Natural Resources Committee on Sept. 29th, 2016

[Ross Beaty]

Sure.

[John Barlow, Conservative, Foothills, AB]

Is that a reason why your company is not exploring?

[Ross Beaty]

Not at all. We are focused on silver. Canada is not a major silver producer in the world. Mexico is. Peru is. You have to go where the resource is.

I can speak about Canadian mining companies that are working overseas. It's not as much impact on Canada specifically, on Canadian jobs, but it is certainly an impact on things like head offices, as well as what our reputation is in the world and how we are doing things in the world that we could maybe apply to Canada. That's the connection there.

[John Barlow, Conservative, Foothills, AB]

How am I doing?

[The Chair, Liberal, James Maloney]

That's your time.

[John Barlow, Conservative, Foothills, AB]

Thanks, gentlemen. I appreciate it.

[The Chair, Liberal, James Maloney]

We're almost out of time.

I have one question, Mr. Austin. Just to pick up on something Mr. Barlow asked you and something Mr. Beaty said, if there's a carbon pricing mechanism put in place, then do you agree with the concept that if the money stays in the province of Saskatchewan, for example, that money can drive innovation or be used to motivate innovation?

[Dale Austin]

There are a couple of things in answer to that.

We believe a carbon tax is the most efficient way, provided that you are looking at it in concert with other regulatory impacts. A carbon tax with other regulatory impacts may have some inefficiencies. Yes, we believe that a carbon tax is the most efficient way.

As Mr. Beaty said, a carbon tax is a way to drive innovation, because it will drive up costs in certain areas, such as energy inputs, but also drive up straight costs to pay for the emissions.

As we talked about earlier today, the market that the mining sector in Canada is operating in is looking for ways to reduce costs and find efficiencies. If those costs are driven up even marginally, we will be searching for ways to get our costs back in line to where they were to make us profitable companies.

[The Chair, Liberal, James Maloney]

That concludes this portion of the meeting, gentlemen.

Thank you very much, both of you. We appreciate your taking the time to join us today and to answer all our questions.

[Ross Beaty]

Thank you very much. Thank you all.

[The Chair, Liberal, James Maloney]

We're going to suspend for two minutes and get ready for the second panel.

[The Chair, Liberal, James Maloney]

Okay.

We're fortunate to be joined now by Gregory Bowes, from Northern Graphite Corporation.

I was going to explain what Northern Graphite Corporation is, but I'll leave that to you, Mr. Bowes. I'll turn the mike over to you for up to 10 minutes.

[Gregory Bowes, Chief Executive Officer, Northern Graphite Corporation]

Thank you, Mr. Chair.

On behalf of Northern Graphite, its shareholders and many stakeholders, including the County of Renfrew and the Algonquins of Ontario, I would like to thank the committee for the opportunity to make a presentation today.

We are in an unprecedented period of low interest rates and low oil prices, yet worldwide there is little economic growth. Populations are aging, and birth rates are declining. Japan has had 20-plus years and counting of economic stagnation. Is this the new normal for the western world? It's an extremely important question for governments which almost universally have budget deficits that are adding to already high debt levels. Most forecast that growth is going to skate them onside. Where is this growth going to come from?

I would make the case that the scarce resource worldwide is, in fact, jobs and economic growth, and they have to come first. We all know that wealth must be created before it can be distributed. With it, many things are possible, but it must be achieved within an environmentally sustainable and socially responsible manner. Mega projects, such as pipelines, LNG plants, and the oil sands, get most of the attention, but there are thousands of smaller projects whose collective benefit can be just as significant. Today I want to share some of our experiences and make some constructive suggestions from the perspective of a smaller project.

By way of background, Northern Graphite owns the Bissett Creek graphite deposit, which is located about 250 kilometres west of here, between the towns of Deep River and Mattawa, and about 15 kilometres from the Trans-Canada Highway. Most of you will know graphite as the lead in your pencil, but for many years, its main uses have been in the steel industry and other industrial applications. However, graphite's profile is steadily climbing, because it is a key component in lithium ion batteries and thus the electric vehicle and grid storage markets. It is also a key component in fuel cells, flow batteries, and consumer electronics.

