Evidence of meeting #10 for Natural Resources in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was technology.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Keith Morrison  Chief Executive Officer, Gedex Inc.
Mark Kolebaba  President and Chief Executive Officer, Diamonds North Resources Ltd.
John Gingerich  President and Chief Executive Officer, Advanced Explorations Inc.
Bernie Swarbrick  Vice-President, Capital Projects and Studies, Advanced Explorations Inc.

3:35 p.m.

Conservative

The Chair Conservative Leon Benoit

Good afternoon, everyone. It's good to be here again to continue our study of resource development in northern Canada.

We have today as witnesses, to continue this study of resource development in northern Canada, the following: from Gedex Incorporated, Keith Morrison, chief executive officer; from Diamonds North Resources Limited, Mark Kolebaba, president and chief executive officer; and from Advanced Explorations Incorporated, John Gingerich, president and chief executive officer.

Welcome to all. If you'd like to introduce those with you when you make your presentations, go ahead and do that. We'll go in the order in which you're listed on the agenda.

Monsieur Gravelle, you have something you want to bring to the committee.

3:35 p.m.

NDP

Claude Gravelle NDP Nickel Belt, ON

Yes, thank you, Mr. Chair.

I'd like the indulgence of the committee on this. Next Monday we'd like to set aside maybe 15 or 20 minutes towards the end of the meeting to talk about the upcoming calendar and the upcoming witnesses.

We just want to straighten out or have a look at what's coming so that we can get prepared.

3:35 p.m.

Conservative

The Chair Conservative Leon Benoit

Is it agreed that we do that next Monday?

3:35 p.m.

Some hon. members

Agreed.

3:35 p.m.

Conservative

The Chair Conservative Leon Benoit

Okay. It's agreed.

Moving straight to the witnesses, then, we'll start....

Yes, Mr. Anderson.

October 26th, 2011 / 3:35 p.m.

Conservative

David Anderson Conservative Cypress Hills—Grasslands, SK

I think we need to be aware that a concurrence motion has just been moved by the NDP. We're going to have a vote in the hour. I just want to make sure we're all aware that we're going to have to go and vote at some point during this time.

I think we should hear the witnesses. We may not get the questioning in that we need--

3:35 p.m.

Conservative

The Chair Conservative Leon Benoit

Okay.

We have some things going on in the House. We're going to be interrupted. You will have time to make your presentations. We'll start the questioning, and then we'll have to see how we proceed from there.

We'll begin with Gedex and with Keith Morrison, chief executive officer.

Go ahead, please, with your presentation.

3:35 p.m.

Keith Morrison Chief Executive Officer, Gedex Inc.

Thank you, Mr. Chairman and honourable members of the committee. It's truly an honour and a privilege to have the opportunity to present to you today.

I have a couple of quick apologies. One is that I'm challenged enough by the English language, so I won't be able to do it personally in French, but we have the benefit of a great translator here. Secondly, this is my first time presenting in this kind of format, so it's a learning process for me as well. I apologize for any lack of effectiveness in the communication today.

That being said, we have a 14-slide powerpoint presentation with a small video embedded in the middle. We're going to go through this in page-turn format. I'm not going to undertake to read the slides; instead, I'm going to provide what I consider colour and context in addition to those slides.

In starting, I will say I'm here to tell you a good news story that is uniquely Canadian and, by the end of the presentation, I hope you'll agree with me that it's a story that makes sense and is definitely important, as it supports the long-term competitive advantage of our country in natural resource exploration and development.

Our company, Gedex, is a small Canadian company. It's unique that a technology of this complexity and sophistication, which I'll get into explaining, would be successfully developed and commercialized by a company of our scale in terms of numbers of employees and of capital resources.

Having looked into some of your backgrounds, I would say that in many ways it's a story you people have contributed to already, because without Canadian commitment to higher education—you'll see a number of Ph.D.s and participation with a number of partnerships and universities in Canada—without programs such as SR and ED, and without targeted programs like as FedDev, the risk and the difficulty of achieving this level of technological advancement wouldn't be possible.

