Relatively little had changed during the past 12 months in how Alaska and Northwest Canada stack up to competing jurisdictions in opportunities for mining investment, according to a widely respected industry survey conducted by a Canadian public policy think-tank.
But a worldwide economic turnaround has created optimism in the mining industry, with more than three-quarters of respondents in the Fraser Institute’s Annual Mining Survey 2010-2011 saying they expect to increase their exploration budgets this year.
“In order to attract investment and compete globally, governments must offer sensible, stable mining policies which, above all, uphold the rule of law and respect negotiated contracts and property rights,” said Fred McMahon, co-author and coordinator of the survey.
Observing that mining companies prefer stability and certainty above all things in the places where they invest, McMahon said, “Royalty increases and convoluted regulatory schemes create uncertainty in mining, which will only drive mining investment away.”
The Fraser Institute has conducted the annual survey since 1997 to provide information to the public and accountability to governments that might otherwise gain little reliable feedback from the mining industry.
“Mining companies are often afraid to talk to governments because they’re afraid they will be punished somehow,” McMahon said.
The latest survey was based on the opinions of mining executives representing 494 mineral exploration and development companies on the investment climate of 79 jurisdictions around the world. The companies participating in the survey reported exploration spending of US$2.43 billion in 2010 and US$1.86 billion in 2009.
This year, Canadian provinces, led by Alberta at No. 1, claimed four of the top 10 spots in the ranking. In addition to Alberta, which scored 90.4, Quebec came in second with 86.50, while Saskatchewan climbed to No. 3 (with a score of 87.5) from sixth place and Manitoba (80.3) held steady at No. 9.
The other provinces and territories generally fared well, with Newfoundland and Labrador placing 13th, Ontario 18th, Nova Scotia 19th and New Brunswick 23rd.
Overall, the top 10 jurisdictions in the latest poll are Alberta, Nevada, Saskatchewan, Quebec, Finland, Utah, Sweden, Chile, Manitoba and Wyoming. Seven of the same jurisdictions ranked among the top 10 last year; the three exceptions are Utah, which rose to sixth place from 15th; Sweden, which climbed to seventh from 12th; and Wyoming, which jumped to 10th from 13th. Chile is the only jurisdiction outside of North America that consistently ranks among the top 10.
The bottom 10 overall scores in the survey went to Indonesia, Zimbabwe, Wisconsin, Madagascar, India, Guatemala, Bolivia, Democratic Republic of Congo, Venezuela and Honduras.
Mining friendly YukonOf the northern jurisdictions, Yukon Territory stands out as an exceptionally favorable place to do business.
“Yukon scores the best in the region, even ahead of Alaska, and Yukon has the second-best raw mineral potential after Alaska,” McMahon said.
Yukon ranked No. 15 among the 79 jurisdictions worldwide included in the survey. It had the highest rank among Canada’s northern territories, ahead of Nunavut at No. 44 and Northwest Territories in 52nd place. Yukon also outpolled Alaska at No. 21 and British Columbia in 36th place.
Yukon boasts a mining-friendly political climate and a centralized environmental assessment process that is not split between territorial and federal layers. In addition, most of the territory’s land claims are settled.
McMahon said those factors create stability and certainty for mining companies that want to know what they’re getting when they invest.
“If you’re in the exploration stage, you’re more worried about what’s going to happen five years from now when you start making money,” he said. “What the Yukon has managed to do is create a stable regime where people have faith in the future.”
McMahon added that miners looking at Yukon “feel there’s a high level of predictability and transparency in the regulatory taxation regime.”
Though the territory dropped down from 11th place last year, he said Yukon’s overall scores have changed little in the past three years: 73.0 in 2010-11; 73.9 in 2009-2010; and 72.5 in 2008-2009.
“If you were a student in school and you got those scores on your tests, you wouldn’t think there was much difference in them.… That shows the territory has achieved stability and certainty, he said.
Individual survey respondents generally praised their mining experience in Yukon Territory.
“In the Yukon, mining is in the culture,” said the president of a consulting company.
Another consulting company president said, “The Yukon has one socio-economic assessment process for projects, eliminating the duplicate federal process that other Canadian jurisdictions have. (It) creates more certainty around the process, expectations, and timelines. Coupled with settled land claims, this makes for a very favorable jurisdiction.”
Another consultant observed, “During my 36 years in the Yukon, I participated in the discovery of 18 ore bodies as an exploration geologist. These ore bodies paid for the employment of numerous persons in high-paid jobs over many years. Several of those ore bodies are still being explored and/or mined to this day, creating jobs, infrastructure etc.”
