Good afternoon, Mr. Chair.
I serve on the board of directors of the PDAC and I am executive chairman and director of Stornoway Diamond Corporation, which is a Canadian diamond exploration company working all across the country, with an advanced project in Quebec that we hope will become Quebec's first diamond mine in a couple of years.
With me is Laureen Whyte, vice-president of sustainability and operations with the Association for Mineral Exploration, British Columbia. She is also a member of the PDAC aboriginal affairs committee and the CSR committee.
Thank you for providing us with an opportunity to meet with you today. The PDAC is a national organization with 7,000 members representing the range of companies and individuals in mineral exploration and development. Our individual members include prospectors, geoscientists, environmental consultants, mining executives, students and people working in the drilling, financial, legal and other supporting fields. The association's corporate members include exploration and junior mining companies, major producing companies, and organizations providing services to the industry.
The PDAC works closely with national, provincial, and territorial organizations, such as AME BC, through the Canadian Mineral Industry Federation, which submitted policy recommendations to Canada's energy and mines ministers in advance of their annual conference two weeks ago in Montreal.
Mineral exploration and mining is one of Canada's truly global industries, investing in 10,000 projects in over 100 countries, with 81% of worldwide mining equity transactions over the past five years being handled by the TSX and its venture exchange.
Exploration and mining are central to Canada's economic brand. The industry employed over 351,000 Canadians in extraction, processing, and manufacturing, and contributed $40 billion to Canada's GDP in 2008. Mining accounts for $95 billion or 19% of Canada's annual goods export.
Our submission to the committee briefly describes exploration financing and the current economic situation.
Mineral exploration companies do not have production revenue and therefore must rely on investors who are prepared to support higher-risk activities.
Market instability is having a negative effect on mineral exploration companies' share prices and on their ability to raise money for grassroots exploration programs.
While Canada remains a leading destination for exploration investment, exploration expenditures in Canada declined by 44%, from $3.3 billion in 2008 to $1.8 billion in 2009. Canada's share of global exploration investment dropped from 19% in 2008 to 16% in 2009.
In addition to volatile market conditions, this decline can be attributed to other factors, including the reality that much of Canada's favourable under-explored geology is located in remote areas that lack infrastructure and are only accessible seasonally. Industry is also facing mounting land access concerns and ongoing regulatory inefficiencies, which taken altogether have had a negative impact on the overall investment climate for mineral exploration in Canada.
Without sufficient investor support, exploration companies face a significant reduction or cancellation of a number of field programs, with the resulting impact on service companies and other businesses and individuals, particularly those in rural, northern, and aboriginal communities.
The situation is urgent, as the loss of these companies and qualified workers will severely limit Canada's long-term ability to retain its leadership position in the global exploration and mining industry. Working with our members, the PDAC has developed several proposals and solutions to reduce the impact of the current financial situation on the mineral industry, and to ensure that the mineral sector is a major contributor to Canada's economic recovery and continued growth.
We have three main recommendations
Our first recommendation concerns tax incentives. We recommend that the current 15% mineral exploration tax credit, METC, be made a permanent feature of the federal income tax system. To encourage investment in Canadian projects, we recommend temporarily increasing the METC for exploration finance using flow-through shares from the current 15% rate to 30% for a two-year period. This committee's 2009 report made reference to the mineral exploration tax credit. We appreciated your recommendation that the credit be extended. As a result of the 2010 federal budget, the METC is in effect for an additional year and is due to expire on March 31, 2011.
Our second recommendation concerns infrastructure. We recommend continued investment in the geomapping for energy and minerals, or GEM, infrastructure program, as it increases the knowledge of our natural resources and helps to retain expertise in Canada's mineral exploration sector. We also recommend investment in transportation infrastructure--for example, all-weather roads, bridges, road upgrades, as well as improvements to seaports and airports in Canada's north and remote regions of the provinces.
Our third main recommendation is around issuance and compliance costs and the duty to consult. Canadian mineral exploration companies face increased operating costs. These include issuance and compliance costs and costs related to the crown’s duty to consult with aboriginal communities.
Some costs qualify for renunciation as Canadian exploration expense, CEE, under flow-through share arrangements. The PDAC is recommending a review of the current CEE guidelines and an expanded scope in order to allow companies to manage new costs associated with government requirements.
Thank you again for the opportunity to appear before the committee. We would be pleased to answer any questions at the appropriate time.