The reason I'm giving you this context, as we turn the page and focus on the technology and the applications to northern development, is that I want you as stewards of the Canadian environment to see something that has benefited from all the things you provide in terms of that environment in Canada. It's very important to me.

So it's a good story, and we'll start at the beginning.

The beginning in Gedex's case is the story of the two founders, two icons of Canadian business, Bill Breukelman and his friend Dr. Barry French. Their friendship started at the University of Toronto in chemical engineering 50 or 60 years ago.

They've both had numerous successes. Commercially, probably the best-known ones are MDS Sciex, which is an analytical imaging company, and IMAX, which is the wide-format theatre chain, which is probably the more broadly known one.

Both consider Gedex their most important undertaking in terms of continuing investment in that family of imaging technologies. But it develops technologies that are applied specifically to subsurface imaging, providing new data that can be used to interpret geology in terms of supporting petroleum, mining, and water exploration and development--globally, but everywhere in Canada.

Applications and benefits from the technology range from east coast petroleum applications and marine applications through to New Brunswick, Quebec, and Ontario, where you have the metals camps, and to the daughter of endowment now, Saskatchewan, which is enriched with potash, uranium, sophisticated agribusiness, and now tar sands as well, to Alberta, through Foothills petroleum applications and tar sands, and to B.C.'s coal. And today we're going to focus on the expansion and development of exploration and the attraction of risk capital to northern development.

Turning to page 2, you'll see a slide that consists of some of the key relationships around Gedex. The fundamental intellectual property that enabled the technology I'm going to introduce in a couple of slides really came from a combination of Rio Tinto and the University of Maryland. The remaining strategic partners have contributed predominantly through strategic finance and support of the cost of the development and the engineering.

The relationships with each of the schools and universities have been multi-level. It has been a source of key employees. In many cases, they have been co-developers of underlying and supportive intellectual property. All of these relationships are active, ongoing, and important to the success of Gedex Inc.

Bringing this technology into the broad context of the Canadian Arctic, exploration for natural resources is fundamentally a risk management process. It's extremely challenging, as I'm sure you're all aware. Our information is never perfect. The cost of perfect information is impossible to achieve.

It's always risking what you believe you know versus the cost of getting more information. This is a continual process, from early stage geological mapping and airborne geophysics through drill evaluation and right to the environmental assessment and commercial stages of development. There is always a trade-off with assurance of information, cost of information, and the ability to advance a project.

What Gedex Inc. is introducing and bringing to the market is a unique value proposition that we believe provides risk takers, at a very early stage of exploration, with better information and better data with which to derive underlying geological interpretation, which is fundamental to understanding the prospectivity, the justification for why a company would invest in the next stages of information, which are going to be increasingly more expensive.

Gedex's role is to provide new information that provides a higher quality subsurface geological mapping and understanding of the geology and prospectivity.

The fundamental proprietary instrument, which is the core of our technological differentiation, is really an extraordinary instrument. We refer to it as an airborne gravity gradiometer. I will explain in a little more detail what that is. Fundamentally, it measures minute part-per-billion changes in the earth's gravitational field. From that, it derives a density function: a change in the subsurface geology that is related to the density of the geological units themselves.

This instrument is an order-of-magnitude improvement over any current commercial capability. Arguably, it is one of the most sensitive instruments that has ever been engineered in the history of mankind. You're literally looking at a Nobel Prize level of physics.

It is the measurement of a change in the shape, or micrometry, but we have to be able to measure that change to one part in 10-15 metres--or one femtometre, from a scientific unit point of view. To provide scale to the committee, the nucleus of an average atom is about 10-10 metres. We're several orders of magnitude smaller than the nucleus of an atom in the resolution we require in this measurement, and we're doing that in a moving aircraft, so it's a very significant engineering challenge. Our direct investment today is approaching $100 million in development.

We have built the technology up and the instrument is buried deep inside our test aircraft. The total weight is about 500 pounds and it is completely isolated from all of the aircraft accelerations around it. That is critical to getting that resolution and accuracy. The entire 500-pound instrument is actually floating on high-pressure air bearings. It's so finely balanced that if you were to walk up to it and spin it with your finger very lightly, it would continue to spin in a frictionless environment for several hours.

