[Recorded by Electronic Apparatus]
Tuesday, May 9, 1995
.1108 
[English]
The Chairman: Order. Colleagues, this morning we're on the main estimates for the energy, mines and resources program. Before us this morning is Ron Sully, Assistant Deputy Minister of the Mining Sector. Ron's going to introduce his colleagues at the front. There's going to be a roughly 20- to 30-minute presentation, and then we'll get into questions and answers.
Also, you might have noticed the government has responded to our report, Lifting Canadian Mining Off the Rocks. It's in front of you. We haven't had an opportunity, as you know, to look at this, and I don't expect you have had time this morning to read it, because apparently it came to your offices just this morning, but it's my understanding Mr. Sully will be referring to it somewhat and may give us a little caption of the department's view of our study during his presentation.
I'll pass the floor over to Mr. Sully and he'll get on with his presentation...and after that questions.
Mr. Sully.
Mr. Ron Sully (Assistant Deputy Minister, Mining Sector, Department of Natural Resources): Thank you very much, Mr. Chairman. It's a pleasure for me to appear before you once again to brief you on the activities and priorities of the Mining Sector and to respond to any questions you may have on the mining sector component of Natural Resources Canada's 1995-96 estimates.
.1110
Before I begin, I'd like to introduce the other members of the team with me today: Mr. Bill McCann, Director General of the Mineral Strategy Branch; Dr. Keith Brewer, Director General of the Economic and Financial Analysis Branch; and Gordon Peeling, Director General of the Mineral and Metal Commodities Branch.
I'd like first to give you an indication of the material I propose to cover. First, I will remind you briefly of the Mining Sector's organization and its functions. Then I would like to review for you how the mining sector has been affected by the program review exercise in the 1995 budget. After that, I will refer to the response tabled yesterday to your report Lifting Canadian Mining Off the Rocks. Following that, I'd like to talk on some of our achievements over the last year and highlight our priorities for 1995-96. Finally, I will provide a brief outlook for the mineral industry.
[Slide Presentation]
Mr. Sully: Just as a brief reminder, the Mining Sector is divided into four branches: three core policy branches and one administrative branch. They are as shown here. The activities of the Mining Sector are grouped into five basic areas, as shown on the slide.
Much of the commodity work of the Mining Sector is specific to individual commodities, particularly those in which Canada has a large economic stake, such as nickel, copper, and zinc, while others cover the entire spectrum of minerals and metals.
Environmental issues are playing an increasingly important role in our policy work. I think many of you are familiar with our work on sustainable development issues, the impact of environmental regulations on mining, toxicity, CEPA, and issues such as the transboundary movement of hazardous wastes. Our expertise is the base for our efforts to influence the direction of federal and international policies to integrate the economy with the environment, which is in keeping with the concept of sustainable development.
In the international area, our expertise on commodities and knowledge of industry economics influenced the direction of federal and international policies, especially given current environmental thrusts, and helped to ensure continued market access and trade and trade-related international negotiations.
Through its fiscal and economic analysis, the Mining Sector offers analysis and policy advice on a broad range of issues, including all aspects of Canada's competitiveness in mining. This sector also collects comprehensive statistics on the Canadian mineral industry.
In the area of federal-provincial territorial relations, the sector works with the provinces and territories on issues that require coordination and a national focus. For example, we are working with the provinces and territories to examine the impact on the mining industry of completing Canada's network of protected areas. We will also be consulting with the provinces and territories on an issues paper on how sustainable development applies to minerals and metals.
As you are aware, the recently completed program review exercise was the most comprehensive examination of government activities and programs ever undertaken in Canada. The program review outcomes were announced in the 1995 federal budget. As a result of this, the Mining Sector's budget will decrease from $25.8 million in 1994-95 to $16.7 million by 1997-98. This represents a 35% reduction.
These figures include the winding down of mineral development agreements, the majority of which expired in March of 1995. After all the MDAs expire, on March 31, 1998, the sector's budget will decrease to $9.8 million. I'll talk more about this in a few minutes.
.1115
The program review exercise confirmed the need for a strong federal role in mining complementary to that of the provinces. It also confirmed the importance of the policy function to this role. The Mining Sector will continue to carry out core functions related to environment, regional, commodity, international, and economic issues necessary to provide quality policy advice to the minister and to the government.
However, we will streamline and refocus activities in areas such as commodities, economic and financial analysis, and in our regional work.
I will give you one example in the area of coal. Our efforts in the international coal market will concentrate on areas in which the industry has the strongest sales potential, and on addressing environmental and market agreements that have an impact on the long-term viability of the industry. Domestically, our efforts will be directed towards analysis of federal initiatives impacting on the industry.
With respect to the 1995 federal budget, as you know, the government's overriding priority was clearly fiscal restraint and deficit reduction. The government felt that it was important to get the fundamentals right. Improving our fiscal situation will have positive impacts on investment and job creation in Canada, and this will benefit mining.
To this end, a number of decisions were taken that will affect all industrial sectors. For mining, the federal government will no longer provide direct financial support to the resource sectors. This means that sector-specific agreements such as the mineral development agreements will not be renewed.
The mineral development agreements, or MDAs, expired on March 31, 1995, except for the eastern Quebec prospectors' program, which expires on December 31, 1995, and the Quebec MDA, which expires on March 31, 1998.
Appendix 3 on page 168 of part III of the main estimates presents detailed information on the agreements, their values, and their expiry dates.
I would now like to turn briefly to the federal government response to your report, Lifting Canadian Mining Off the Rocks. The response was tabled yesterday, and I am sorry that you did not see it until this morning.
Meeting deficit targets did not permit new fiscal measures to encourage exploration or to enhance the attractiveness of mine reclamation funds. These were two of the recommendations in your report.
