Mining Policy: the Good, the Bad and the Ugly

The idea to survey mining companies about how government policies and mineral potential affect new exploration investment came from a Fraser Institute conference on mining held in Vancouver in the fall of 1996. At that conference, many industry representatives who had privately been critical of how government policy was deterring investment in mineral-rich British Columbia were reluctant to express those same views publicly. Any public criticism of government policy may have negative effects on projects already under way in a region.

As a result, governments remain largely unaccountable for the impact of their actions, which can encourage, discourage, or in some cases virtually eliminate new exploration. To add to this problem, new exploration is an indicator of the future, not the present health of the mining industry in a region. The effects of increasingly onerous regulations, uncertainty about land use, higher levels of taxation, and other policies will rarely be felt immediately as they are far more likely to deter companies looking for new projects than they are to shut down existing operations. The lack of accountability that stems from 1) the lag time between when policy changes are implemented and when economic activity is impeded and 2) industry’s reluctance to be publicly critical of governments, is cause for concern for those who would like to see a healthy future for the mining industry in their jurisdictions.

In order to address this problem and assess how various public policy factors influence companies’ decisions to invest in different regions, The Fraser Institute began conducting an anonymous survey of senior and junior mining companies in 1997 and recently completed its second annual survey of mining companies. Last year, the survey focused exclusively on mining companies operating in Canada in order to assess how mineral potential and various public policy factors, including tax rates, regulations, access to land, and security of mineral tenure, affect investment decisions. The 1998 survey has been expanded to cover mining exploration in North America, including 17 American states (states were selected for their hard rock mining activity and/or exploration potential), Mexico, the Canadian provinces and territories, and, for comparison with North American jurisdictions, Chile.

Survey results

The survey results were used to create several indices. The mineral potential index (see figure 1) rates a region’s attractiveness for new investment based on its geology. The region thought to have the highest potential was given a score of 100 points. Ontario is highest on this index, and thus scores 100. It is followed closely by the Northwest Territories and Chile, who each scored 97.

The policy potential index (see figure 2) is a composite index measuring the effects of government policies on attracting new investment. It can be considered a report card to governments on their policy climates. With a score of 90 out of a possible 100, Nevada is the best place for mining investment based on policy. It is followed by New Brunswick (83), Alberta (82), and Utah (80). The investment attractiveness index (see figure 3) combines the information about mineral potential and policy to create a ranking of the ability of each jurisdiction to attract new investment. The area considered most attractive to new investment when both policy and mineral potential are taken into account is Nevada, due to its top rating on policy and its high mineral potential.

The survey asks companies operating in Canada to assess regions across the country based on their mineral potential and their policy climates. When mining companies decide to spend on exploration, they base their decisions on a number of variables beyond a policy maker’s control, including a region’s mineral potential. However, these decisions are also highly sensitive to the policy climate. When companies decide to invest, they consider tax rates, regulations, access to land, and security of mineral tenure.

Canadian winners

Ontario is the highest rated province for overall investment attractiveness due to its first place mineral potential and sixth place rating for policy. What specifically did respondents find attractive about Ontario’s policy climate? Relative to other jurisdictions, Ontario scored well in the following categories: regulatory duplication and inconsistencies, labour regulation, and infrastructure (no respondents indicated that these factors were strong deterrents to investment), socio-economic agreements (2 percent of respondents indicate this is a strong deterrent to new exploration), taxation (3 percent of respondents indicate this is a strong deterrent to new exploration), and environmental regulations (only 5 percent indicate this is a strong deterrent in Ontario). The two main factors considered a strong deterrent to new exploration in Ontario are uncertainty about what areas will be protected as wilderness or parks (22 percent), and uncertainty about land claims (15 percent).

Click Here to View Figure 1

New Brunswick and Alberta do not place in the top five for overall investment attractiveness because of their lower mineral potential ratings. However, their policy climates are clearly first-rate, ranking them a second and third respectively, in that category. Labour regulation, environmental regulation and regulatory duplication were not considered strong deterrents to new exploration by any survey respondents in either jurisdiction. These provinces also performed well in the areas of taxation, infrastructure, socio-economic agreements, and uncertainty concerning the administration, interpretation, and enforcement of existing regulations.

Manitoba is another Canadian winner. It rates fifth in terms of overall investment attractiveness due to its above average mineral potential and policy ratings.

Canadian losers

While many Canadian jurisdictions fared favourably on the survey, the results also reveal that unfavourable public policies are threatening new exploration in some of Canada’s mineral rich regions. The Northwest Territories and Yukon Territory both did well on the mineral potential index but were among the worst places to invest in North America based on their policies. The Yukon Territory tied California for fourth spot from the bottom on policy, largely due to uncertainty regarding protected areas and land claims. The low policy rating given to the Northwest Territories also reflects the large number of respondents who indicate that uncertainty about protected areas (33 percent) and land claims (35 percent) are strong deterrents to exploration.

Click Here to View Figure 2

Click Here to View Figure 3

However, by far the biggest loser is British Columbia. Its policy climate is the lowest rated in North America for attracting mining investment. It rates a 5 out of 100. The second worst region in terms of policy, Wisconsin, is over five times more attractive than British Columbia. The province is the worst rated jurisdiction in North America on every policy variable except infrastructure and environmental regulations (where it is the second worst). What specifically is driving away investment in BC? Uncertainty about land use is the biggest concern. Eighty-five percent of respondents indicate that uncertainty about protected areas is a strong deterrent to exploration and 84 percent indicate that land claims uncertainty is a strong deterrent. Other significant factors include environmental regulations (76 percent), uncertainty concerning the administration, interpretation and enforcement of existing regulations (82 percent), the tax regime (67 percent), regulatory duplication (62 percent), and labour regulation (46 percent).

Conclusion

Most regions in Canada are blessed with a geology that is attractive for mining. Unfortunately, some of those same regions are burdened with cumbersome, restrictive policies that reduce their overall investment attractiveness. If Canada wants to maintain a healthy mining industry, it cannot afford to be complacent about its policy climate because countries around the world are now competing to attract mining dollars to their jurisdictions. Anti-business policy climates deter investment, reduce economic growth, and cost jobs. As some Canadian jurisdictions have determined, the formula for encouraging investment and prosperity is not complicated. It does not require complex plans to create jobs and manage the economy. Rather, it requires eliminating onerous regulations, simplifying permit processes so they are timely and efficient, lowering taxes, and eliminating uncertainty about expropriation without compensation.

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Last Modified: Wednesday, October 20, 1999.