Seventy-five per cent of the world's graphite comes from China, and there are many concerns over environmental practices and resource nationalism. Because of its criticality and security of supply issues, both the United States and the EU have declared graphite a supply critical mineral. So in a few short years, graphite has morphed from being a boring industrial mineral into one that is critical for the green-tech industries.

The lithium ion battery industry, in particular, is already $20 billion in size and growing at over 20% per year. What other industries are doing that in this economic climate? This growth is mainly cellphones, laptops, power tools, etc. Electric vehicles, grid storage, and the replacement of lead starter batteries are far larger markets that are still in their infancy. Substantial new graphite supplies are required, even under the most conservative forecasts, for these markets.

As you can imagine, there are a number of potential new graphite projects competing to supply the western world with this critical raw material. We believe Bissett Creek is the best of these new projects, but that does not necessarily mean it is the one that is going to get built. A new mine requires the support and co-operation of local communities, first nations, provincial and federal governments, and favourable financial and commodity markets. If Canada is to get a share of this exciting growth market, we all need to be on the same team.

Northern Graphite has invested over $20 million in the Bissett Creek project and completed all the required drilling and engineering studies. We have our main environmental approval from the Province of Ontario. This process included extensive first nations and community consultations. We have encountered zero opposition to the project. Construction could start in 2017, subject to financing.

Bissett Creek is about as environmentally benign as a mining project can get. There is nothing hazardous about graphite. We don't use dangerous chemicals, and 97% of the tailings are basically sand. The mine will cost approximately $100 million to build. It will employ about 100 people directly, and there will be another couple hundred jobs in the services and related industries. It will pay approximately $180 million in income taxes to the government over its life, which excludes GST and taxes paid by employees and suppliers.

Northern has also developed two proprietary technologies to manufacture the anode material for lithium ion batteries from the mine concentrates. Much of this is currently done in China because of lax environmental regulations. So you essentially have green batteries, green cars with dirty batteries.

The west not only needs new supplies of graphite, but it also needs alternative technologies to turn the graphite into high-tech products. Testing to date indicates that Northern's technologies are environmentally sustainable and cost competitive. The next step is a pilot plant test to demonstrate them on a more commercial scale, which is about a $2.5-million exercise.

In summary, Bissett Creek does not raise any environmental red flags. There is no opposition. It will create jobs and generate tax revenues producing a mineral critical to the growing green-tech markets. We have developed proprietary technologies to try to bring the value-added processing here to Canada. This should be an easy project, and Northern Graphite is a very good case study with respect to a company negotiating its way through the approval process and trying to get support from various governmental agencies and departments. Unfortunately, our experience in this regard has not been very positive.

I would like to expand on two areas in particular. One is the ability of government agencies and departments to deliver what is being promised at the top, and the second is a lack of financial programs to augment what the private sector can do in terms of financing both the resource and the related technologies.

We experienced a very large disconnect between stated policies and what was being delivered in the field. I cannot emphasize this point enough because it is what we have to deal with on a day-to-day basis. It is what leads to additional costs, expenses, and delays. So if policies and legislation result from the work of committees such as this, it is absolutely critical to develop an action plan that includes a real effort to communicate their intent to the various departments and people in the field and to get their buy-in. Most have been in their departments for years, and they have seen governments and policies come and go.

Bissett Creek is an opportunity to create jobs and generate tax revenues, and it is very disappointing to continually encounter a “prove you are worthy to do this” attitude. Yes, we are trying to make money for our shareholders, but that effort is what starts the whole wealth creation and distribution process. A spirit of co-operation to get the best result for all is needed. This is not a question of legislation but of implementation. There are many situations that are not black and white, and subjective decisions are required. Too often we were forced to take the most complicated, time-consuming, and expensive route for no reasons that were explained to us. We are not trying to take shortcuts. We are not asking for special favours. We simply want a realistic, supportive, and common-sense application of the regulations.