However, as indicated in the response, we are working to reduce structural impediments to mineral investment through a number of initiatives. These include the Whitehorse Mining Initiative implementation process, the Canadian Council of Ministers of the Environment harmonization initiative, and the regulatory component of building a more innovative economy. I will provide you with more details on some of these initiatives in a few moments.
In addition, the Geological Survey of Canada is working closely with its provincial and territorial counterparts to establish national priorities and ensure the geoscientific programs are carried out in a cost-shared and collaborative manner to avoid overlap and duplication.
Furthermore, Natural Resources Canada will continue existing funding to the Mine Environmental Neutral Drainage program, or MEND, a cooperative federal-provincial industrial program to develop new technologies to lower the cost of reclamation while maintaining environmental standards.
I would now like to draw your attention to some of the Mining Sector's achievements over the past year. As you will recall, the Mining Sector led the federal government's participation in the multi-stakeholder Whitehorse Mining Initiative, or WMI, and our Minister McLellan signed the accord in September 1994.
Following this event, work began to develop a plan to respond to accord goals in the federal jurisdiction. To assist in this objective a multi-stakeholder ministerial advisory committee on WMI implementation was established and met in February 1995.
The sector also carried out consultations with the provinces and territories which confirmed the need for a federal role in mining.
According to the provinces, the federal role in mining includes international trade and business development, leadership, support and coordination in policy, science and research, and specialized expertise on mineral commodities.
.1120
In partnership with the provinces and the mining industry, the Mining Sector organized and participated in a number of international investment activities to promote Canada as a good place to invest. Investment forums held abroad - for example, in Europe, Asia, Australia and the U.S. - highlight Canada's geological potential and promote foreign investment in Canadian mining projects.
You may recall that the enhancement of our investment promotion activities was recommended by this committee.
The Mining Sector, together with other federal departments and in partnership with other OECD countries and industry associations, at the request of the government of Senegal sponsored a workshop hosted in Senegal dealing with the Basel Convention restrictions on the export of hazardous recyclables destined for recycling and recovery operations from OECD to non-OECD countries.
The workshop resulted in, amongst other things, the formation of an informal working group to develop a process to accelerate the review of definitions, classifications and characterization of hazardous recyclables covered by the Basel Convention.
Now I would like to turn to the Mining Sector's priorities for the upcoming year. The federal government is committed to implementing the results of the WMI by responding to accord goals that fall within federal jurisdiction. The Mining Sector is leading the federal response.
As part of this response, we are working on the development of a sustainable development policy for minerals and metals in areas of federal jurisdiction. This policy will include many of the goals set out in the WMI accord. Consultations on a draft issues paper will begin shortly.
An important concern raised during the WMI consultations was the need to address regulatory issues, including the issue of environmental regulatory overlap and duplication. Through the regulatory reform component of building a more innovative economy initiative, we are working on improvements to the federal regulatory regime related to environmental and land use decision-making. The objective is to promote sustainable development, reduce overlap and duplication, provide for greater certainty, and reduce delays and costs.
Although MDAs will not be renewed, continued cooperation between the federal and provincial governments in mining is essential. We are working in partnership with our provincial colleagues to develop mechanisms to ensure that government services to the mining industry are delivered in an efficient and effective manner.
For example, the inter-governmental working group on the mineral industry, IGWG, which I co-chair, is expanding its policy coordination role to deal with issues of significance to the Canadian Mining Sector, such as the upcoming review of the resource allowance. This committee is made up of senior officers from the provinces, territories, our department, and the Department of Indian Affairs and Northern Development.
While continuing our close relationships with our industry stakeholders, we are also working toward building partnerships with other stakeholders. For example, we have established a mechanism to carry on consultations with the Canadian Environmental Network. The perspective of the aboriginal community has also been integrated into our work through their participation in the WMI advisory committee.
On the international front, we will continue to actively pursue the use of objective criteria, sound science, and risk-based analyses when considering regulatory initiatives within international organizations such as the OECD and the UN agencies.
I'd like to conclude my presentation with a brief overview of the outlook for Canada's minerals industry. As you will see in the next few graphs, the outlook for the minerals industry appears strong. Metal prices are up. 1994 was a turning point for non-ferrous metals markets, after several years of growing inventories and depressed prices.
Based on our department's analysis of non-ferrous metals prices over the next five years, we have extended our metal price index, as shown here. We believe non-ferrous metal producers can look forward to a number of good years.
.1125
Coal production in Canada reached a record level in 1994. Prices are expected to increase in 1995 after a decade of decline. Aluminum consumption is expected to grow moderately. Prices are expected to rise through to 1996, and remain strong in 1997. Potash consumption is expected to continue to recover during 1995, and prices should remain at or near current levels for some time.
As a direct result of improving mineral prices, companies have increased their efforts to evaluate promising base metal and precious metal deposits. More than 140 such deposits were undergoing active appraisal at the beginning of 1995, which is a 50% increase over early 1994. A dozen projects got the go-ahead in 1994, including the Grevet zinc-copper deposit in Quebec, and the Eskay Creek gold-silver deposit in British Columbia. Production decisions made this year include the Raglan nickel-copper deposit in Quebec.
There is considerable activity around established mining operations. For example, in Ontario, Metall Mining is evaluating its Pick Lake zinc-copper deposit, and Falconbridge is looking at the feasibility of mining the lower levels of its Lockerby nickel-copper deposit in Sudbury.
The result of this increased activity - and this is an important point - is that the rate of decline of base metal ore reserves is slowing, and indeed, Canada's base metal reserve levels are likely to improve in the next few years. However, in the longer term, only the discovery of more economically exploitable mineral deposits will ensure Canada's future mineral production.
Another promising sign that things are looking up for the minerals and metals sector is that in 1994, for the first time since 1989, there was a net increase in the number of mine openings over mine closures, because 12 mines opened or re-opened and 9 closed or suspended operations in 1994. In addition, 13 mines are likely to come into production for 1995, and for 1996 we foresee another 19 new mines.
