Canada's Mining Industry: Investing in New Attitudes

Verity Craig, Associate, Carmichael Birrell & Co. and Director, The Empire Club of Canada; Aneta Niewiadomska, Student, Lassonde Mineral Engineering Program, University of Toronto; The Reverend Bill Middleton, Armour Heights Presbyterian Church; Scott Hand, CEO and Deputy Chair, Inco Limited; Derek Pannell, President and CEO, Noranda Inc.; Gordon Peeling, President and CEO, Mining Association of Canada; Fiona Blondin, Director of Public Relations, 0.1. Employee Leasing and Director, The Empire Club of Canada; Richard Ross, President and CEO, Inmet Mining Corporation; Matthew Coon Come, Grand Chief, Assembly of First Nations; and Charles S. Coffey, Executive Vice-President, Government and Community Affairs, RBC Financial Group and Director, The Empire Club of Canada.

Introduction by Ann Curran

The Canadian mining and metal industry is an important contributor to our country's social and economic prosperity. It is one of the few sectors in the economy where Canadian companies have a significant presence internationally, a position established through growth, innovation, ingenuity and highly skilled workers.

A major consumer of high-tech products, the mineral industry counts among the most productive and innovative sectors of the Canadian economy.

It directly employs 375,000 men and women--in urban, rural, remote, northern and Aboriginal communities.

It counts among the most productive and innovative sectors of the domestic economy and the industry's knowledge, expertise and products are sold around the world.

Jim Carter, President and Chief Operating Officer of Syncrude Canada Ltd. and Chair of the Mining Association of Canada, will highlight critical policy challenges and discuss what industry and governments need to do to ensure the future of this important Canadian industry.

For the few in this room who may not know Jim Carter, it is my pleasure to give you some insight into the depth of this man's knowledge and experience in this industry.

On June 18, 2002 the Mining Association of Canada announced the election of Jim Carter as Chair of the Association. He was appointed President and Chief Operating Officer of Syncrude Canada on October 1, 1997. Mr. Carter began his career at Syncrude over 20 years ago in 1979 as Manager of Overburden Operations, where he introduced the Syncrude-owned truck-and-shovel overburden removal fleet.

He worked his way up the company through several positions, the more recent being Chief Operating Officer and Vice-President of Operations.

Since joining Syncrude, Mr. Carter has played a prominent role in a variety of initiatives aimed at enhancing safety, reliability, production, unit costs and product quality. He has also implemented innovative continued-learning initiatives within the company.

Prior to Syncrude, Mr. Carter worked for McIntyre Mines Ltd. from 1974 to 1977. From 1973 to 1974, Mr. Carter worked as Mine Foreman for the Iron Ore Company of Canada.

Mr. Carter earned a Bachelor of Engineering Degree in Mining Engineering in 1973 from the Technical University of Nova Scotia, and is a graduate of the Advanced Management Program at Harvard Graduate School of Business Administration.

In 1995, Mr. Carter received an honorary Doctorate of Engineering from the Technical University of Nova Scotia for his

leadership within the oil-sands industry and the engineering profession.

In 1999, he was presented with the Centennial Award, the highest honour bestowed by the Association of Professional Engineers, Geologists and Geophysicists of Alberta.

He is also a recipient of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Past President's Award and the CIM Fellowship Award.

Mr. Carter has been an active supporter and advocate of the CIM and was a founding member of the Rocky Mountain Branch (Chairman, 1978-79). He has been a frequent speaker at CIM branches as well as regional and national conferences.

His other professional and community affiliations include: Director and Member of the Executive Committee, Alberta Chamber of Resources; Founding Chairman of the Industry Advisory Committee, University of Alberta School of Mining and Petroleum Engineering; Member of the Faculty of Engineering Advisory Board, Technical University of Nova Scotia; Member, Association of Professional Engineers, Geologists and Geophysicists of Alberta; Board of Directors, Northern Lights Regional Hospital Foundation; Board of Directors, Vista-Ridge Ski Hill Association; Past Member, Board of Governors, Keyano College. I now give you Mr. Jim Carter.

Jim Carter

Good afternoon everyone and thank you for coming out to hear this update on Canada's mining sector, especially as it pertains to our attractiveness as a place to invest.