The data controller for about 200 sensors that are internal to the instrument communicates to the instrument without wires. There is absolutely nothing attaching that instrument to the isolation technology that you see here on the slide or, ultimately, to the aircraft. The instrument itself thinks it's flying in free space. Ultimately, from a bizarre perspective the aircraft is moving around it without ever touching it. Like I say...extreme technology. Apologies if the video doesn't work.

Going back to gravity gradiometry very quickly, what is it? In high school when we were introduced to gravity, we were taught that it's a constant, and we worked on problems throwing balls off cliffs, and projectile problems, and we were taught that gravity is 9.18 metres per second squared.

Unfortunately, that's not true. It works for very simple problems like that, but the underlying assumption would be that the earth is homogeneous, that the density structure of the earth everywhere is uniform, but we know from geology and common sense that that's just not true. If you were to hold a rock in your hand that was full of lead, it would be heavy and dense, as opposed to holding a reservoir rock from a petroleum trap that was full of water or gas, which would be very porous and very light.

So if we know that the density of the underlying geology is changing, it only follows logically that the earth's gravitational field can't be constant. It has be changing as well. The trick is, what sensitivity of measurement do you have to make to be able to resolve subsurface geological changes from a gravitational measurement?

The magnitude of measurement that we're making is about a part per billion change and the unit that is applied to that is an eotvos. On a previous slide you see a reference to one eotvos per root Hertz. To put that in order of magnitude again, a part per billion change in the distance between the earth surface and the moon would be about the first 40 centimetres of that voyage. From our moving aircraft, we're measuring the change of the earth's gravitational field in three components to that sub-part per billion resolution. Again, it's extreme engineering and technology.

Moving on to the images shown here, the data is used to interpret subsurface geology, and it can do that essentially from the surface down to depths of about 10 kilometres, which is an extraordinary range in terms of depth of effective mapping. The data are recorded in an image similar to the upper left image on this screen that you can see. Geological units are interpreted from that, and then the prospectivity of those geological units is analyzed by resource companies.

What is key from an Arctic perspective is, that this technology is capable of sub-ice measurements in mapping, and it's also extremely differentiated in that it provides high-value information for the petroleum industry, in addition to effective information for mineral and water applications as well.

3:50 p.m.

Conservative

The Chair Conservative Leon Benoit

Mr. Morrison, we're trying to get the other presenters in before we have to go for votes. I don't know whether we can do that or not. We had allocated 10 minutes per presenter, and you're almost at 14. If you could wrap it up quickly...?

3:50 p.m.

Chief Executive Officer, Gedex Inc.

Keith Morrison

Yes, I can wrap it up quickly.

3:50 p.m.

Conservative

The Chair Conservative Leon Benoit

There will be questions. Hopefully we'll still have questions, and if so, I am sure it will bring out a lot of the information you would like to give us. It's fascinating, but we do have to allow the other presenters to make their presentations.

3:50 p.m.

Chief Executive Officer, Gedex Inc.

Keith Morrison

I agree. I'm sorry about that. I should have kept a closer eye on the time.

This technology is being deployed in aircraft that is very capable of significant success in long-range Arctic deployments and able to survey up to 400 square kilometres per day, so it's very rapid coverage. It is also very environmentally sensitive, with minimal impact on the environment.

In closing, I think there is a good news Canadian story here. Canadian technology that is leading the world can provide a new generation of geological information that will give resource investors a higher degree of confidence in terms of initiating arctic exploration. We look forward to working with the Canadian government in enabling that. Thank you for your time, and my apologies for going over.

3:50 p.m.

Conservative

The Chair Conservative Leon Benoit

Thank you very much for your presentation.

We go now to Diamonds North Resources Limited and Mark Kolebaba, president and chief executive officer.

Please go ahead with your presentation, sir.

3:50 p.m.

Mark Kolebaba President and Chief Executive Officer, Diamonds North Resources Ltd.

Thank you for the opportunity to speak. I'll drop right into it.

Diamonds North has been operating in the north for about 10 years, most of them involved with another company called Uranium North. These two companies have spent probably in the order of $100 million in the last decade or so.

