Thank you very much.
I must say that Thunder Bay was one of our favourite spots to stop in our trip across Canada last year. We started in St. John's, Newfoundland, and drove all the way across and, 7,700 kilometres later, back into Victoria. Thunder Bay was a highlight.
Good morning, Mr. Chair and committee members. My name is Gavin Dirom. I'm the president and CEO of the Association for Mineral Exploration, or AME for short. On behalf of AME's 400 corporate members and 4,000 individual members, I'm pleased to present to the House of Commons Standing Committee on Natural Resources concerning the future of Canada's mining sector.
AME represents mineral explorers and developers operating or based in British Columbia. We are the hosts of the well-known Mineral Exploration Roundup conference held in Vancouver at Canada Place every January.
Mineral exploration is the lifeblood of the mining sector. Clearly, without exploration there would be no mineral deposits discovered and thus no mining. Through high-tech and low-impact geoscience and modern exploration techniques, members of AME discover the rare mineral, metal, and steel-making coal deposits that may be mined for the basic materials we all use on a daily basis. The greener economy of the future will absolutely be dependent on these materials.
But British Columbia, just like the rest of Canada, competes in a highly competitive open trade environment. Mineral explorers and developers are price-takers, not price-makers, and are therefore subject to the basic fundamentals of global supply and demand.
Even with the application of very prudent fiscal restraint and cost-cutting measures, the industry is still weathering one of the most extreme and sustained downturns in history, resulting in bankruptcies, layoffs, and cancelled or delayed projects. Many members of AME are struggling to stay afloat through these difficult times, regardless of the recent market price increases for gold, zinc, nickel, and steel-making coal. While some confidence is returning to the industry, it is limited, and there remains a high degree of uncertainty going forward with respect to the depth and the substance of the current price increases.
Globally, overall financing for the industry dropped by almost 40% between 2007 and 2015, while financing for exploration has fallen by more than 90%. After years on top, Canada no longer attracts the largest share of global mineral exploration investment, having conceded first place to Australia in 2015. In fact, Canada's share has fallen from 21% in 2007 to just 13.5% in 2015, and NRCan has predicted further investment declines for Canada in 2016. In British Columbia, mineral exploration expenditures have declined from a high of $680 million in 2012 to $272 million in 2015.
In the B.C. context, the province has hundreds of exploration projects that could be spurring more regional economic development. B.C.'s fundamentals are very strong, and it is well positioned to take advantage of its geographic position on Canada's Pacific coast and its access to Asian markets. The province has world-class metal, mineral, and steel-making coal deposits, and further discoveries are likely, but only with continued exploration.
It's the junior exploration companies that often take on the highest risk in the mineral development cycle, with less than one in 1,000 making a discovery leading to a mine development. Junior exploration companies, unlike major companies that have an operating mine and a source of revenue, need access to capital to fund and sustain mineral exploration projects, especially the early-stage greenfield projects that are required to replenish the nation's base metal reserves that are being depleted.
B.C. continues to host 58% of the mineral exploration and mining companies listed on the exchanges, but the ranks are thinning. Over the past three and a half years, the number of companies headquartered in B.C. has declined by 26%, from 962 to 708 companies. While the drop in commodity prices and company mergers are important factors, these are not the only reasons behind this decline. Other contributing factors include costly and excessive securities regulations to keep a public company listed, increasing costs to explore and develop mineral resources, and uncertainties about mine development even after the discovery of a minable deposit.
Unlike many other industries in Canada, mineral exploration and mining strongly align with a broad range of Government of Canada policy objectives. The government made helping the middle class a centrepiece of its 2015 platform, and the mining and oil and gas industries offer the highest average weekly wage of any industry in Canada.
Another key government priority is to promote economic development for aboriginal peoples and communities. The industry is already the largest private sector employer of aboriginal people in Canada and has generated significant economic opportunities that are often codified in agreements, such as impact-benefit agreements with companies, as well as mineral resource sharing and economic and community development agreements with the provincial government of B.C. Such agreements, taken together with active government consultation and industry engagement, have been important to the success of mineral exploration and development in B.C. and across Canada.
Given the rise in some commodity prices, AME believes that now is a very important time for governments to take policy steps that support the exploration industry to attract more investment and encourage future mineral development in Canada, while strengthening partnerships that advance socio-economic opportunities and support environmentally responsible use of our shared lands.
Therefore, I offer AME's perspectives and recommendations on the following three fundamental policy issues important to building and maintaining a successful mineral exploration and development industry in Canada.