Exploration expenditures are also up in Canada, fueled by a combination of higher mineral prices and the current diamond play. Preliminary numbers indicate that in 1994, they will be close to $630 million, up from $477 million in 1993. For 1995, we are expecting another increase, with expenditures reaching around the $650 million level.
Finally, the potential for new discoveries in Canada is excellent. Recent promising metal discoveries include the Voisey Bay nickel-copper deposit in Labrador, the Victor Deep copper-nickel deposit in Ontario, and the Pipe Deep nickel deposit in Manitoba. Several exciting diamond deposits have been discovered in the Northwest Territories, and the development of a major diamond mining operation seems probable.
In summary, all indicators point to a strong outlook for the Canadian minerals industry. This is good news not only for the industry and the communities across Canada that depend on mining but also for the Canadian economy as a whole.
For our part, while the Mining Sector may do business somewhat differently as a result of program review, we will continue to use our unique knowledge and expertise to develop policies that support the sustainable development of Canada's mineral resources, enhance productivity and add value to Canada's mineral products.
We will do so through leadership, such as that exhibited in the WMI process; coordination, such as in the work we are carrying out under the regulatory reform initiative; and partnerships in which we will continue to work with the provinces, industry and other stakeholders to ensure a prosperous mineral industry committed to sustainable development.
That concludes my presentation, Mr. Chairman. I will be pleased to answer any questions you and other members may have on this presentation or on any other mining industry-related concerns. Thank you.
The Chairman: Thank you, Mr. Sully.
We'll go right into questions, starting with Mr. Canuel.
.1130
[Translation]
Mr. Canuel (Matapédia - Matane): You say on the first page that there will be a reduction of 35% over three years. When I see that your budget will decrease from 25.8 million to 9.8 million dollars, this tells me that only one third of the department will be operational. I have great difficulty understanding how we will be able to do miracles with such deep cuts.
You also said that the MDAs would not be renewed and that the one concerning Quebec would expire in December 1995.
If the MDAs are not renewed and the necessary money is not sent to the provinces, it will mean, if I understand correctly, that it will be up to the provinces to make the whole thing work. In other words, the burden will fall onto the provinces.
I would also like to know how many employees work for the federal government and how many of those work in Ottawa. Also, will there be personnel cutbacks?
You also said that the two recommendations presented in the report prepared by our committee were neither accepted nor acceptable. I have great difficulty understanding why that is.
Really, I am wondering a lot about the Department of Natural Resources. Witnesses representing other sectors have appeared before you and told us just about the same thing. They had suffered cuts of almost one third.
I understand very well the government's attitude, because we have to cut, but I find it unacceptable to cut in natural resources and I would like to know your views on that matter. It's very nice to privatize all that, but I have the feeling that if we don't give some kind of help to the junior companies that would like to operate in that field, they will never start up.
In the end, there will be some kind of monopoly and only the big companies will be able to get their hands on our natural resources. This scares me a lot. I'd like to know your views on that, gentlemen.
[English]
Mr. Sully: You've raised a number of issues. First, with respect to the magnitude of the reductions we have shown, it is true that after the MDAs expire, the reduction is effectively more than 35%.
I should say, though, that in terms of our ongoing operations, if you set aside the money that was spent on mineral development agreements, the reductions are not so significant in terms of the impact, let's say, on our staff. The effect of these agreements was that they were actually worth more in dollar terms than the total budget I required to pay my staff and run our operations. Let's say it's about $10 million roughly for our ongoing A-base operations. About $20 million that was incremental to that was spent on the mineral development agreements.
.1135
I think the whole point of this is that it is not a question of abandoning the field either to the provinces or to the industry but rather of finding ways to exercise our responsibilities other than simply by providing direct support to the provinces through these agreements. What I'm trying to say is that whether you're talking about our sector or the Geological Survey or CANMET, we still have our infrastructure left, our national labs, our highly qualified scientific and other staff, and we will use these resources to work with the provinces and the industry to make sure we can do our part to ensure the industry prospers in the future.
In that context too I should say it's very important, given the resources we do have left - we have lost this block of funding - whether we're talking in the policy area or in the area of science, that we work very closely with the provinces to ensure our efforts are complementary and we maximize the effectiveness of the dollars we have available, because it's fair to say the provinces, going through their own deficit-reduction efforts, have had to make cuts in some of these areas as well. It makes it all the more important that we work very closely in the future.
You raised the question of staff reductions. I would refer you to the Natural Resources Canada strategic renewal document, which indicates that at the time of the budget we were estimating a total staff reduction for the department of about 1,450 people. My recollection is that this was in the order of 28% of our staff component for the department. Slightly more than half of those reductions were going to occur in the National Capital Region, with the balance of the reductions to occur in the provinces. If you look at that document you will see a breakdown of the reductions by sector of the department.
About the government's response to the committee's report, you mentioned the recommendations for fiscal measures. As announced in the budget, the government's position is that given the overriding priority to tackle the deficit and debt problem, it could not move on the recommendations that were put forward on either expiration incentives or the tax status of interest earned in mine reclamation funds.
About the situation of junior companies, I'm not sure I totally agree they will be left vulnerable to the larger integrated companies. We are seeing, for example, some uptake in the utilization of flow-through shares, particularly given the diamond play. I would think, for example, the junior companies would be taking advantage of the opportunities that presents.
I hope that covers all the questions you raised. If I've omitted something, I could come back to it.
Mr. Morrison (Swift Current - Maple Creek - Assiniboia): Before I begin, I'm a little disappointed we didn't receive this thing until we were sitting here at the table. It's hard to listen to a presentation and simultaneously read a report. I would hope in the future we won't be faced with that.
As for the actual recommendations, my party and I are with the department totally on the MDA cancellations. Listening to Mr. Canuel, I was wondering if the Quebec MDAs will still be in force if the province decides to separate.
You don't have to answer that one.
.1140
Some hon. members: Oh, oh.
