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By Rose Ragsdale
For Mining News 

Leaders seek help for mining industry

Mining association outlines major ways that Ottawa can lend a hand in tough economic times without hampering free markets

 

Last updated 1/25/2009 at Noon



Provinces, territories and at least one mining leader are appealing to the Canadian federal government to offer up substantial assistance to the beleaguered industry in its new annual budget due out Jan. 27.

The proposals range from various provisions for tax relief to implementing major infrastructure projects aimed at spurring resource development as well as altering monetary policies to ease credit and free up capital for miners nationwide.

The reason: Canada, unlike most Western nations, relies heavily on its natural resources for economic prosperity and mining in all its facets is one of the nation's bread and butter industries. Companies throughout the country engage in every facet of the business, from mineral and oil and gas exploration and production to smelting, refining and semi-fabrication. Moreover, mining-related enterprises cover the Canadian landscape from the Atlantic to the Pacific oceans and reach far into the North.

In 2007, the industry contributed $42 billion to Canada's 1.23 trillion gross domestic products, employed 363,000 workers and paid roughly $10 billion in taxes and royalties, according to the Mining Association of Canada.

While a relatively minor part of the overall Canadian economy, the mining industry is especially vital in remote and northern communities that often rely on just one nearby mine for their well being.

Mining also contributes significantly to the economies of major cities in Canada.

Toronto, for example, is a hub of expertise in mining finance, while Vancouver is home to the world's largest mining exploration sector.

Other cities are dominated by key mining businesses such as Montreal, a hub for aluminum and iron ore companies; Edmonton, Alberta, a center for oil sands and Saskatoon, Saskatchewan, with its uranium and potash enterprises.

More than 3,000 suppliers draw benefit from the industry, including engineering and environmental firms, railroads, ports, and equipment companies.

The dramatic downturn in the global economy has hit mining particularly hard in the past year. Demand for most metals has plummeted, causing prices to tumble across the board. Canadian operating mines have been closed, planned mine expansions have been deferred or cancelled, and investment in processing facilities has been postponed.

"Many important companies have seen stock price declines exceeding 50 percent and in some cases more than 90 percent - all firms are engaged in serious cost-control measures," the Mining Association said.

While industry and government leaders believe mining would benefit significantly from public assistance, they do not seek government involvement in controlling production output, trade or prices, or in sustaining uneconomic operations, a role they see as best left to the markets.

However, the leaders do see a role for Ottawa in keeping the reeling industry along with the rest of the Canadian economy on its feet until market conditions improve.

It was mining leaders who offered specific ideas on how the government could provide relief to the ailing industry.

The Mining Association of Canada, for example, issued a pre-budget brief Dec. 18 that outlined various ways the federal government can help.

"There are a number of measures that we believe should be given serious consideration in the lead-up to the government's Jan. 27 budget," noted Gordon R. Peeling, the industry group's president and CEO in the brief addressed to federal Finance Minister Jim Flaherty.

The Mining Association offered nine recommendations, including sticking with recent commitments such as the Geo-mapping for Energy and Minerals program, a five-year, $100 million reinvestment in geological mapping announced early last year that also could trigger additional provincial spending and recent improvements on the tax front, particularly the October 2007 commitment to reduce the federal corporate income tax rate to 15 percent from 21 percent by 2012.

The mining group also sought continued support for research and development in the industry, noting that the Scientific Research and Experimental Development program, which provides a tax credit for qualifying expenses and capital expenditures associated with basic research, applied research and experimental development conducted in Canada is an important tool for the industry.

In support of mining exploration, the Mining Association asked the government to continue its incentive programs and to extend Canadian Exploration Expense treatment to exploration spending at former mine sites that have been abandoned or inactive for five or more years and to encourage exploration-like expenditures in the vicinity of existing mines by eliminating the Canadian Development Expense treatment and treating such outlays as operating expenses.

"Such a change would encourage more exploration at-depth in the vicinity of existing mines, while reducing administrative burden and leveling the playing field between greenfields exploration and high-risk brownfields exploration," Peeling said.

Among the other recommendations:

Encourage mineral development in Canada by lowering taxes on new or expanded mine investment.

Promote investment in environmental process improvement with greater incentives for these efforts, which would enhance the long-term competitiveness of the industry's mineral processing facilities with competing investment regimes, especially Australia, China, Brazil and the United States.

Invest in infrastructure to promote northern resource development, notably three projects - the $300 million NWT Winter Road project aimed at re-supplying and developing additional resources at diamond mining operations, primarily in the Northwest Territories; the $300 million Bathurst Inlet Port and Road project, which would connect the Arctic coast at Bathurst Inlet to a resource-rich region near the Nunavut-Nwt. Border; and the $100 million Route des Monts Otish project, which would provide access to a resource-rich region in north-central Quebec and facilitate development of the Renard diamond project.

MAC said the mining industry also would benefit from investments that improved product movement through the Port of Vancouver and across the Canada-US border, as well as from the provision of more efficient and cost-competitive service by Canada's freight railroads.

"Road access would help extend the life of existing operations, would provide access to areas with important known mineral deposits that are too remote to develop using air access alone, and would support exploration and the discovery of new resources in these areas," Peeling said. "Beyond the contribution of the diamond industry, it is important to note that there is felt to be considerable potential in gold, zinc, copper, uranium and other valuable northern resources."

The Mining Association also suggested that the government provide some cash-flow relief to miners by waiving interest and penalty charges on payments of tax due by a corporation in 2009 and to review pension funding regulations so as to allow for a more gradual amortization of new deficits and to make existing policies less onerous.

"In the current environment, if contributions are increased and there is subsequently a recovery of the equity markets, employers would see excess capital stranded in pension plans. These funds would best be invested in core business and expansion projects, thereby protecting and creating jobs," Peeling said.

Provincial and territorial finance ministers also discussed ideas for providing relief to miners and their overall economies with Flaherty in December.

Keith Peterson, Nunavut's new finance minister, told reporters that he urged the government to do everything possible to make access to credit and capital a top priority, through federal monetary policies and the federal government's relationships with the banks.

Peterson and finance ministers from across Canada also called for investments in infrastructure in order to keep jobs and businesses going during a time of economic slowdown.

Yukon Premier Dennis Fentie, who is also that territory's finance minister, urged Ottawa to accelerate infrastructure spending, recognizing regional priorities.

Prime Minister Stephen Harper met with Canada's first ministers Jan. 16 for more talks from which emerged the outline of a possible $40 billion economic stimulus package that would include substantial infrastructure spending and a possible tax cut to help jumpstart the Canadian economy.

 

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