Study deems Ontario mines economic cash cow

A new report backed by the Ontario Mining Association takes a look at the positive economic echoes of mining in Ontario.

The report, Ontario Mining: A Partner in Prosperity Building, examines the indirect economic benefits created by a mine during its construction and production phases.

Prepared by University of Toronto economists Peter Dungan and Steve Murphy, the report shows how 480 direct mine jobs lead to 2,280 other jobs through a trickle-down effect.

In addition to profit generated from the resources, the larger economy surrounding the mine is fuelled by employees’ everyday activities and spending.

Research also found that, during its production phase, a single mine contributes $278 million to Ontario’s economy annually, as well as $84 million to government revenues.

“The contribution of one representative mine in the province is clearly impressive, having important impacts on employment and economic output, particularly in an area of the province that could benefit the most from it,” write Dungan and Murphy.

Using the common characteristics found among mining ventures in Ontario, Dungan and Murphy created a representative mine to illustrate the output, employment, fiscal and tax contributions of new mining ventures.

The report found construction of a new mining venture creates 1,950 jobs, $138 million in gross domestic product (GDP) and $48 million in taxes annually.

The provincial government’s annual share is $19 million in the opening phase and over $32 million in the production phase.

Overall, the analysis shows the development of new mines is lucrative for Ontario’s economy as a whole.

The following is an edited excerpt of the executive summary.

Ontario Mining: A Partner in Prosperity Building

The economic impacts of a mine are in many ways like the geological nature of the mine itself: that is, the bulk of the activity is hidden underground and not obvious at first glance.

This study measures the economic contribution of a “representative” mine to the Ontario economy, including not only what is easily identifiable on the surface (for example, the number of workers directly employed, wages and salaries paid), but also the indirect impacts on industries up the production chain and the effects of labour income spent.

Using publicly available information from government and industry sources, the representative mine that we have examined produces primarily nickel and copper and is located in northern Ontario in an already serviced area, such as Sudbury. Opening or construction costs (once all exploration, planning and permitting is completed) are expected to average $150 million (all figures are for Canadian dollars of 2005 purchasing power) over three years while employment on the site is roughly 1,000 workers per year.

When opened, the mine produces $270 million of output per year, employing 480 full-time employees. This production adds $150 million directly to Ontario GDP with total pay per employee at almost $150,000 per year.

One layer below the surface of the ground is what we could characterize as the indirect impacts of the mine. These are the purchases that must be made to build the mine and begin production (its inputs), as well as the purchases that the industries producing these inputs must make, in turn, to facilitate their own production (inputs into inputs), and so on back along the production chain.

Included in these indirect impacts are the provision of transportation facilities to the mine, the purchase of a wide range of accounting, financial and scientific services, and the replacement of machinery and equipment that wears out at the mine in the course of production. Also included are all the inputs required to produce the mine’s purchased inputs — for example, the replacement parts that are needed to maintain the machinery at the mine, the steel that goes into those parts, and the energy and transportation services needed to produce the steel. This “backward chain” of inputs into inputs is quite extensive.

On a second level down are the induced economic impacts. These are the economic impacts that result from the spending of wages and salaries by workers employed both directly at the mine and indirectly in all of the supplier industries. To the extent that these consumer goods and services are produced in Ontario, there is a further economic impact on the province. Moreover, this level has a backward input chain to it as well, since consumer goods and services require their own inputs, which may also be produced in Ontario and generate further wage earnings.

At a third level down, we place the local or regional impacts of the representative mine.

Obviously, the mine’s own building or production activity is local, but so also will be at least some of the indirect and induced impacts identified at the first and second levels down. We find that a large proportion of the economic impacts of a representative mine that stay in Ontario also stay in the local area. In the building phase, about 1,300 of the 2,000 jobs generated annually are local. In the production phase, 1,500 jobs are created annually at the local level out of roughly 2,300 for the entire province.

The fourth level down consists of a wide network of important but effectively unquantifiable economic and social impacts that spread out from the activity of the representative mine. Most notable among these is the economic activity associated with maintaining the local community: municipal workers, teachers, police, fire and health care. Mining companies make many direct contributions to the well-being of their communities — for instance, in the provision of medical centres, sports facilities and community centres. In larger communities and in mining regions, they support and fund universities, colleges and research facilities. Local communities also benefit from the spending of the generous pensions earned by retired mine workers and there is ongoing economic activity generated from environmental monitoring and protection, and from mine rehabilitation costs. Finally, a representative mine situated in northern Ontario makes a special contribution to the well-being and development of aboriginal communities with targeted efforts to employ and make available entrepreneurial activities to aboriginal workers in mining activities and to sustain and develop the surrounding communities.

— Peter Dungan and Steve Murphy, University of Toronto Economists.