[Translation]
Mr. Canuel: We won't need them anymore.
[English]
Mr. Morrison: I would like to comment on the specific fiscal recommendations that were rejected.
I must say I wasn't surprised that recommendation 3 didn't get through, and the arguments presented seemed sound.
On recommendation 4, for extending the time in which the funds could be spent, I've read the explanations here. Whoever devised that argument perhaps was not too clear on the concept. I'm wondering if it came from your department or if it came from Finance and Natural Resources is merely the messenger carrying the bad news.
The same would apply to the recommendation on the mine reclamation trusts. Did this really come out of your ministry, or again are you carrying the message here from the Department of Finance?
Mr. Sully: The short answer is that the responses were developed jointly between the Department of Finance and ourselves, recommendations were made to ministers, and ultimately decisions were taken by the cabinet.
I don't want to spend too much time repeating the text; but, with regard to the 12-month extension proposal, my understanding - and this is really more of a concern for the Department of Finance and Revenue Canada - is that it introduces some complexities wherein you could have a situation in which an investor could be filing a tax return before the money was actually spent on a project, and that this would subsequently introduce a necessity for an additional filing. So it does pose some administrative problems.
With regard to the matter of the reclamation trust, there is an issue of cost here. That's quite clear. From a tax policy point of view - and let's be clear, it is the Department of Finance that's responsible for tax policy - there is a concern that if the interest was not taxed then the system would be biased in favour of this particular type of surety instrument, to the advantage of other mechanisms that are used by the provinces. That obviously would drive up the cost to the federal government, and would also introduce pressure, I think, for other industries to come forward and ask for similar treatment, which would further exacerbate the cost implications for the federal treasury.
Mr. Arseneault (Restigouche - Chaleur): My question is more along the lines of a mineral agreement. We had officials from the department here the other day discussing the forest resource agreements. The indication from them was the same as you're giving us, that they are going to be eliminated. I personally don't agree with that.
I would like to know why the decision was made. Was it purely a financial decision? I'd like to have a clear answer on that. I'd like to have a clear answer on who made that decision, whether it was Natural Resources or Finance. I would also like to know if you could table with the committee all the evaluations that have been done on the mineral agreements. I'm sure you must have made some evaluations.
.1145
I would also like tabled with the committee the expenditures, not itemized but by province, since the mineral agreements have been in. We've had the mineral agreements for the last fifteen years, I would take it. Am I right?
Mr. Sully: Actually, it's been more than fifteen years. We can certainly provide that information.
Mr. Arseneault: Okay. I'd like to know how much money was spent province by province.
If you could answer some of those questions, I'd appreciate it.
Mr. Sully: In terms of the decision on MDAs, as you know, there was an announcement by the previous government that the MDAs would not be renewed upon their expiry. The current government, in the course of the election campaign, tabled a mining policy that indicated that the issue of the MDAs would be revisited once the fiscal situation had improved. In fact, under the program review we were required to review all of our program spending, and therefore we were required to look at the issue of the MDAs as part of the program review.
The program review, as you know, involved six basic questions or tests that had to be applied to all of our activities. A couple of them related to the role of government. One asked whether there is a role for government at all. Another test was, if there is a role for government, should it be handled by the federal government or another level of government? Another very significant test of the six was the whole question of affordability. Given the kinds of budgets we were expecting in future, was the subject activity appropriate?
All of those questions were brought to bear on the MDAs and all of our other activities and in the end the decision was taken that this was not a legitimate role for the federal government. This kind of exercise of direct spending, direct support to the industries, was better exercised by the provinces.
In terms of who made the decisions, you understand that the program review in each department was led by the minister. Our minister took her recommendations to the coordinating committee of ministers on program review and from there that committee took the recommendations to the full cabinet. Ultimately it was the cabinet that made the decisions and those decisions were announced in the budget.
I'd be very happy to table all of the evaluations that were done on the MDAs. We'll certainly follow up on that and provide you with a detailed expenditure breakdown by province since the inception of the MDAs.
Mr. Arseneault: The impression I had, Mr. Chairman - and I could be wrong, I'm just going by memory here - is that the questions that were asked of the officials representing the forestry sector were very similar to the ones I've asked today. The impression I had at that time was that they did not apply the program review criteria to the forest agreements in their evaluation.
Today you're telling me that your sector did. I'm just wondering why there's no consistency in the different sectors. In one area we've applied the program evaluation to six criteria and in the others we haven't. I'm just wondering if you're aware that the other sector in your department did not use those criteria.
Mr. Sully: I must confess I was the coordinator of the program review for the department, and to my understanding, all of the activities of the department were subjected to the program review.
Mr. Arseneault: The six criteria?
Mr. Sully: Yes.
Unfortunately, I haven't seen the testimony of the Canadian Forest Service. I'd want to go back and have a look at what was said there. Again, my understanding was that we were required in fact by the Privy Council to review all of our program activities in the context of program review.
Mr. Arseneault: Mr. Sully, you've been with the department for a number of years now?
Mr. Sully: Thirteen years.
.1150
Mr. Arseneault: In this capacity?
Mr. Sully: In this capacity, just over nine years.
Mr. Arseneault: Can you explain to me, then, when agreements are renewed with provinces, why some get longer extensions or longer periods of time than others? Although they commence on the same date; negotiations are held in the same year; the first phase terminates in the same year; and they're renegotiated, some agreements get extensions of one or two years and others do not, and provinces have requested them.
Can you explain to me the rationale behind the department's view, as far as I'm concerned, of benefiting one province over another?
Mr. Sully: I think the question of benefit or advantage for one province over another is more apparent than real.
The way these things are negotiated is that first of all a framework is established. The framework we have used in Canada for the last 10 or 15 years is the ERDA framework wherein there are some global parameters set out between the federal government and each province in terms of the allocation of federal regional development moneys by province. They tend to start at the same time. Once those broad parameters are worked out, then specific sectors - in our case, mining - are asked to negotiate the detailed agreements with the provinces.