I've been working in the Arctic since about 1985. The far north is a great place for mineral wealth, but it also contains almost every commodity of economic value. You have copper, zinc, lead, gold, silver, uranium, diamonds, and rare earths, so it's a good place. That's not including oil and gas, water resources, and coal. It's a strategic place for Canada and I think that's the point I want to get across.

It is a great place to look for minerals. One of the downsides is that it's a very expensive place to operate. It's expensive to operate for a couple of reasons: mainly, short seasons and a harsh climate. There's also a lack of infrastructure and the lack of a labour force. Anybody who goes up there and any equipment, anything that goes up into the Arctic, has to be flown in and flown back out. That really does a lot to the cost.

Another one of our concerns is Arctic sovereignty and mineral title. The Prime Minister has said that the Arctic is a place where you have to use it or lose it and that the government was intending to use it. I think those are very encouraging words, but I think it suggests that one thing is missing, which is that we are actually using in terms of mineral exploration and mining, and I think a lot of Canadians overlook that, and so do the international communities.

Here's why I say that. In the Arctic, you have thousands of people working there each year. They're on the mainland. They're on the Arctic islands. They're looking for different commodities. They're employed by Canadian companies. They're funded by Canadian investors. This isn't the wild west. All these people are operating under Canadian law: mining law, Transport Canada law, and Canadian environmental policy. So this is truly a Canadian-regulated place, and I think mining plays a large part in exercising our sovereignty. We're excited that they're bringing in a larger presence from the military, but you also have to look at building the presence of mining and other resource industries in the Arctic.

As the government builds up the presence of the military in the Arctic, we hope the work of mining and exploration companies is also being promoted and grown through different incentive programs. I want to mention a few incentives that would really help grow the mining business in the Arctic.

It comes down to cost. The biggest issue that we have up in the Arctic is cost. Whenever you can reduce the cost, that will be another incentive to bring people in. We're competing with British Columbia, Quebec, and all these places that have much lower operating costs than we have in the Arctic.

Our biggest thing is infrastructure. That's our biggest issue. What we'd like to see in the Arctic is roads or rails that connect the south to the north.

We could bring a road up to a northern port so that you could extend the transport. It's a super project. It's a large, expensive project and the funding for it would have to be done in partnership with government and industry. I'm sure that people in different companies that can't make it economically by building the road entirely themselves would like to contribute to a road or rail that was funded partially by the government.

There would be great benefits from building a road across parts of the Arctic. First of all, there's the construction portion of it and the jobs you would generate from the construction of the road. Secondly, putting a road into the Arctic that goes past several deposits that are not economical now may in fact make them economical; there's a chance and an opportunity to take different deposits, make them economical, and take them into production, which gives a legacy of employment that may last for 10, 20, or 30 years, depending on the life of the mines. Royalties are paid directly to the government. I think those are big benefits.

There would be another benefit. There are northern communities that have absolutely no contact with the south. It's all fly-in and fly-out. This would make the communities more sustainable and self-sufficient.

In addition, it would generate mineral exploration. You would see a vast amount of exploration for 50 kilometres to 100 kilometres on either side of the road or track. It generates jobs and it's very good for the economy, but it's also a good way to demonstrate that we are exercising our sovereignty in that part of the world.

In the interim, the military is building a bigger presence in the Arctic. They're patrolling the borders and the Arctic islands with sea vessels and aircraft. Some of the equipment could be used to transport supplies and equipment for the mining industry and other industries up there. The user would pay. It would subsidize the military, but it would also give industry a dependable means of transportation for goods and equipment in that part of the world.

There are also smaller initiatives that I think would be very beneficial in the Arctic.

Right now, when you stake a claim for minerals, you physically have to put a peg into the ground. This was done back in the days when you had prospectors walking around and putting in sticks. It's now 2011, and other jurisdictions, such as British Columbia and Quebec, are staking online. It would lower costs.

