Good afternoon ladies and gentlemen. My name is Nadim Kara, and I am a Senior Program Director for the Prospectors & Developers Association of Canada

Transcription

1 Good afternoon ladies and gentlemen. My name is Nadim Kara, and I am a Senior Program Director for the Prospectors & Developers Association of Canada (PDAC). I would like to thank the conference organizers for providing me with an opportunity to share the PDAC s thoughts on the importance of infrastructure to unlocking the resource potential of northern Canada. 1

2 In my presentation today, I will: 1. Provide you with a brief introduction to the Prospectors & Developers Association of Canada; 2. Highlight the important contribution that mining makes to Canada 3. Demonstrate how infrastructure deficiencies affect the industry s ability to move existing discoveries into production, using the 3 territories as an example 4. Outline existing federal programs that could be used to address the infrastructure gap, and 5. Propose the creation of a northern infrastructure investment bank 2

3 The Prospectors & Developers Association of Canada (PDAC) is the national voice of the Canadian mineral exploration industry. With a membership of over 8,000 individual and corporate members, the PDAC s mission is to promote a responsible, vibrant and sustainable Canadian mineral exploration and development sector. Our signature event is the annual PDAC Convention held in early March in Toronto. This four-day annual conference has grown in size, stature and influence since it began in 1932 and today is the event of choice for the world s mineral industry. Over 27,000 people have attended, on average, over the last five years. 3

4 In addition to our annual Convention, which is the largest annual mining conference in the world, we also have eight program areas working on a range of policy issues, from corporate social responsibility to infrastructure. Our policy work is aimed at achieving our vision: a Canadian industry that is both competitive and responsible. 4

5 The infrastructure work we do is part of our land access framework, which is one of our three Board identified priorities. My discussion of the infrastructure deficit in northern Canada will unfold in two parts. The first part will present the results of a recent report on the costs of operating in the north, produced by the PDAC with four other industry associations. The second part will explore how the infrastructure deficit affects the movement of projects from discovery into production, using information from a study commissioned by the PDAC from Richard Schodde, a mineral economist in Australia. 5

6 Earlier this year, the PDAC and four other associations released a report that revealed the cost premium faced by mineral industry companies operating in remote and northern areas. Our study found that this cost premium was directly linked to the lack of infrastructure in these areas, with costs for both exploration and mining rising significantly. Using actual data from a dozen projects, we found that exploration costs almost triple when more than 500km away from transportation infrastructure. The highest cost project, obtained from a project in the Arctic Circle, was six times that of the lowest cost project, in an established mining camp in southern Canada. The costs of developing a mine were also significantly higher, as outlined on this slide. 6

7 The data on the cost premium helps explain, in part, why so many discoveries in the territories have remained undeveloped. It would be interesting to do a similar analysis for discoveries in the remote parts of the provinces, including northern Quebec. Explanation of percentages, if asked: Nunavut: 7 closed, 1 operating, 44 undeveloped = 44/52 = 85% NWT: 17 closed, 5 operating, 48 undeveloped = 48/70 = 69% Yukon: 14 closed, 2 operating, 54 undeveloped = 54/70 = 77% (Note: around 50% of all discoveries since 1950 have not been developed, as not all discoveries are economic even when found close to existing infrastructure) 7

8 To be fair, remoteness (and the related increase in costs) is only one of the factors that determines whether or not a discovery is developed. That being said, the significant percentages of discoveries that remain undeveloped in the territories suggests that in some cases it may be the primary factor. I am going to focus the remainder of this presentation on the high production costs associated with remoteness, and how (if those costs can be reduced) the contribution to the economies of northern Canada would be significant. 8

9 Our first step, in partnership with Richard Schodde, a mineral economist in Australia, was to calculate remoteness in terms of distance from existing roads, rail, power lines, townships, airports, sea ports, adjusted for terrain and permafrost. A set of algorithms was developed to determine, for each given data point, its relative closeness to infrastructure. Remoteness is a function of distance to grid power, roads, rail, ports, airports and major towns (and the quality of these facilities). It is also influenced by terrain and permafrost. The heat map you see here represents the spectrum from no infrastructure (red) to blue (highly developed). We then added the location of all undeveloped deposits in the country. 9