Here are a few examples to give you a flavour of what we experienced. Our property boundaries all follow lot, concession, and township lines, and we have no neighbours. We were ordered to re-survey all of these government-established boundaries in order to get a mining permit. Our project qualifies for a class B level review in Ontario. We were told to do a much more extensive and expensive class C review for no reasons that were explained to us. Urban encroachment on wetlands is an important issue in developed areas, but it's not applicable in the Canadian Shield where we are. We were ordered to do a wetlands management plan even though there is no requirement for one, and all related issues are dealt with through other legislation.

Of all the numerous pronouncements about one window, one lead agency, and defined timelines, none of that happened.

We are continually asked to consult with first nations on routine issues. I am fully supportive of the requirement for consultation, but boundaries and limits are required. Jobs, business opportunities, and effects on traditional lands all require consultation, but the colour of the office door does not. We don't need to create a first nations shadow bureaucracy that vets and approves everything the regular one does. It places a huge burden on first nation organizations who, in many cases, do not have the expertise or the resources to respond, and it creates a very slow, expensive, and inefficient process.

The same problem crops up with environmental legislation. I don't want to spend a lot of time talking about species at risk legislation in Ontario, but will simply say it is a good example of how not to go about this process. There was no industry consultation, no first nations consultation. It is based on weak and incomplete science and is costing governments and industries billions of dollars and countless jobs.

You might be interested in reading “Improving the Endangered Species Act—Impacts on Renfrew County”, a copy of which I have provided to the clerk.

[The Chair, Liberal, James Maloney]

Mr. Bowes, I'm going to ask you to wrap up very quickly.

[Gregory Bowes]

Okay.

The simple take-away from that is that what you say at the top has to be delivered in the field.

The second issue I want to briefly mention is that we have a very good network of investors—investment bankers, regulatory bodies, stock exchanges, etc.—that understand mining and are very supportive. At times that is not enough. We need more direct funding sources from the government for resource projects. I can say that in terms of both our project and our technology, nothing has happened. The 2016 budget proposed providing over $1 billion to support clean energy in the forestry, fisheries, mining, energy, and agriculture sectors.

At the Paris climate change conference, our Prime Minister pledged $300 million a year to clean technology and innovation. The first ministers' communique stated that the federal government is committed to advancing the electrification of transportation and doubling investments in clean energy and R and D, but there is no process in place to access these funds. There is no application form, and no one knows who signs the cheques. I realize this all takes time, but some type of fund and assistance for the resource sector, especially in this period of low commodity prices and weak markets, would be greatly appreciated.

Thank you very much.

[The Chair, Liberal, James Maloney]

Thank you very much.

Mr. Serré, you're first up.

[Marc Serré, Liberal, Nickel Belt, ON]

Thank you for your presentation and the work that you do in the area. I'm a member of the Mattawa-North Bay Algonquin First Nation in the area. Thank you for working with us. They do have a lot of expertise to support you. That's good.

Some of the other witnesses have indicated that it's good business working with the first nations. We've heard that the mining industry around the world is supporting human rights and increasing the level of salaries everywhere. The pricing is cyclical, and as a previous witness said, a good mining company will work with first nations and will also look at this cyclical nature.

In your presentation you seemed a bit pessimistic and negative on some of these elements. I want you to have the opportunity to elaborate a bit more on that. You also talked about permits and the provincial governments, and I'd like to get your sense on that.

[Gregory Bowes]

Sure.

I apologize if I came across as a bit negative, especially about the first nations, because I'm not.

As we were discussing, I grew up on Manitoulin Island, and 50% of my high school was first nations. Many of my friends and teammates were first nations. I have a lot of sympathy for the first nations community.

As I said, I'm fully supportive of the requirement to consult. We have a very good relationship with the Algonquins of Ontario. We have talked to them about business opportunities, job opportunities, all those things. An impact benefits agreement is high on our agenda.

My comments were more directed at, for lack of a better word, the bureaucracy in Ontario, and its use of the requirement to consult as an excuse for delays. There are dozens of minor technical issues that come up. We shouldn't have to consult with the first nations on every one of them. Dealing with the big picture, the economic benefits, the environmental effects, land use, all of that kind of stuff, I'm fully supportive of. My point was let's not get bogged down in the details.