I think what happened was that going back a couple of rounds, some of the provinces got out of sync, in the sense that there were elections that got in the way so that not all the agreements were negotiated to start at the same time.
If you look, for example, at the second-last round, in that instance Quebec was winding up a bit later than some of the others because it had, in fact, started later.
In this round there were further delays in negotiation with Quebec so that Quebec's second agreement did not start until much later than the other provinces' agreements. While it appears that Quebec has the advantage of an additional three years, if you look at the two agreements, in the end Quebec is getting about 10 years of agreements, and that's what Ontario and most of the other provinces had.
It was just a matter of things becoming out of sync. They started later. They will finish later.
The other thing that happens from time to time is that sometimes, because there are delays in the project approvals and the spending approvals, if you like, a province can ask for an extension on an agreement. So sometimes the agreements are strung out a little bit at the end.
What I'm trying to say is that there can be various reasons why the agreements don't all finish on exactly the same date.
Mr. Arseneault: I've listened to your comments, and I'm simply amazed. I follow forestry agreements a little more closely than mining agreements at times, so I stand to be corrected, but I'm led to believe that a lot of these agreements start at the same time, are scheduled to end in the same year and then get extended. Some get extended and some don't. Some get renewed and some don't.
I don't want to get into the debate about delays and start-up and things of that nature. I think we'll see the figures whenever they're tabled with the committee and they'll speak for themselves.
The other question I have is with regard to mineral activity and these agreements. You talk about elections getting in the way and some provinces' discussions in federal elections as well as provincial elections. Would you not agree that if the federal government did go back into these types of agreements it should be for longer terms?
I know the committee looked at that in the previous Parliament. We talked about five-year agreements as not being sound agreements. We're talking about a long-term agreement, maybe a 15-year agreement, where there would be some type of consistency. Would you tend to agree that this would be better for the overall programs than the short-term five-year agreements with one-year extensions?
.1155
Mr. Sully: With all due respect, for me to comment on that would be speculative. The government has decided we're not going to do these agreements after their expiry.
I could say that, from our point of view, I think we have been relatively satisfied with the five-year terms. I think they have worked fairly well. Normally, with a one-year clean-up year or a two-year clean-up year, we do have enough time to see the projects through and make sure the money is properly spent and accounted for.
The Chairman: I have just a point of interest, Mr. Sully. I'm sure you've done the analysis. When you're getting the breakdowns of the costs of the different agreements, can you also tell how many jobs you've created by those agreements?
Related to regional development, there has been an interest expressed by many of the members on the cost to government of the tax dollar in one regional development program versus another mechanism used. We'd be interested in knowing the benefits to the individual provinces on the job side if you could provide these when you give us the information on the costs of those agreements over the number of years they've been in place.
Mr. Sully: I'd certainly be prepared to provide whatever information we have, Mr. Chairman.
The Chairman: Thank you.
Mr. Reed (Halton - Peel): I'd like to zero in on one of the recommendations, the first recommendation, which has to do with the regulatory process. I see something of the thrust in our report but I suppose this is as much in the nature of a question as anything.
You make a statement in the last paragraph on page 5 about a clearer environmental permitting process resolving issues of regulatory overlap and duplication. The mining industry was very specific with this committee. They said the experience they had in the permitting process was that during the process the rules of the game would change; there would be new regulations entering the picture. In other words, they were complaining about this movement of the goalposts, as they described it.
I have had some dealings in the past with other governments and I understand the mining industry's problem.
When an investment is made and an application is made for development, they go in understanding a certain set of rules. It becomes very frustrating - and I might add, very costly - to then have to address a change in the rules in midstream. It's like trying to change horses in midstream. They did bring that up specifically as a complaint.
I'm wondering if the clearer environmental permitting process you describe here will specifically address that, because I don't see any sentence saying you are going to do any grandfathering.
In our report, we did acknowledge that it would be very desirable to have a cut-off point. In other words, on January 5, I make an application, and I do it with the understanding that regulations up to January 5 are the set of rules that I have to work within. It does me no good to start the process and then on February 15 have another regulation that says I can't do what I thought I could do, and that I'll have to do it some different way and resubmit my proposal. To me, that's a matter of very great concern.
I have one other question too, but I'll start with that one.
Mr. Sully: The intent of a response under this item is to deal with the problem you described. We have to do something to introduce greater certainty for the industry before they enter the process of environmental permitting and we also want to introduce greater clarity so that all players will know beforehand exactly what the rules are.
Perhaps I could ask Bill McCann to provide a bit more detail on the work we have under this particular item.
.1200
Mr. William McCann (Director General, Mineral Strategy Branch, Department of Natural Resources): The process of issuing permits is somewhat complicated and has a number of facets to it, including a good bit under provincial jurisdiction. Looking at the issues in federal jurisdiction, we're working with the regulatory departments who do have the actual policy levers to make decisions and to make an impact. We're working with the Department of Fisheries and Oceans on issues dealing with the destruction of fish habitat and on the guidelines for fisheries officers. I'm sure that's an area you've heard the industry talk about. We're working with them to ensure there are consistent guidelines across the country.
With DFO, we're also looking at the question of issues such as delegation of authority to the provinces. We're working with the CCME on the harmonization issue of environmental assessments, another important area. We're looking at the issue of harmonization of legislation, but also looking at the WMI recommendation in the context of a single lead agency, a single process, and a single set of recommendations. And as you're probably aware, CCME is in consultations now on those types of issues. We're giving the mining perspective for that, and it's a very important perspective.
We're working with DIAND on the changes to the Yukon Quartz Mining Act and the Yukon Placer Mining Act, to put greater environmental certainty into those regulations. They haven't been looked at or changed in quite a long time. DIAND is now doing that. Again, we're giving them the mining perspective. Very important changes are being looked at. I understand that sometime in the fall they'll be completing that.