10 The challenge, as most of us are intuitively aware, is that most of the good infrastructure (transportation and energy infrastructure) is in the southern portion of Canada. In addition to facing the many challenges experienced by remote or northern parts of provinces, the Arctic is further challenged by permafrost and a limited shipping season. 10

11 Our second step was to model the impact of remoteness on 3 differentsized gold, copper and iron ore mines. These were chosen on the basis of the typical range of projects available, and on the different transportation needs of each commodity type. I did not want to inundate you with too many maps today, so I will be showing you the results for the middle scenario for both the Precious Metals and Base Metals cases. To put these into perspective, the 1.75 Mtpa (Million tones per annum) Precious Metals Case would be equivalent to an Ekati-type deposit. The capital and operating costs were derived from data from Mining Cost Service by InfoMine USA and benchmarked against data from the PEAs (preliminary economic assessments) for 11 recently reported mining projects in Canada. The cost included detailed adjustments for travel distance, climate, terrain and infrastructure (both existing and required). The modeling, however, did not make allowances for local variations in tax and investment rules between the Canadian provinces and territories. The study assumes a uniform 27% corporate tax and a 12% Net Profit Royalty across all of Canada. 11

12 So what did we learn? This map shows a different type of heat map, showing the % increase in capex for a medium sized precious metals project as remoteness increases. Precious metals projects in the Arctic have capex costs that are 40-60% higher than their counterparts in the south. 12

13 Base metal projects in the inland Arctic face capex costs that are up to 170% higher than their less remote counterparts 13

14 Another way of looking at the impact of remoteness on the viability of moving a discovery into production is to look at how remoteness affects the grade required to make a deposit economically viable. For the most part, the % increase in grade required to offset the impact of remoteness for precious metal projects is between 30 and 70%, depending on the location. If the required break-even grade could be reduce by just 10%, this could result in 3-5 additional new precious metal mines (out of the current pool of 66 undeveloped projects in the Far North) 14

15 The situation for base metal projects in remote areas is much more challenging, as this slide shows. Even so, reducing the required break-even grade by just 10% could result in 3-4 additional new base metal mines (out of the current pool of 60 undeveloped projects in the Far North) Depending on the project, lowering the break-even grade by 10% will require reducing the capex cost by 12-16% or the opex costs by 16-23% 15

16 In summary, the Far North is missing out its fair share of mining projects. If you compare the Far South of Canada with the Far North you will see that while 15% of Canada s land area is below 50 degrees latitude, it has 2/3 of Canada s past mines and almost half of the country s currently operating mines, as well as over 40% of Canada s undeveloped projects. By contrast, the Far North has 40% of Canada s land area (above 60 degrees latitude) and only 9% of Canada s operating mines and 14% of known undeveloped projects in a land area nearly 3-times the size. If you do the math there are 13 times as many operating mines per unit of area in the far south than in the far north (38.2 per 100,000 square KM versus 2.9 per 100,000 square KM) 16

17 On average a 10% point increase in the required grade increases the proportion of undeveloped projects by 5-7% What this means is that an investment in better infrastructure that reduces the required grade by 10% will increase the number of projects that can be developed by 5-7% Depending on the project, lowering the break-even grade by 10% will require reducing the capex cost by 12-16% or the opex costs by 16-23% 17

18 So what can be done? The report I mentioned earlier, Leveling the Playing Field, puts forward a series of recommendations to help reduce the costs of exploration and production in remote parts of Canada. Two recommendations to offset the costs of remote exploration are outlined here. I m pleased to say that the Conservative Party of Canada, as part of the current federal election campaign, has committed to enhancing the federal Mineral Exploration Tax Credit for projects that are more than 50km from a transportation corridor. This recommendation is drawn directly from our report, and we hope the other parties will also make a similar commitment. 18

19 The report also makes some recommendations on how to incent private companies to fill the infrastructure gap in remote areas. 19

20 And that concludes my presentation. Thank you very much for your attention. I would be happy to take any questions you may have at this time. 20