OMA Makes Suggestions For Provincial Budget

— The following is the first part of an open letter to The Honourable Dwight Duncan, Ontario’s Minister of Finance, from Chris Hodgson, president of the Ontario Mining Association outlining the OMA’s ideas for the province’s budget.

Dear Minister Duncan,

The Ontario mining industry has enjoyed — until recently — one of the most prosperous and lengthiest periods of its history of making contributions to the society and economy of this province. However, the current economic circumstances which are dominating the news are providing challenges for individuals, companies, entire industries and governments alike.

Mining operates in the real world of global markets. When commodity prices fall, companies must reduce spending to be in line with existing market realities. That is why we have seen companies trimming budgets and capital expenditures and in some cases shutting down production. Junior mining exploration companies are finding it difficult — if not impossible — to raise capital, as are mineral producers.

The mining industry in Ontario has gone from full speed ahead in producing and selling mineral products around the world to navigating more cautiously through changing economics and shifting markets. The precipitous fall in the prices of Ontario’s main mineral products illustrates this point.

Nickel is selling for about US$4.21 per lb. today, down from US$15 in March and a high of more than US$22 per lb. in April 2007. The world selling price for Ontario’s major mineral commodity has fallen 71% from the second quarter of this year and 80% from one and a half years ago.

In response to this price slide, major nickel producers Vale Inco and Xstrata Nickel have announced production cuts and postponements in new developments. Also, First Nickel and FNX Mining have announced mine closures in the Sudbury basin.

The fate of copper prices is similar. While copper is selling for about US$1.48 per lb. today, as recently as June it was selling for more than US$4 — a decline of 63% in six months. Zinc tells a sorrier tale. With the zinc price at about US49¢ today, it is more than 52% lower than a year ago and 75% less than two years ago.

On the precious metals side, gold, which is selling for about US$806 per oz., is off more than 22% from its high in 2008. Silver, which is trading for about US$10.17 per oz., is down 52% from its price of almost US$21 in March. Diamond producers have announced plans to trim production.

Earlier this year, North American Palladium announced that its Lac des les mine north of Thunder Bay, Ont., was closing and going on care and maintenance. The company was responding to global economic forces that have seen the price of palladium tumble 69% from US$582 per oz. in February to US$179 in December.

Mining benefits all regions of Ontario and given this outlook of difficult economic times and harsh business climates, it is increasingly important for the industry to work with government to ensure that programs, regulation and legislation sustain mining investment and employment in the province.

At this time, the Ontario Mining Association would like to encourage the government to make strategic investments in the mining sector to promote future economic development and take action to improve the competitive position of the industry in the world.

The return from even one new future mine is huge for the province. A study by the University of Toronto, Ontario Mining: A Partner in Prosperity Building, shows that one representative mine in Ontario directly employs 480 people, indirectly employs more than 1,800 people, contributes about $280 million to gross domestic product and provides $84 million in tax revenue annually.

The strategic investments the industry would like to see would include more investment in geological mapping. Ontario’s mineral business was about $10.8 billion in 2007, representing about one-third of the industry in Canada. The province clearly has favourable geology for mining and because of the size of the province and the remoteness of many areas, its geological potential is largely untapped.

The Ministry of Northern Development and Mines has carried out geoscience work in the past that has provided a springboard for future development. The OMA encourages the government to continue that funding to expand the knowledge of the mineral potential of Ontario.

If you analyze a road map of Ontario, you will see that much of the province’s infrastructure — roads, air service, telecommuni- cations, electricity systems — end in mining communities. Strategic investments in infrastructure in the province, and especially in the North, will pay dividends in the future. Land-use planning for the boreal region, which is being carried out now, will require infrastructure dollars.

The government should also be making strategic investments in the province’s human resources. Many young people, who may find themselves out of work or unable to land that first full-time job, have never experienced a recession. Support and training needs to be offered for skills training, apprenticeships and development to build a workforce that is ready to take on the required jobs when more prosperous times return.

Also, strategic investments need to be made in the skills development and training of aboriginals in Ontario. Mining provides one of the main economic opportunities for First Nations residents in the province and is the largest employer of aboriginals in Canada. It is estimated that aboriginals account for 5.3% of the mining workforce, twice the national average.

The government can also make strategic investments in providing mineral exploration incentives to provide a foundation for mineral exploration activity to better understand the province’s geological potential. Quebec has an effective exploration incentive program, which can cover up to 45% of exploration costs.

Newfoundland is investing in its mining future with exploration incentives to exploration companies. In November, the Saskatchewan government reintroduced the Saskatchewan Mineral Exploration Tax Credit program. Ontario needs to ensure it doesn’t miss the boat.

Regulatory and monetary incentives to promote research and innovation are investments in a greener future. In tough economic times, research and development should not be sacrificed, but supported and encouraged. In recent years, mining companies in Ontario have invested more than $100 million annually in research and development.

The Ministry of Northern Development and Mines deserves praise for its efforts to modernize the Ontario Mining Act in an expeditious fashion. The need for certainty in the rules cannot be overemphasized.

The government is also involved in a land-use planning exercise for the Far North of the province. Its goal is to preserve half, or more, of this region from economic development and strike a balance between conservation of land masses and habitats with economic development, including mining. While the government appears willing to set targets on the conservation side, we would like to see it — in the name of balance — set targets on the responsible economic development side, such as 10 new mines in the next 10 years. The OMA representative mine study, referenced above, shows what this could do for Ontario.

The second part of this letter will appear in next week’s paper.