Number one is to work together to attract investment. AME welcomed the extension of the federal mineral exploration tax credit through to March 2017, as announced in the budget. The METC is a 15% non-refundable tax credit on eligible expenses. In a B.C. context, the METC for investors is harmonized with the provincial mining flow-through share tax credit to further encourage private investment, resulting in a combined tax credit for an individual resident in B.C. of approximately 32%.
AME is supporting the Prospectors and Developers Association of Canada and calling on government to renew the federal METC for one year. Along with the PDAC, AME is calling on the government to maintain flow-through share financing, which is currently part of Finance Canada's tax expenditures review.
Flow-through shares play a critical role by creating an incentive for investors to allocate the risk portions of their portfolios into mineral exploration. In fact, flow-through shares accounted for more than two-thirds of all exploration-focused financing on Canadian exchanges over the last decade.
In the past, Finance Canada has estimated that the flow-through share system stimulated $3 in exploration for every $1 in forgone tax revenue. Supporting flow-through shares and the METC will keep investment dollars in Canada. Removing these important tax incentives at a time when the industry is still recovering from arguably the worst down-cycle in decades, could have a crippling effect on the recovery of the industry.
These incentives support the discoveries of new deposits, and advance the development of mining projects and the creation of socio-economic opportunities across the country. They support and benefit remote and aboriginal communities where natural resource development is the only source of jobs and economic opportunity, infrastructure and skills development, and community capacity building.
Take note that “without flow-through, we would never have discovered Ekati—and there would be no diamond industry in Canada today.” That is from Chuck Fipke, discoverer of Ekati.
AME also welcomed the federal government's intent to proceed with changes to the definition of Canadian exploration expenses, CEE, in the Income Tax Act to include expenses incurred for environmental studies or community consultations.
AME joins PDAC in supporting the establishment of clear, bright-line tests to determine which expenses qualify as CEE, and in updating the 2007 guidelines to provide such clarification, with the ultimate objective of making these guidelines part of regulations under the Income Tax Act.
Number two is having fair access to land to explore and security of tenure. B.C. is underexplored and vast, covering over 944,000 square kilometres, but mineral exploration and mining have affected less than 0.05% of the provincial land base. As is the case throughout Canada, sub-surface resources in B.C. are managed by government in the public's socio-economic and strategic interest, for the greater good of all citizens, aboriginal and non-aboriginal.
Exploration activities are low-impact to the environment and temporary in nature. Unlike most other natural resources, minerals are hidden and require scientific research and the testing of large tracts of land in order to find a hidden deposit. Throughout large areas of B.C., access to mineral and coal resources is eroding, contrary to earlier policy pronouncements by government and public land use plan commitments.
Today, nearly 18% of B.C. is off limits to exploration, and a further 33% is open only under limited conditions. AME understands that over time, lands may be closed for reasons of environmental protection or for other societal reasons deemed to be in the greater public interest. As well as important environmental values, the socio-economic values of developing hidden sub-surface resources must also be considered when deciding on land closures or restrictions that impede responsible mineral exploration and regional economic development.
Therefore, AME strongly encourages the federal government, when in any such land access and use discussions with provincial governments and first nations, to meaningfully consider the overall socio-economic benefits of mineral exploration to B.C. and Canada; the costs of policies, regulations, and legislation to explorers and developers; the ability to acquire and hold secure tenure; the building of investor confidence; and the maintenance certainty for explorers to have fair and timely access to land to responsibly explore for hidden deposits.
Number three is an efficient and effective environmental assessment process. Protecting the environment and health and safety are very important to AME and our members. An efficient and effective environmental assessment process is critical to the success of the industry.
AME supports the 2013 memorandum of understanding between Canada and British Columbia on the substitution of environmental assessments that arose out of the Canadian Environmental Assessment Act of 2012. The MOU describes how the two parties will work together, and recognizes that each government has a robust environmental assessment process, including meaningful consultation with aboriginal groups and timelines for government review and decisions.
Substitution means that an environmental assessment could be led by either the B.C. Environmental Assessment Office or the Canadian Environmental Assessment Agency, assuming the project triggers both provincial and federal laws or responsibilities. In theory, this reduces wasteful and unnecessary duplication. Importantly, as stated in the MOU, the governments of B.C. and Canada wished to “provide clarity and predictability for all participants in substituted environmental assessments and facilitate efficient use of resources in the timely delivery of those assessments.”
Currently there are 13 mine projects in either pre-application or review stage in B.C. Six of the 13 are in the pre-application stage and seven are in the review stage, including two in the coordinated or substituted process. On December 12 AME will be presenting in Vancouver to the expert panel review of environmental assessment processes. We will appreciate the opportunity to provide at that time more perspectives and recommendations about the environmental assessment process.
On behalf of the members of AME, thank you very much for your time this morning.