We have to hire fixed-wing aircraft and helicopters to stake in the Arctic. It's a very expensive process because of the fuel. We bring in people. There's a safety issue. If it could be done online, all the money that goes into helicopters and whatnot wouldn't be lost: the money would be transferred from staking to mineral exploration. Mineral exploration is what actually finds the mines, not the physical staking of the ground.

We need to streamline the regulatory process. We have a short season in the Arctic. All the companies understand the need for a regulatory process. We need it streamlined so that we don't miss seasons. Every time we miss a work season, it's a setback of a year. It means a year longer that mineral surveys aren't finished. We also lose credibility with our investors. The investment dollar, because it can't wait forever, goes to southern projects or to companies working in southern parts of the world. Streamlining would make it more productive.

Another fairly big issue has to do with first nations land. For example, Nunavut is completely settled land, as opposed to the NWT. To put it into perspective, the NWT expects to have a GDP decrease of 2.3% in the next year, and Nunavut expects a 16% increase. From our point of view as a company, we spend 95% of our budget in Nunavut and about 5% in the NWT, which is based solely on the fact that the land is not settled. A huge amount of money is not put into the NWT for that reason.

The Geological Survey of Canada does mapping. A lot of areas in the Northwest Territories have had very little mapping. Geological initiatives help us find mines. They're of great assistance. I don't think the planned government program to look at different commodities is a good thing, because commodities are on a cyclical basis. We'd like to see pure scientific and geological initiatives that look at the potential for all commodities in a region. It's of great assistance to us in generating geological models for exploration.

The last point I have is an incentive that is financial in nature. Right now in Canada, we have flow-through investment in the different provinces and territories. Some provinces have a super flow-through, which is more beneficial to the investor. I'd like to see something that is very beneficial to the territories where you have very high cost: a flow-through mechanism that gives the investors a very high incentive to put money into these territories. Access to capital helps to find mines. It's a very high-cost place to work.

Another good initiative would be a tax credit like you see in Quebec. For every dollar that's spent, the company gets a certain amount of that cash back, and then it can go into the next exploration program.

These are the types of things that really help to extend the dollar and help us to make discoveries.

Thanks for the opportunity to speak.

If you have any questions, I'd be happy to answer.

4 p.m.

Conservative

The Chair Conservative Leon Benoit

Thank you, Mr. Kolebaba.

Now, I understand that Mr. Gingerich has a powerpoint presentation.

I also understand that the bells are going to start ringing fairly soon. They're 30-minute bells. We need unanimous consent to go into those bells at all, at least to hear from Mr. Gingerich. Do we have unanimous consent to do that?

4:05 p.m.

Conservative

David Anderson Conservative Cypress Hills—Grasslands, SK

To the end of his 10 minutes...?

4:05 p.m.

Conservative

The Chair Conservative Leon Benoit

Yes, to the end of his 10-minute presentation.

I hear no objections.

4:05 p.m.

NDP

Claude Gravelle NDP Nickel Belt, ON

Would you repeat that? We want to do what...?

4:05 p.m.

Conservative

The Chair Conservative Leon Benoit

We want to hear Mr. Gingerich's presentation even if the bells start. They are 30-minute bells.

4:05 p.m.

NDP

Claude Gravelle NDP Nickel Belt, ON

Okay.

4:05 p.m.

Conservative

The Chair Conservative Leon Benoit

Mr. McGuinty.

4:05 p.m.

Liberal

David McGuinty Liberal Ottawa South, ON

Mr. Chairman, very quickly, maybe this is not the appropriate time, but if we're going to have to interrupt these proceedings, maybe we should do it later. Is that perhaps your view, that we have a discussion quickly after the third presentation to decide how to bring these folks back, to bring them in by Skype or something? I certainly don't want to lose the opportunity to get a lot more information.

4:05 p.m.

Conservative

The Chair Conservative Leon Benoit

We could have that discussion afterwards. As long as nobody disagrees, we can hear from Mr. Gingerich and then we can have a short discussion.

4:05 p.m.

Some hon. members

Agreed.

4:05 p.m.

Conservative

The Chair Conservative Leon Benoit

Great. Seeing consent, I'll ask you, Mr. Gingerich, to go ahead with your presentation, please.

Thank you very much for being here and doing this.