As an investor myself, I look at much more than past performance when choosing where to park my money. In fact, as a business leader, I've learned to also pay attention to things like corporate attitudes. And a positive attitude about the future, combined with a good business plan that's in lock step with stakeholder expectations, is something I find attractive.

As it happens, both the performance and the attitude of the Canadian mining industry have changed for the better in recent years. We now have the track record and the prospects to inspire confidence among global investors.

Our industry is resource-rich, highly successful and well respected. Yet, as far as we've come, we have still only scratched the surface of our extraordinary natural resource base, while global demand for those minerals and metals continues to climb.

Here in Canada, we're a leading economic entity: we already account for one direct job in 40 in this country and our annual exports are worth $50 billion. Every billion in mining output increases direct demand for goods and services by some $655 million. Beyond this, we invest heavily in leading-edge research and technology, voluntarily adopt best-environmental practices as quickly as we can and, increasingly, we embrace socially responsible attitudes towards the communities where we work. In short, we have a lot going for us.

Still, Canada has not done enough to assure investors that the Canadian resource base offers high potential returns with comparatively low risk. Other parts of the world have been quicker to recognize and respond to the needs of those with capital to invest.

As a result, countries with significant mining potential, low production costs and highly competitive fiscal and regulatory policies continue to attract capital away from Canada's mining sector.

As we all know, investment dollars have no national loyalties. So, we must reposition ourselves and our inherent attractiveness in the eyes of the capital markets.

Today, I hope to boost the confidence of investors by describing a few of our industry's most recent accomplishments. Some of these deal with leading-edge technology, others with enhanced environmental protection, and still others with progressive management.

I also want to talk about the closer working relationship that our industry continues to build with communities and governments. Our collective investment in new approaches and attitudes is going a long way

toward enhancing the global competitiveness of our industry. It's a move that will benefit all Canadians.

The Importance of Innovation

If I had to pick just one word to describe the Canadian mining industry in recent years, it would "innovative." We have either pioneered better ways of doing things or adopted, adapted and redeployed the innovations of others. Innovation now defines our industry. In fact, the mining industry spends some $370 million on R&D each year.

Let's look at what these investments are doing in the technology area.

Statistics Canada recently ranked the metal-mining sector as number one in the use of machinery to improve industrial processes. This standing begs me to review why mining firms consider this type of investment to be strategic. Sixty-eight per cent did it to increase their productive capacity, 60 per cent wanted to reduce labour costs, 52 per cent saw it as a key to more flexible production and 51 per cent sought a reduction in energy consumption.

Together, these findings provide a snapshot of attitudes within today's industry. For example, our strong desire to improve productivity strengthens our competitiveness in global markets, enhances workplace health and safety, and reduces our environmental footprint.

Largely because our industry has embraced technological advances quickly and effectively, our total factor productivity rose by an annual average of 3.1 per cent from 1984 to 1998, the most recent period for which we have numbers. That is three times Canada's overall productivity rate and almost twice the 1.7-percent annual growth recorded by the manufacturing sector in the same period.

Technological innovation brings other important benefits as well. Let me personalize this a bit by referring to the research being done by Syncrude on the fine tailings from oil-sands extraction. Fine tailings are difficult to manage because they take a long time to settle in a storage pond.

In response, Syncrude has developed prototype "water capping ponds" in which fresh water is layered over a deposit of fine tailings to form a lake. In as few as two to three years after deposition is complete, the lake evolves into a healthy, natural ecosystem.

Another project is testing the ecological advantages of composite tails. This involves mixing fine tailings with gypsum and sand to encourage quick settling and it allows us to create diverse, self-sustaining landscapes that can support grass, trees and wetlands.

These projects demonstrate how Syncrude is well on its way toward resolving a difficult environmental challenge and satisfying the expectations of neighbours who want sensitive and productive landscape reclamation.

In recent years, other important innovations have also occurred. Our industry was among the first to fully appreciate the significance of knowledge workers in improving our productivity, our reputation and our bottom line. In fact, according to a government study, mining ranked an impressive third in the share of total employees in knowledge and management occupations, after government and the financial sector.

The scientific, technical and communications skills of our employees have enabled us to identify and develop new deposits around the world, improve productivity, exchange information more readily, form advantageous strategic alliances and be more competitive.