The president of a producer company with more than US$50 million in annual revenue offered this: “In 2009, our Yukon mine created direct employment of approximately 250 people at the mine site, of which one-third are First Nations members and 18 percent from the (local First Nation community.) The mine injected C$77.1 million into the Yukon economy, paid C$58.8 million to Yukon suppliers and contractors; paid C$3.83 million in payroll to Yukon residents who are direct employees of the mine, and likely at least as much in payroll to Yukon residents working for major contractors based full time at the mine; paid C$1.4 million to commercial airlines flying to and from the Yukon; made C$11.3 million in payments to Yukon and First Nations governments; and paid
C$186,000 to local hotels and restaurants; on 2009 production, paid C$6.9 million in mineral royalties that flowed directly to the local First Nation; (and) paid C$2.5 million in community development.”
And a service and supply company president said, “We have had a significant impact in job creation in our community due to the success of all exploration and mine developments in the Yukon.”
Still, the survey detected some rumblings about uncertainty over land claims that remain unsettled in Yukon Territory and the possibility of access to certain lands being lost in designations of wilderness areas, McMahon said.
“Feels like we’re on the cusp of the Yukon transitioning from a very prospective exploration and mining jurisdiction to something much less favorable,” said an exploration geologist with a producer company with more than US$50 million in annual revenue.
Raw potential in AlaskaAlaska lost ground in the 2010-2011 survey results, ranking No. 21 with an overall score of 67.6. That’s down from 71.7 score a year ago but considerably higher than the 49.8 that the state scored in 2007. Among U.S. jurisdictions, Alaska placed fourth behind Nevada, Utah and Wyoming.
“Alaska’s not that bad. Its score means it’s ahead of the vast majority of the other states. In mining, the state does a lot better than it does in our petroleum survey,” McMahon said.
Alaska also scored better on some individual factors that contribute to the overall ranking. For example, the state took first place in Policy/Mineral Potential (Assuming no land use restrictions in place and assuming industry “best practices”) index with a score of 0.93.
“This means that in a perfect world, Alaska would have the highest mineral potential in the world,” McMahon said.
Among comments about Alaska from survey respondents:
“Alaska’s settlement of all Native land claims during the transition to statehood (has resulted) in private property-type agreements between mineral exploration and local communities,” said the president of a consulting company.
Another consultant said, “There was an eight-month permitting procedure to clear a 10-x-10-meter area of brush (not trees) in the Tongass National Forest (in) Alaska. (It) required (the) U.S. Secretary of Agriculture’s signature. Totally absurd.”
The president of a consulting company offered this: “In Alaska there are already three lawsuits designed to stop a project that is still in the exploration phase.”
And another observation from a consulting company president, “Our work is spread out across Alaska and commonly sees us spending significant amounts of money in small villages where work is scarce. Alaska mining wages are more than double the
Alaska average wage so people we hire make good money and spend it in their small communities.”
The other northern jurisdictions also attracted high scores in this category with Yukon at No. 2 with a score of 0.90; Northwest Territories No. 8 with a 0.87 score; Nunavut No. 16 with a 0.84 score; and British Columbia ranking 23rd with a score of 0.80
In Policy/Mineral Potential (assuming current regulations/land use restrictions), Alaska dropped to 9th place with a score of 0.67, up slightly from its performance in last year’s survey. The state also edged past Yukon Territory in 11th place with a score of 0.66, and far outpaced British Columbia at No. 42 with a score of 0.43. Nunavut ranked No. 50 with a score of 0.38 and Northwest Territories, No. 59 with a score of 0.35. In this category, only Nevada surpassed Alaska among U.S. jurisdictions with a score of 0.73, while Chile topped this ranking with 0.77 score.
Environmental uncertainty in BCIn the Room to Improve category, survey respondents ranked Northwest Territories No. 4 and Nunavut No. 6 among the world’s 10 jurisdictions with the most work ahead of them, while British Columbia took 21st place, Alaska 30th and Yukon 38th.
In ranking “Uncertainty concerning the administration, interpretation, and enforcement of existing regulations,” and “Uncertainty concerning environmental regulations,” the northern jurisdictions’ scores ranged from mediocre to poor: Yukon ranked 20th and 34th; Alaska 25th and 51st; Nunavut 46th and 58th; British Columbia 48th and 67th; and Northwest Territories 55th and 69th, respectively.
“BC continues to be viewed poorly, with respondents citing land claims issues, environmental uncertainty, and political turmoil at the provincial level as reasons to remain hesitant about investing in British Columbia,” McMahon said.
