Where would you rather have your gold mine?

Where would you rather have your gold mine? The U.S. or Canada? Exploration potential, cost of exploration and development, and generally shareholder reward continue to favor the U.S. over Canada. A comparison of labor costs and tax regimes gives some indication of the difference. Based upon the data of companies that provided information (comparisons are for blended costs, principally from Nevada and Ontario), the employee compensation, or pay packet, was remarkably uniform — about $50,000. Much greater spreads existed in the fringe or benefit packages which worked out to about $15,000 in the U.S. version and $13,000 in Canadian.

An employee in the U.S. or Canada gets about the same wages pretax but the cost of the benefit package in the U.S. is significantly greater than in Canada.

I refer to two newspaper articles published in The Globe and Mail (Jan. 12/91) and The Toronto Star (Jan. 26/91). The first relates to taxation and cost of living in three Canadian and three U.S. cities, and the second to comparative prices for consumer products in Buffalo and Toronto.

According to the Globe article, a single employee in Calgary with a salary of US$60,000 (roughly C$70,000) would pay about 28% more in tax than his or her counterpart in Houston. Alternatively, the Houston employee would have US$4,500 (C$5,220) more in his or her pocket each year.

The article goes on to point out that a married Canadian homeowner earning US$100,000 (C$116,000) with a spouse who does not work will pay at least US$20,000 (C$23,200) in higher taxes than his U.S. opposite. I believe these figures exclude indirect taxes.

The Star article compared the cost of living in Niagara Falls, N.Y., to that in Toronto, Ont. In all cases Canadian prices were much higher ranging from a low of 15% (Kraft cheese) to 243% (boys’ Levi jeans).

As for taxes and royalties, most mining enterprises in Canada or the U.S. are corporations and as such pay federal, state or provincial and usually local taxes. The latter I don’t address and there is a great variability in state or provincial tax. Therefore, within both countries there are significant differences in overall tax depending upon where you’ve been lucky enough or unlucky enough to find your mine.

One study compared taxes on a per-ounce-produced basis. The average was about US$24 per oz. through a range of roughly $19-32. This particular study showed Nevada, Alaska, Quebec and the Northwest Territories to be at the low end and British Columbia, South Dakota and Ontario at the high end.

Over a period of 10 years, the various jurisdictions sharing the taxes I have described would take 8-16% of operating cash flow.

Another study indicated that the effective tax rate on net profits as distinct from operating cash flow was, in Ontario, in the order of 50% and in Nevada 25% derived roughly as follows: — Mature Ontario mine — 21.6%, federal income tax rate (after abatement, resource allowance and surtax); 10.6%, Ontario income tax (after resource allowance/depletion); 17%, Ontario mining tax; 49.2%, total income tax.

— Mature Nevada mine — 20%, federal tax (higher of tax after depletion or AMT); 5%, Nevada net proceeds tax; 25%, total income tax.

During the period under review, circumstances, both natural and man-made, favored the U.S. in terms of exploration and development and today continue to favor the developer and operator of U.S. properties.

Now what about the future? Governments in Canada can’t change the rocks but their current impact is such that through regulations and taxes they are exaggerating the situation. I can only hope that they realize the need to “lighten-up.” If they do, then I’m sure we can rise to the greater technical challenges we face here and replenish our industry.

From a speech delivered at the 1991 convention of the Prospectors and Developers Association of Canada.