastructure required to service the needs of the project.” (A “remote project” is defined in the report as one that’s more than 50 km from a transportation route or supply centre. “Very remote” ones are more than 500 km.)

Here’s where it gets interesting: using all-in costs for diamond drilling to represent overall costs, the average costs of the remote and very remote projects were 2.27 times more expensive than those of the non-remote projects; the average costs of the very remote projects were, on average, 2.8 times higher than the non-remote ones; and the highest-cost project, obtained from a venture in the Arctic, was almost six times that of the lowest-cost project in an established mining camp.

In terms of mine production, the report found that capital costs for remote or very remote mines, compared to southern mines, are about double for gold mines, 2.5 times higher for base metal mines, and 15–20% higher for diamond mines, while operating costs for all commodities are 30–60% higher.

The report also finds that, assuming current mineral prices, the effect of the northern cost premium reduces the internal rate of return on northern gold and base metal projects by three-quarters and two-thirds, respectively, relative to their southern counterparts. The effect is less pronounced for diamond mines.

The heart of the report is the five associations’ pitch to policymakers in the federal, provincial and territorial governments to adopt five recommendations that would help offset miners’ higher costs in remote and northern areas.

In increasing order of commitment, the recommendations are to boost the federal Mineral Exploration Tax Credit for remote and northern projects to 25% from the current 15%; look at incentivizing drilling on grassroots exploration projects in remote and northern areas, using Western Australia as a model; create an investment tax credit of 10% on all capital expenditures associated with remote and northern mines; provide a supplementary 15% investment tax credit on specified infrastructure investments, such as roads, ports, docks, dams, rail lines and power plants; create a mechanism for conditionally repayable contributions related to infrastructure investments that could cover up to 25% of specified infrastructure investments, with the option of pardoning the loan in exchange for public ownership of that infrastructure at mine closure; and establish a northern infrastructure investment bank to provide long-term financing for resource–development–related infrastructure projects in the territories.

In the current political climate, cash-strapped governments at the federal, provincial and territorial level in Canada are unlikely to cut side deals for mining companies in Canada’s Far North. Nevertheless, it’s good to see Canada’s mining industry put more meat on the bones of their argument for special treatment, and emphasize the alignment of miners’ interests with the government’s oft-stated goals of creating jobs, building infrastructure and supporting natural resource development in remote and northern areas.