“I think you’re in a close enough range that it’s very difficult to say whether B.C. has improved or not,” McMahon said. “If you were looking at a poll and in one poll a political party got 40 percent and in another poll they got 41 percent, you would say, ‘not much going on there.’ Frankly, I’d say that’s what’s happening with British Columbia.”
The researcher said mining companies appear to have a long memory.
Chief among their concerns about B.C. is security of land tenure, with a familiar name that keeps popping up year after year – Windy Craggy.
The project, located in the far northwestern tip of B.C., was halted in the mid-1990s when the government created a park that enveloped the site following environmental concerns about the proposed mine.
“It’s the same old story with B.C. … people still remember Windy Craggy,” McMahon said. “I keep expecting some year to get no comments about Windy Craggy but this wasn’t the year … That tells you how long the memories are, and it’s a warning to government to get things right because people remember.”
Among the comments about conditions in British Columbia:
“In BC, if we need assistance in registering our claims or keeping current, the staff are most helpful,” said an exploration company director.
“British Columbia suffers from land claims issues, environmental uncertainties, permitting problems, political problems on several fronts, and a history of defaulting to a dictatorial Supreme Court,” said the vice president of an exploration company.
Big headaches in NWTMcMahon said the industry perceives Northwest Territories as having several big negatives, including unsettled land claims, uncertainty over its regulatory structure and relatively poor infrastructure.
In such an environment, he said companies worry about political interference that could result in bad projects getting a green light, while good projects are held up indefinitely.
Among comments from survey respondents:
“We were granted simple NWT land use permits after 8-10 month delays, then had those permits subjected to court challenge by third parties on the basis of ‘duty to consult” –you want stability and perceived transparency. This is not the way to get it in Canada (We are not supposed to be a Third World country),” said one exploration company vice president.
The manager of another exploration company said, “The Northwest Territories has too much federal government involvement and a water board that is just totally inefficient and cannot approve anything in a reasonable timeframe.”
And another comment from an exploration company vice president: “In the Northwest Territories, the regulatory review process is cumbersome and time consuming. Too many small projects (that have no impact on the environment) are being referred to environmental assessment. These referrals generally come from the aboriginal community where land claims remain unsettled. The federal minister of Indian and Northern Affairs Canada has commissioned a number of reviews with no measureable results, which continues to frustrate industry and in turn stymies new and longer term exploration activities. Until this is solved, the NWT will remain an area known as one, ‘not to go to.’ ”
Regulatory worries in NunavutMcMahon said he also suspects similar negative factors may be at work in the mining industry’s perception of Nunavut Territory.
The companies worry “about all sorts of overlapping regulatory bodies, aboriginal councils and federal councils covering the same project. They also consider a good deal uncertainty is left over from Nunavut’s land claims settlement, and there is a high level of uncertainty about lands being placed off limits in wilderness areas,” he said.
In a survey response, the president of a producer company with more than US$50 million in revenue shared this about Nunavut: “We are working in Nunavut trying to permit an underground gold mine that took seven years and more than C$20 million in permitting-related costs.
The survey respondents also ranked the 79 jurisdictions on the following attributes:
Duplication and inconsistencies; fair, transparent and non-corrupt legal processes, Taxation regime (Alaska ranked No. 2);
Uncertainty concerning disputed land claims; uncertainty concerning which areas will be protected as wilderness areas, parks or archeological sites; infrastructure (includes access to roads, power availability, etc);
Socioeconomic agreements/community development conditions; trade barriers—tariff and non-tariff barriers, restrictions on profit repatriation, currency restrictions, etc. (Alaska among top six jurisdictions with zero barriers);
Political stability (Alaska and Nunavut among top 12 jurisdictions);
Labor regulations, employment agreements, and labor militancy or work disruptions (Alaska and Yukon among top 15 jurisdictions);
Geological database (includes quality and scale of maps, ease of access to information, etc.) (British Columbia and Yukon among top 12 jurisdictions);
Security (includes physical security due to the threat of attack by terrorists, criminals, guerrilla groups, etc.) (Nunavut was among top 23 with zero deterrents to mining investment. Alaska, Northwest Territories, Yukon and British Columbia ranked among the middle tier of companies with mild deterrents);
Supply of labor/skills (British Columbia placed among the top 12 jurisdictions);
Growing (or lessening) uncertainty in mining policy and implementation (Yukon and Alaska among top 25 jurisdictions);
Composite policy and mineral potential (Yukon and Alaska ranked No. 5 and No. 6, respectively.)
The Toronto-based Fraser Institute is an independent public policy research and educational organization that does not accept grants from governments or contracts for research.
For the complete survey results, visit www.fraserinstitute.org.