The other issues we're looking at are the the land access issues, which is another big WMI issue. First and foremost we will work with IGWG, the provincial-federal group for the mining industry Mr. Sully mentioned, to produce a report on various approaches to protect areas being used by each jurisdiction, at the federal level and by the provinces...
For example, what definitions will they use to define ``protected areas''? That hasn't been done yet, which might sound interesting.
We would then look to take the next big step. Where is it that we could coordinate approaches for protected areas to ensure that, for example, there isn't duplication in what two or three jurisdictions are calling unique ecosystems? We are taking these steps in tandem with the other regulatory departments, as well as taking some initiatives of our own.
Mr. Reed: It's encouraging that the effort is under way and it would appear that we'll be able to have some visible action on the table by the end of this year. At least it looks that way.
I admire the fact that you're able to keep this activity going since the rubber has hit the road for you in such a big way in your department.
One other area that involves the regulatory process had to do with navigability of rivers. I don't think we mentioned it in our report, so maybe I'm pushing the envelope a little bit here. For the last 10 or 15 years there has been an underlying assumption made that all rivers are navigable. That directly abuts the historic definition of navigability.
.1205
When that assumption was made and when it was applied, it resulted in tremendous increases in costs. The mining industry alluded to it when they came and talked to us here. It's also resulted in a tremendous increase in costs to municipalities and so on, because now it doesn't matter how minor a passage of water is, it is considered navigable.
In 1983 the Supreme Court of Ontario in Ontario decided it was time to change the rules of navigability. Now it has got to the point where navigability includes floatability and all sorts of....
You should read the Coleman case of 1983, in the Supreme Court of Ontario. It's most interesting. It provided a sort of baseline that some people in some government ministries wanted to see happen.
However, it's a double-edged sword. The negative impact is that, for instance, a mining company developing a mine then has to deal with what may be a very minor waterway, not from the perspective of protecting it, which it is required to do, with all the environmental protections, but from that of its ``navigability''.
So the mining industry expressed that as a very great concern. I expect it does enter into this regulatory process in some way. I know the Fisheries Act is being sorted out provincially and so on right now, but the Fisheries Act in itself does not really deal with that, although one influences the other.
I wondered if that subject has come up in your discussions.
Mr. Sully: First of all, I'd just like to clarify where it is provincial systems, as opposed to federal. I must apologize; I'm not familiar with this court case in 1983. But in the federal system, it is true that if a waterway is navigable, it can trigger certain environmental assessments and processes in the federal scheme of things. But I must say, as far as the federal regulations are concerned, it is not always the case that a minor stream is considered to be navigable.
I'm thinking of what happened about a year ago when a federal officer put a canoe into the Carp River and found that out, because there was a concern that if it were navigable there could have been a hold-up in the approvals for the Palladium site. You will recall it was found not to be navigable. So I'm just saying there are instances where small streams are found not to be navigable.
An hon. member: It is common sense.
Mr. Sully: The other thing, of course, that can trigger a federal requirement for an assessment would be where fish habitat is altered or destroyed. That's under the Fisheries Act. In that case it is true that you could have a very small stream that happened to have a certain body of fish that could be affected and therefore you would have a trigger.
About the Building a More Innovative Economy initiative, you can see in our response the six areas that are being looked at directly, and Bill McCann has outlined to you how we are working with various departments. I'm advised this question of navigable waters is not on that list. However, there is an undertaking with the new Canadian Environmental Assessment Act that there will be a monitoring period of one year to see how well that act is working and whether in fact we are seeing the improvements in process that were hoped for with that act. My understanding is that under that act this question of the navigability of waters would enter into the equation and could be looked at in that forum.
.1210
Mr. Reed: One would certainly hope that it would, because the traditional test has really evaporated and now it becomes judgment calls from myriad opinions. As a result, whoever is working on or around a waterway now doesn't go there with a clear definition. As a matter of fact, in terms of environment assessment - I don't know about the rest of the provinces, but at least in the province of Ontario - projects that involved waterways, however minor, in the last few years have simply been considered major for environmental assessment. When you just consider it to be major and let it go, it's a way of avoiding responsibility.
So this is a matter of clarifying the rules and understanding what developers have to work with.
[Translation]
Mr. Pomerleau (Anjou - Rivière-des-Prairies): Mr. Sully, I only have one question to ask you. We have been studying the mining sector for several weeks. We have heard from representatives of numerous companies, small and big, as well as mining prospectors; we have heard from people from various government departments; we have heard from the scientific community. All those people have told us more or less that Canada needed to change generally its attitude towards the mining sector, to do more marketing on the international scene and to change considerably the regulations. Mr. Reed has mentioned some rather astonishing cases of excessive regulation. All these people have told us that we have to give the mining sector a chance both from the standpoint of exploration and renovation, by adopting tax incentives in that area.
Your report was even entitled: «Lifting Canada Mining off the Rocks». That title was chosen because we have insisted a lot on the fact that things won't change unless the government takes appropriate tax measures on top of others.
Now we know that the government has decided not to follow up on that. I am not criticizing it. This is a time of fiscal restraint and you have to make cuts. There were no tax incentives and on top of that, the credits have been cut. Despite all that and all we have heard from those people, you state in your report that the perspectives in the mining sector are good. How can you say that when the recommendations we made were not implemented, when the budgets have been cut, and we were being told at the same time that there was no way to boost once again the mining sector without doing this? How do you answer that?
[English]
Mr. Sully: Thank you for your comments and your questions.
I think the reality for the mining industry in Canada is that in a sense things are as they always were. This is a very cyclical industry. Since its inception, it has had, as opposed to some other industries, to deal in international markets. It has been subject to the ups and downs of international markets, and when the last big recession hit the mining industry, the level of activity in Canada declined considerably, as it did in many other countries. It just happened that this was occurring at a time when a lot of these regulatory problems, and so on and so forth, were coming to the fore.
