Mining in Canada: When our best practices hold us back
The C.D. Howe Institute
Glen Hodgson became a Senior Fellow at the C.D. Howe Institute in September 2018. Prior to this, he was Senior Vice-President and Chief Economist of the Conference Board for twelve years, where he led a team of 60 professionals that delivered economic forecasts, detailed economic analysis, and international development projects, and he delivered numerous presentations to clients and in the media. He brings 37 years of experience and a specialization in macro-economics, international trade and finance, and fiscal and tax policy to his role. Mr. Hodgson is also a member of Canada's Ecofiscal Commission.
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. The Institute is a trusted source of policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.
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1- Our regulatory policy framework is globally respected and applied, yet our own provinces are poorly prepared to oversee the remediation of abandoned or poorly closed mining sites, with limited use of market mechanisms like surety instruments for risk management.
2- We are in a constant catch-up mode to develop our national infrastructure. CIB is a step in the right direction, but more centers of expertise focused on infrastructure should be established to accelerate the deployment of roads, airports and rail lines, with specific mandates to serve the mining sector.
3- Our mining sector needs to stay sharp and seek to excel in high-value service offerings, such as exploration, environmental practices, community impacts, marketing and raising capital, especially with the technological advancements happening in the sector.
Regulation needs to be refocused to shore up the mining sector with a more balanced and sharpened policy framework. There must be a cohesive dialogue between our federal and provincial governments about realistic expectations our mining sector should meet on current operations, and at the same time enabling them to streamline expansions.
How would you describe the significance of mining, its product and value chain in Canada’s present and future economy?
The mining sector is one of the cornerstones of our economy. It has been for many years and will remain that way for a long time. If you include oil and gas in mining, it is much bigger than the manufacturing sector – around 14% to 15% of Canada’s GDP. People often don’t include oil and gas in the mining sector, but if you’ve ever been to Fort McMurray and seen the extraction activity that takes place in the open pit sites operated by Suncor and Syncrude, that’s mining as well. If we stay conservative and look solely at conventional mining – such as hard rock mining, coal and potash – we’re still at about 7% to 8% of Canada’s GDP.
Mining in Canada anchors economic benefits for many: miners, suppliers, related professional services, the Toronto Stock Exchange (TSX), manufacturers and even environmental institutions. Canada’s mining industry is not going away and will continue to remain incredibly diverse, especially as we move toward a low-carbon economy. For instance, lithium, which is widely used in electric vehicle batteries, is becoming a priority for mining exploration firms, as would possible substitutes. New metals and minerals will also be needed to manufacture low-carbon energy production such as windmills and solar panels.
Canada remains a top tier mining economy with competitive value chain segments, but some of the challenges we face are becoming more evident. For example, strict regulations can cause roadblocks, specifically during environmental assessments, which delay and complicate project approvals. On the other hand, in areas like capital, we are responsible for raising nearly half of global mining funds. Our hard rock mining firms are world leaders and investors. Countries in Latin America, for example, are thrilled to have our mining expertise come down to explore and develop their deposits. But compared to another world leader like Australia, we’re not positioning ourselves as well as we could. So, it’s important to take apart the value chain and look at it by segment.
Does our mining regulatory system support or restrict our global competitiveness?
Canada has spent the past decade developing important governance and methodologies moving us from the middle of the pack to a leadership role in mining. If you’re mining in Peru or Ecuador or Bolivia or South Africa or Namibia, you probably want to refer to Canadian standards for project development and management. Our mining firms constantly work to find the right techniques for dealing with the impacts of their activities, whether it’s environmental, social, local communities or other important issues, and they’re now taking those practices to the world. These are just a few of the countless factors that mining companies are grappling with.
The contradiction here is that the international community looks to us for best practices to expand their operations, but our best practices make it much more difficult to approve new mining projects in Canada, and fail to focus on environmental problems that local mining communities face now. Last year, the Ecofiscal Commissioncompleted a report which looked at the environmental risks our mining sector can cause and how poorly prepared most provinces are to deal with the consequences.
