GUEST COLUMN — Diagnosing the industry’s woes

How healthy and profitable is the minerals industry at present? The answer is, “Not very healthy and not very profitable.” A major study, completed by a task force consisting of industry executives with federal and provincial mining officials, reveals disturbing trends:

— steady decline in base metal reserves for the past decade; — sharp reduction in exploration spending in Canada since 1987; — decreasing exploration effectiveness per dollar spent;

— increasing proportion of the exploration and development dollar of Canadian mining firms being spent abroad;

— far more Canadian mines will close than open in the next decade. In 1991 and 1992 alone, some 53 mines have closed or are projected to close, as compared with 25 openings or reopenings; and

— capital expenditures have dropped sharply in mining.

The task-force report shows that three major sets of forces are at work, pushing and pulling at Canada’s investment environment. First, the recession of the early 1990s followed closely the mineral depression of the 1980s. Second, foreign countries are going out of their way to attract mineral exploration and investment.

Third, the investment climate in Canada has deteriorated. Consider the following facts:

— It takes up to two years for the environmental assessment and permitting of a mine in Canada, as compared with six months in Australia and a week in Chile. And even then the outcome is unpredictable in Canada. — In the interim the mineral claim may be neutralized by the creation of a park or wilderness area. This strikes at the heart of the legal system of mineral tenure which has historically provided the necessary incentive for prospectors to risk their time and money in mineral exploration. — Aboriginal claims and demand for self-government heighten the uncertainty for mineral investors. In resource regions, new systems of ownership and regulations involving Native Peoples will have to be developed. — Canada’s galloping environmental agenda is resulting in fundamental changes to our legal framework, including the creation of new and absolute liabilities for corporations, lenders, officers and directors, among others. Moreover, environmental bills of rights, as well as conflicting statutes at the federal and provincial levels, open the way for endless and creative litigation by groups opposed to a specific project or corporation. — The regulatory process itself is fraught with difficulty and ambiguity. No one would design a system in which three autonomous departments at two levels of government are put in charge of water quality. Yet that is precisely what we have allowed in Canada. The federal departments of Fisheries and Environment, as well as provincial ministries of Environment, all have independent mandates to control activities that may result in water degradation.

— The tax environment has deteriorated in Canada while it has improved in other geologically attractive jurisdictions. A particular tax issue is that contributions to provincially mandated mine reclamation funds are not tax-deductible, nor are the earnings of such funds sheltered from tax. I challenge any corporate treasurer to operate a solvent pension fund under such conditions, but that is what mining companies are currently required to do with reclamation funds.

It is obvious that nervous money (and remember that all money is nervous) will think twice before alighting in Canada.

Confusing and overlapping approaches to permitting and regulation also deter investment. Meanwhile, the newly attractive countries offer expeditious approvals, provided appropriate environmental safeguards are designed into the mine.

I have described a situation of declining mineral reserves and inadequate investment in exploration. The mining industry in Canada is at a turning point. Depending on which choices Canadians make, the industry could decline substantially in the coming decades. Alternatively, if a consensus can be built around some remedial actions, there is hope that the shrinkage could be arrested or reversed.

— George Miller is president of the Mining Association of Canada.