.1215
I think what you're seeing now is that with the recovery in base metal prices primarily - that's what's driving this - and certain other commodity prices that I've talked about, such as coal and potash, companies are saying that notwithstanding the fact that they see these problems, they are willing to spend money and invest to make the industry go.
There's no question that if you introduced tax incentives, the industry would go that much quicker. All I'm saying is that, all other things being equal and leaving the tax system the way it is, when you get a significant upturn in prices and a couple of significant finds, such as what we have had in the case of diamonds in the north or Voisey Bay in Labrador, that in itself will generate a lot of activity.
Companies have said privately - some of them have said this publicly - that, in a sense, notwithstanding these problems that need to be overcome on the regulatory front, Canada is still a good place to invest. Voisey Bay is a good example of how you can talk about regulatory problems and the tax system as possible impediments, but this is a situation in which you have, according to press reports, something like 20 different companies that have expressed an interest in investing in that project.
That tells you that, notwithstanding these problems, Canada can still be a very attractive place to put your money. When the find is profitable enough, companies are willing to put up with quite a lot to get that project on stream.
That doesn't mean we shouldn't do anything. I think what we're trying to say in our response is that, given the resources that the government and this department has available, we are going to focus our efforts on where we think we can make an impact. If we can't get these changes in the fiscal regime because deficit reduction has to be an overriding priority, then we certainly will focus on things that don't cost a lot of money, such as the regulatory process, which includes the kinds of issues that Bill McCann was reviewing for you.
These don't necessarily cost a lot of money. It's a matter of us putting our heads together with the experts in other departments and in the provinces to figure out how we can overcome these problems and make the regulatory regime that much more attractive for investors.
Mr. Morrison: Mr. Sully, I have two related questions.
The more or less unspoken, underlying concern, both in the Whitehorse Mining Initiative and in our report, was the flight of mining capital offshore in exploration and in project development.
Do you track the amounts of capital that are leaving the country for exploration or development purposes? If you do, have you noticed in the last year or so any change in the trend, or is it still the same? Are people still getting out as fast as they can?
Mr. Sully: I think I'd like to ask Dr. Brewer to provide you with a response to that.
Mr. Keith Brewer (Director General, Economic and Financial Analysis, Department of Natural Resources): Yes, Mr. Morrison, we do try to track it. We can track some of it. Those figures you've seen on one of the slides on exploration tell you what is being spent in Canada on exploration. We do have good figures on investment as well. Both of those figures for exploration and investment do show increases in 1994, and expected in 1995, from the lows of 1992.
.1220
We're not really successful in knowing exactly where every dollar of the world's mining investment is going, but I think it's true that there is a bit of a reversal in terms of, to use your words -
Mr. Morrison: Flight of capital.
Mr. Brewer: Yes. I think the answer is that there's not a continued flight of capital offshore. That's the first subjective answer to that.
There are a number of reasons for this. One is that things such as the Canadian exchange rate and the interest rates have made Canada an attractive place to invest. So there are people in Europe and Asia who are actively looking at Canada, whether it's in mining or other industries, and they are putting money in.
The other thing that's happening is that it's sort of expected with the rush. When things were really bad in terms of the general economy in 1992, or after 1990 when things started to turn down in the economy in North America and the globalization was taking place in America, it was not surprising that there was a sort of rush offshore.
Some of the commentators, people who advise investors, have been coming out and making public statements about how some of the things are not quite so rosy. I'll give you some examples. It has been mentioned that there are problems in Argentina and Venezuela. In Mexico the peso problem gave rise to capital flowing the other way. These things have caused companies to consider Canada again, whereas they hadn't, say, in 1992, in the worst of the years.
I don't have any specific numbers, but if they were available, then I think that's what the conclusions would show.
Mr. Morrison: I was hoping that you might have some statistics on that. All I know is what I read in the Northern Miner, of course. I notice that in that publication the number of articles relating to offshore still outnumber the number of articles relating to domestic by about two to one, which indicates that more must be happening outside. This is in spite of the enormous attention, as Mr. Sully mentioned earlier, that is being paid to Voisey Bay and the diamond finds. There still seems to be more activity outside; at least this is the visual impression.
Certainly, at the PDA Convention, which I attended last winter, I never saw so much foreign stuff at one of those things in my life. It was just overwhelming and a great imbalance.
So I wish that somebody could actually track numbers and see just how badly our mining investment funds are being bled at the moment.
I guess I'm taking up more than my share of time here, so I'll leave it at that.
Mr. Brewer: I could add one thing. Mr. Sully reminded me that a survey is carried out by Metals Economics Group in Halifax that tries to look at where the world's exploration dollars are going. Canada is still third. The U.S., Australia, and Canada sort of juggle positions as to who is first, or whatever. Canada is still there.
If any of you are reading those figures, they actually did change the definitions to exclude small companies. Now we've done some corrections to that, and we've added back in something like $200 million. We're pretty sure that, in terms of exploration, Canada really still is a very attractive target. I'm sure that when the figures come out for 1995, Canada will be up again because of what's happening in Voisey Bay and other places.
Mr. Shepherd (Durham): Possibly you could tell me something that interests me on tax-driven investments in the Mining Sector. Canada of course has done this over the years. Obviously it increases the amount of exploratory activity. I've always been concerned about the productivity of that. In other words, does a tax-driven incentive actually create a more successful exploratory program? I guess what I'm trying to address is, do we create situations in which people go out and drill for no particular reason other than to get tax incentives?
.1225
Mr. Sully: As you know, the Department of Finance has done a study on the effectiveness of some of these incentives that was published last year, but perhaps I could ask Dr. Brewer again to respond to your question.
Mr. Brewer: If you look at the flow-through shares, for example, and the deductions an individual would get, and if you take Ontario with the highest marginal tax set at 53%, an investor who lets somebody else drill is going to lose. They're still at risk for 47%. So if you let somebody else drill and you lose control of that, you're being punished, and you should be punished.