The recent news surrounding oil sands mining operations in Alberta validate the report. The province does not have an efficient system in place to remediate the mix of clay, water, toxic acids, metals and leftover bitumen. A lot of that risk is being passed to the provincial taxpayers, rather than project sponsors, investors and financial markets, and that’s not adequate. British Columbia has also been affected by things like the overload of tailing ponds from spent mines that haven’t been properly closed out or abandoned. Again, this can affect taxpayers.
Although we are renowned globally for our best practices, we fail to leverage them as our regulation framework is structured to promote stakeholder engagement prior to project approvals, instead of holding current mining sites accountable for remediation. Evidently, this does not help our global competitiveness. Regulation needs to be refocused to shore up the mining sector with a more balanced and sharpened policy framework. There must be a cohesive dialogue between our federal and provincial governments about realistic expectations our mining sector should meet on current operations, and at the same time enable them to expand and streamline operations.
What are some of Canada’s challenges when it comes to mining infrastructure and how can we mitigate any gaps in this area?
We have systematically underinvested in the infrastructure of Canada for at least 25 years now. This puts us in catch-up mode. The greater share of government budgets is focused on institutions instead of investing in roads, airports and rail lines that could be used to move products to ports and ship them out.
Winnipeg and Regina, both logical regions in terms of connecting our resource sector to our global economy, have logistical and shipping intra-modal infrastructure projects underway that will generate plenty of today’s jobs in that region. This may be progress, but we’re looking at very basic infrastructure. Vancouver and Halifax are still trying to have access to an adequate pipeline and link rail capacities to ports.
So, our rural and urban infrastructure needs to be a much higher priority across the board. Creating centers of expertise around infrastructure, such as the Canada Infrastructure Bank (CIB), is really important. CIB’s mandate is to help mobilize and facilitate private capital. Hopefully, it will have a mandate for the mining sector as well. If it doesn’t, it or another partner institution should.
How can Canada improve the competitiveness and value of its mining workforce and human capital?
Similar to every industrial sector, it should be understood that digitization is going to be a driver and disruptor in mining for a long time to come. It could affect every aspect of mineral extraction. The capital-labour ratio is now almost entirely driven by technology, which leaves only a small number of humans who actually go work underground.
We should look for other ways to capture value in the mining sector as opposed to focusing principally on the fundamentals of mining, like smelting. If we develop deeper clusters of expertise such as exploration, environmental practices, marketing and raising capital, they could bring a unique competitive advantage into the evolving mining marketplace. In other words, while it’s great to be focused on the fundamentals like extraction, refining and processing, we should be thinking about the high-value services that are linked to the mining industry, and whether we can be a deeper center of expertise. This could have a big impact on the national bottom line. To some extent, Canada already has some centers of expertise. Vancouver, for example, is one cluster of head offices for mining companies.
What do you see on the horizon for the future of Canadian mining? Are you optimistic or do you see a lot of challenges?
Global growth is going to be slower going forward because of demographic, environmental and economic external factors. First, China’s growth boom is coming to an end, although the country will keep growing and produce higher incomes. For many years, China was an important driver of the global demand for metals. Second, climate change is real and everybody’s going to have to adapt to it. The mining industry won’t be spared. In fact, it’ll be on the front lines. Third, almost all of our mining companies are price takers on global commodity markets. They don’t have the ability, like some of us do, to decide how much they’re going to sell their time for every day. So, these macro-economic factors will impact global and mining growth.
The Canadian mining sector and the culture of the industry are going to have to keep adapting, continuously look for greater efficiencies, as well as finding new sources to tap into to supply emerging markets. Canada has done quite well at adapting its mining industry and, in general, has avoided the temptation to respond to short-run development and instead think about long-term paths, always staying in the game. British Columbia and Quebec will be two interesting centers to watch and support. Their economic strengths in conventional mining will be needed to properly benchmark and strategize how to move forward.
Part of the Future of Mining Series presented by