Prosperous future for Canadian Mining - Association

Canada’s mining industry has a prosperous future, with the benefits of the mining sector reaching past the mine gate and into the commu- nities in which it operates, says Mining Association of Canada president and CEO Pierre Gratton.

Delivering his speech during National Mining Week, in Canada, in May, he described the Canadian mining industry as a powerhouse, citing a recent study by the Canadian Chamber of Commerce, which showed beyond doubt that the sector “beats in the heart of our cities and in our financial sector”.

The Canadian mining sector, comprising 220 operating mines, 33 smelters and refineries and 320 000 employees, pays the highest average wage in Canada.

In 2012, mining contributed $9-billion in taxes and royalties to governments, accounting for about $20-billion in yearly capital investment.

“Canada is a top-five world producer of uranium, potash, nickel, platinum, aluminium, diamonds, zinc, and steelmaking coal. Minerals account for 23% of the country’s total goods exports. It also attracted 18% of world exploration spending in 2011, which was the top achievement,” he states.
Gratton says it is the depth and breadth of the mining industry that enabled Canada to withstand the recent economic turmoil better than any other Group of Eight country. “The past two decades have been marked by two major developments that are collectively shaping a new age – globalisation and the rise of Asia, particularly China.

“Globalisation has opened up new markets across Asia, Africa and Latin America.
The mining sector flocked to these jurisdictions to pursue largely untapped and unexplored geology and, in many cases, lower costs,” says Gratton.

He adds that capital is now more mobile than ever, also owing to globalisation.

“Meanwhile, in 26 years, China’s growth has increased by a factor of ten and it is currently also the world’s largest exporter and second-largest importer of goods.

“The country has also developed an insatiable appetite for commodities to fuel rapid industrialisation and a rising consumer class,” he states.

Mining Super Cycle

The combination of globalisation and Chinese growth led to the mining super cycle, which has presented opportunities and challenges for the mining industry, says Gratton.

Rising commodity prices have led to an increase in resource nationalism and more community protests, as societies struggle with the handling and distribution of increasing mineral wealth.

Gratton highlights that higher metal prices have also led to increased job creation, which, combined with an ageing workforce, is creating a severe skills shortage.
This is leading not only to fierce competition for workers and rising costs but also to concerted efforts worldwide to find longer-term solutions, he says.

“My focus, as head of the organisation that champions mining growth and development in Canada, is on how to deal with these challenges to help our industry build the best plan for a prosperous future.

“Part of that mission is to ensure that Canada remains a leader in the competitive global mining industry, which begins with a better understanding of our industry’s largest customer – China,” states Gratton.

Owing to its population, urbanisation in China is growing at an unprecedented rate – from 17% to about 50% over the past 30 years.

“This has led to massive consumption of commodities, including the coal, iron-ore, copper, nickel and aluminium used to build roads, bridges and buildings, as well as to manufacture vehicles.

“China currently consumes about 40% of minerals and metals, compared with just 5% in the 1980s,” says Gratton.

He highlights that India, Latin America, Africa, Russia and South-East Asia represent more than three-quarters of global growth and about 50% of the global economy.

By 2050, Gratton says, these economies will account for almost 80% of global gross domestic product.

“This growth and the wants and needs of a growing consumer class emerging in these economies are what is expected to keep fuelling demand for minerals and metals,” he says.

However, Gratton notes that there are uncertainties in the market that cannot be ignored.

“We remain in a period of economic uncertainty. Mining remains and will always be a cyclical industry, but the long-term fundamentals for the sector are strong.

“On the basis of global growth, there will be a doubling of demand for most mineral products during the next 20 years or so. The pace of this growth will be checked from time to time, as is currently the case, but it will not materially shift from its axis,” he states.

Gratton believes India will overtake China as the global growth leader by 2030. He notes that sub-Saharan Africa and Africa have seven of the top ten fastest-growing economies, albeit off a low base.

Challenges

He points out that a lot of pessimism has been generated by major project delays, some of which have been in Canada.

“These delays are not because of waning confidence in the future. Rather, it reflects a responsible pause by the mining industry in light of current commodity price declines and market volatility.

“It is also a response to rising costs, which is affecting major greenfield investments with large infrastructure components. The delays are an adjustment by companies to reassess the projects they want to advance first and the timeframes, recognising that there is only so much available capital,” Gratton says.

He adds that this is also an important reminder to Canadian governments that the country is competing with other countries for private-sector investment.

Other factors affecting new projects are higher risks owing to less predictable and lengthening lead times for major equipment, exacerbated by the fact that many related industries, such as oil and gas, are competing for the same inputs.

“The junior exploration sector is facing enormous difficulties on the equity markets. This sector is definitely in for tough times in the near term,” he says.

Gratton notes that all these factors slow the speed with which new supply comes to the market, which, he says, should also have a longer-term positive impact on the price of commodities.

One of the public-policy challenges Canada is facing is how to regulate new foreign investment potential.

“The federal government recently took some steps to clarify its views on how it will assess foreign investment from State-owned enterprises. This is a fine line we need to walk. If we close the door too tightly, we risk leaving Canada behind in the race to supply minerals and metals to emerging markets,” he says.

He adds that Canada has always thrived on trade and the two-way free flow of goods and capital.

“The Canada-US trade agreement stands out as arguably the most significant economic policy achievement of the past 50 years and has certainly done more for the mining sector than almost anything else we can think of.

“Now, with Canada’s economic future so clearly tied to China, the country has to encourage the free flow of goods and capital with China and other emerging markets,” highlights Gratton.

He says Canada has to prepare itself to seize the opportunity to trade with China.

“We need to ensure that policymakers avoid the trap of allowing a fear of the unknown to lead to harmful protectionism. We need to stay on course as a free trader and proactively engage in the emerging new world order,” he states.

If Canada applies its wealth of resources correctly, Canadians will continue to thrive through the development and production of new mines, the continued growth of its industry abroad and the numerous spin-off economic and social benefits that flow from them, he concludes.