The point of the matter is, through tax reform of the 1980s, when the tax rates were dropped and when things like depletion were taken away, what happened was that investors then, roughly right across the country, became at risk for half of the money put up.
So what the tax system wants to promote, and what an individual should do if they're smart, is to make sure that if somebody is drilling with your money, it's to your disadvantage if you let that get wasted. All I'm saying here is that the tax system still makes you at risk for half of your money.
Mr. Shepherd: I understand the theory, but the question I'm asking is, do we have a measure of success? Given the flow-through share concept, can you point and say, yes, we increased the exploratory drilling and we found these new deposits, and that's been successful, and that's more successful than just leaving the industry alone to do its own exploratory drilling?
Mr. Brewer: A number of people looked at that high period of 1987, 1988 and 1989 when flow-through share money was raised in very great proportions. I think the basic conclusion was that some of the money that was raised in those days, which outstripped the industry's ability to explore efficiently, whether or not it was raised by flow-through shares, probably was spent inefficiently. But if you take the early flow-through share days, the tax change that started everything, the MEDA, came in April of 1983. In 1983 and 1984, when John Hansuld's group got going there, you could say those were quite efficient drillings.
So it's not only tax-driven incentives, unless you get up to 95%. For instance, in Quebec at one stage with their big write-offs the investor was only at risk for 7¢ on the dollar.
In some respects it's also if the industry suddenly increases its size, as it did in those two years in the eighties. It overwhelms the drilling companies to do it, and obviously you get those things.
I tend to think that flow-through shares now is a mechanism that's used. We usually get 100% write-off. We don't hear stories that there is drilling or exploration that is wasteful, and you tend to think that will be expected. Industry can handle the volumes that are coming through, and as well, the investor is at risk. So hopefully, the investor will always realize that you are at risk and that you want to have some control over how it's spent.
The Chairman: Mr. Sully, I just wanted to ask one question before we wrap up. On page 3 of the response of the department and the ministers to our study itself, the first paragraph at the bottom goes into some detail as to what the federal versus provincial role is. It says:
- There was consensus with all the provincial and territorial governments that there was no
overlap in duplication in the area of mining with respect to the activities of Natural Resources
Canada and its provincial and territorial counterparts.
- Then it goes on to say:
- In fact, the provinces indicated that certain federal responsibilities, such as those related to
research and development (R&D), trade and commerce, international relations, and regional
development, are essential to mineral development in Canada.
.1230
Considering the fact that we're no longer doing that - and that seems to be the emphasis that's been put on your presentation today, that we're getting out of the business, quite frankly - I'd be interested in knowing if the department is doing an analysis as to what role the federal government will play as it relates to mining in particular for regional development, or whether that's been turned over to the regional development programs or something of that nature.
When you're dealing with single-industry towns that have mining as their only industry, some of these regional development initiatives and concepts that are being bandied around in urban Canada and/or in other parts of the country just will not cut it and won't work. Is someone in this department actively pursuing it with the provinces, in a cooperative fashion, to look at what we do with these communities? If we're not going to get heavily into exploration or incentives to explore as we find other finds and get other mines in production near those communities, then we, of course, as governments, will have to pay some sort of price down the line when we shut those mines down, as you well know and can imagine.
So I'd be interested in knowing if the department, with its limited means, is looking at that issue in a comprehensive way, because there are many of us, myself included, who have mining communities that rely on the exploration incentive program to hopefully find mines nearby in order to keep those communities alive.
Mr. Sully: The short answer is that there is no formal study of the nature you've alluded to. I should say that we expect our role will be supportive in two or three different ways. The government has retained in place a number of regional development agencies for the various regions of the country. They will not have under their umbrella sector-specific agreements, but they certainly have a mandate to look at the question of how regional development dollars are spent within their area of influence. To the extent that they might have, for example, an interest in something related to the mining business, we would play a supportive role to provide advice on that.
We also provide, or will provide, a supportive role to the provinces which, as you know, have the direct front-line responsibility for these resource sectors, and to the extent that they need our scientific or analytical capability to assist in the evaluation of projects or whatever, we are quite happy to do that.
Another way we are working with the provinces is through more formalized understandings between our geoscience agencies. What I have in mind here is that the Geological Survey of Canada will be entering into formal memorandums of understanding with each of the provinces in order to ensure that the spending the survey does within those provinces fully complies with the provinces' wishes. If a province believes there is a certain area that requires more attention as opposed to other areas, the GSC will have to respect that.
Those are some of the ways in which we hope to play a role, short of having that direct responsibility for managing agreements.
The Chairman: Lastly, are you aware that the mining communities of Ontario, particularly northern Ontario, have been lobbying the Ontario government? As a means of creating more regional development and economic development initiatives within those mining communities, they've made a proposal to the provincial government to allow them to change the tax structure to keep more dollars in the communities that have the mines in them.
As you can imagine, one of the major problems in those municipalities is that the majority of the works of any mine are underground and non-taxable. Therefore, they've been looking for a change in mechanism.
.1235
I would be interested in knowing if the federal government, through your department, is recommending to the provinces that it is an acceptable means of regional development for those communities... or that it's basically perceived to be a provincial jurisdiction and therefore we're not involved in it.
There has been a lot of discussion also at the federal level about federal taxes that are garnered - and that go to federal coffers - from the mining community and miners themselves and then the return on the investment, of course, to those mining communities from the federal government. Would you be aware of that particular proposal that's being put forward to the provincial government?
Mr. Sully: I am sorry, I am not at all aware of this proposal.
The Chairman: Since there are no other questions, I would like to take this opportunity to thank Mr. Sully and his colleagues for being here this morning.
We would remind our witnesses that we will probably be calling them back when we get into other issues, the outreach document and those kinds of things, down the line.
On behalf of the committee, Mr. Sully, thank you very much for your presentation. We will see you again, I am sure.
The meeting is adjourned.