Who Makes the Grade?
In 1997, The Fraser Institute launched its annual survey of mining companies to assess how various public policy factors such as taxation and regulation affect exploration investment in Canada. The 1998 survey was expanded to include 17 US states, Mexico, and Chile. In 1999, we added Nunavut, Texas, Argentina, Australia, and Peru.
The idea of surveying 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 was perceived to have possible 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 present health of the mining industry in a region. The effects of increasingly onerous, seemingly capricious regulations, uncertainty about land use, 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 job losses occur and 2) industry's reluctance to be publicly critical of governments, is cause of 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 to assess how various public policy factors influence companies' decisions to invest in different regions, The Fraser Institute's anonymous survey of senior and junior mining companies was born. A summary of the results of the 1999/2000 survey are presented below.
Policy Potential Index: a "report card" to governments
While geological and economic evaluations are always requirements for exploration, increasingly it is a region's policy climate that drives investment decisions.
The Policy Potential Index is a composite index that measures the effects on exploration of government policies, including taxation, environmental regulations, duplication and administration of regulations, native land claims, protected areas, infrastructure, labour, and socioeconomic agreements. The highest possible score on this index is 100. The five top-rated regions for their policy climates include New Brunswick (91), Manitoba (90), Quebec (86), Nevada (85), and Alberta (84). Quebec increased its score dramatically from 59 on last year's survey. The improvement is a result of more favourable ratings in every possible policy category. The worst-performing jurisdictions, based on policy, are British Columbia (6), California (17), Wisconsin (18), Montana (23), and Washington, Colorado, and Nunavut (tied at 30). British Columbia has been the worst-rated jurisdiction for each of the three years that the survey has been conducted.
The Mineral Potential Index
The Mineral Potential Index rates a region's attractiveness based on geology. The top-rated regions are Nevada, with a perfect score of 100, Chile (97), Quebec and Alaska (tied at 94), Australia, Peru, and Argentina (tied at 89). The worst-rated regions on this index include Maine (3), Missouri and Texas (tied at 9), Minnesota (11), and Michigan and Wisconsin (tied at 17).
The Investment Attractiveness Index
The Investment Attractiveness Index shows the best- and worst-rated places for mining companies to spend their exploration dollars. The overall Investment Attractiveness Index for North America is constructed by combining the mineral potential index, which rates regions based on geological attractiveness, and the policy potential index, a composite index that measures the effects of government policies on exploration investment.
The state of Nevada is the highest-rated jurisdiction for overall investment attractiveness for the second year in a row, with a score of 85 points out of a possible 100. The high rating is a result of the state's top rating on mineral potential (100), and its high rating on policy (85). The next top-rated regions are Quebec (81), Chile (76), Manitoba (69), and Australia (66). Nevada and Quebec beat third and fifth place contenders Chile and Australia in terms of investment attractiveness, even though the two latter countries have reputations of attracting high levels of exploration investment based on mineral potential and favourable investment environments.
Also placing in the top ten jurisdictions for overall investment attractiveness are Peru (59), Ontario (58), Argentina and Alaska (tied at 55), and Mexico (54).
On the other end of the scale, Maine (1), Wisconsin and British Columbia (tied at 3), Minnesota (4), and Missouri (5), were rated the least attractive areas for new mining investment. British Columbia's low rating on the invest- ment attractiveness index is mainly due to its abysmal performance on the policy potential index. Wisconsin's low investment attractiveness score suggests the results of its moratorium on mining and well-publicized anti-mining attitude, as well as its low score on the mineral potential index. Maine did poorly because of its bottom rating on the mineral potential index and its mediocre performance on policy. Other low- scoring jurisdictions include Michigan, Texas, and California (tied at 6).
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