The same is true for the environment. I'm not ranting against the environmental legislation. I'm ranting against the implementation of it at the grassroots level, because often it's very inconsistent with what is being said at the top.

[Marc Serré, Liberal, Nickel Belt, ON]

Thank you for that clarification.

Also, some of our previous witnesses have indicated that the government should not get too much involved. In your presentation, you're indicating some of the frustrations about funding, and so we have put aside some innovation funds. How important would that be for your industry to be able to look at accessing some of those funds?

[Gregory Bowes]

I didn't have time to go through all of this, but the notes are available for anybody who wants to read them at a later point. Obviously, the government shouldn't get too involved in the details, but I think in terms of high-level support, there is a lot more that the government could do. For example, one of the recommendations I made in here, which I did not have time to go over, was a national resource fund, one that would invest directly, debt and equity, in resource projects in Canada.

JOGMEC from Japan, Corus from South Korea, we all know about the Chinese investing in resources overseas. Many governments are. Why shouldn't Canada have a fund that invests in its own resources? There are Canadian companies that go to Japan to get money for Canadian projects.

I'll give you a very simple example. I think a fund like that, that was managed by private industry—and we have many qualified companies in Canada—if Northern Graphite came out with an announcement and said the Government of Canada is prepared to invest $20 million in the Bissett Creek project on the basis that the private sector puts up the other $80 million, the project would get built. It would generate $10 million a year in direct tax benefits to the government. That's not a policy decision, that's a good investment decision, and our ability to go out to the market and say that the Government of Canada is behind this project, if they put up the balance of the money, that's a very powerful message. Those mechanisms do not exist today.

[Marc Serré, Liberal, Nickel Belt, ON]

Can I ask then, on the innovation side, when you talk about.... It's really exciting what you're doing now with the lithium batteries and graphite, and looking at the battery itself, are you working with mining companies to look at other products, like for batteries in heavy equipment?

We've had Goldcorp here talking about an all-electric mine. They need equipment. They need heavy equipment to be battery operated, and then selling that around the world. Is it part of your plan to look at that?

[Gregory Bowes]

No, we don't plan on going that far upstream. The graphite mine produces a basic concentrate, and that concentrate must be upgraded through a manufacturing step in order to be used in batteries. It's not a manufacturing step, the upgrading step that we are focused on, rather than taking that material and manufacturing batteries.

As I said, the first stages of that upgrading all take place in China because of lax environmental regulations, and then the higher value-added manufacturing takes place in Japan and South Korea. None of it happens in Canada. We want to not only produce the raw material, but also do the upgrading of that raw material here in Canada, but not manufacture the whole battery system.

[The Chair, Liberal, James Maloney]

Thank you, Mr. Bowes.

Mr. Schmale, I understand you're next in the batting order.

[Jamie Schmale, Conservative, Haliburton—Kawartha Lakes—Brock, ON]

Thank you very much, Mr. Chairman.

Thank you, Mr. Bowes, for your comments today. I must say, I do appreciate your honesty in your comments. I think that is something we do need to hear. As someone who comes from Ontario, I do recognize what you were saying about government regulation, sometimes over-regulation, causing business to sometimes stall or choose other options.

In talking to people in my riding, especially from Ontario, especially manufacturers, a lot of them are already as lean as they can get. A lot of them have made progress toward making their operations as environmentally sustainable as they can. What they're saying now, what I'm being told, is that any more extra regulations could put them out of business, or force them to leave the province altogether. They're already dealing with hydro that is simply a disaster in Ontario. Maybe you could comment a bit about that as well.

[Gregory Bowes]

I think when you look at businesses, it's very easy to assume that big businesses make a lot of money, that they can afford this and they can afford that. That is probably true at the upper levels, but again, the point I made is there are thousands and hundreds of thousands of small businessmen and businesswomen, manufacturers, farmers—you name it—and most of these businesses operate fairly close to the line, so they're not cash cows. Every added little bit of expense risks pushing them over the edge.

The species at risk legislation, for example, has devastated the forestry industry in Renfrew County. These are not big international forestry companies. These are operations that employ five to 50 people, and there are dozens of them. There are a lot fewer now, and there are a lot fewer jobs than there were a couple of years ago.