One of the most important contributions of our knowledge workers has been to enhance "economies of scope"--cost savings achieved through nearly instantaneous, distributed networks of information. Some examples of this include the savings that arise from the new ability of a company to disseminate the very best

technological and environmental solutions across all of its global operations, savings from highly coordinated marketing processes and shipping services and savings from the use of standardized equipment obtained through centralized procurement channels.

Our industry is much better off, much more competitive, for that type of internal investment.

Consider also, the innovation in our executive suites. Innovative management is about much more than drawing new org charts. It is about embracing new attitudes that ripple through an organization, energize it and set it on a new, more productive path.

One topical example is the zeal with which the mining industry embraced the Voluntary Challenge and Registry program to reduce greenhouse gas (GHG) emissions.

Between 1990 and 2000, the metal-mining industry improved the efficiency of its operations so much that it reduced its GHG emissions by 19.2 per cent. This far surpassed the Kyoto target. Overall GHG intensity improved 18.5 per cent in the same period. Within the nonferrous metal smelting and refining sector, energy intensity improved 16.5 per cent even though energy consumption rose with expanded output.

Members of MAC have pledged to reduce energy consumption per unit of output 1 per cent each year between 1995 and 2005. Based on our performance to date, energy intensity in metal mining is actually forecast to improve by 1.5 per cent annually. By 2005, energy intensity should be 14.5-percent better than in 1995 and GHG intensity is forecast to be 15.2-per-cent better.

For us, energy management has gone far beyond individual programs for reducing emissions. In fact, MAC was the first mining association in the world to develop an Environmental Policy to guide the behaviour and performance of our members. We also engage in a wide range of multi-stakeholder research initiatives on such key issues such as tailings management. By pooling resources and expertise, by sharing best practices and by facilitating the transfer of technologies, we move the needle more quickly.

To me, these things indicate the very positive changes that come from people thinking and acting differently. Another example lies in the new attitude the mining industry has towards those affected by our operations. Recently, MAC launched an initiative called Towards Sustainable Mining. It is aligning the performance of our industry with the values and priorities of interested communities through greater dialogue. By talking with everyone who has a legitimate interest in our activities, we identify areas for improvement, explore workable, mutually satisfactory solutions, and earn the positive reputation from society that we need to operate successfully over the long term.

Skeptics may scoff at this as window-dressing as yet another well-meaning but essentially empty public relations exercise. We know better. In fact, our initiative is the industry's formalization of honest consultation practices that many individual companies have used effectively for years.

Let me give you another personal example. Syncrude has worked hard to strengthen its relationship with the Aboriginal communities around Fort McMurray right from the beginning. Our company is now the nation's largest industrial employer of Aboriginal people, but our commitment goes far beyond their salaried involvement in our projects.

In fact, as early as 1974, we instituted formal Aboriginal development, training and counseling programs so they could participate in our work force, reduce the cultural shock created by the region's first mega-project, and build their skills and capacity to become suppliers of goods and services.

At the same time, we immersed our non-Aboriginal employees in training courses that increased their cultural sensitivity and appreciation. A generation later, we no longer need a formal department to deal with Aboriginal issues.

Today, working with Aboriginal people is a normal and sensible way of doing business in the Fort McMurray area. And if you look at the approaches taken by the different oil-sands developers that followed us, you'll find they stick pretty closely to Syncrude's basic template. To their credit, they have at times gone beyond our model and this is another excellent example of the value that comes from sharing best practices.

Today there is a formal, long-term capacity building agreement in place between nine resource developers and the Athabasca Tribal Council, and an enhanced agreement was signed just last week. In short, all parties have made genuine economic and social gains because of oil-sands development over the years.

And oil sands is only one example in the mining sector. BHP Billiton and Diavik in the Northwest Territories, Barrick in northern B.C. and Noranda/Falconbridge at their Raglan operation have all developed innovative partnerships with their local Aboriginal communities. At Voisey's Bay, Inco is offering new hope to the Irmo and Inuit.

Government as a Partner in Innovation

To this point, I have talked about two kinds of investment: how our industry has increased our productivity by investing in technology and people; and how we are working to secure public permission to operate by investing in more open communication and in social interests and concerns. Both of these make the mining industry more competitive in attracting outside investment.

Now let me turn to a third kind: investing in government policies that foster a strong, globally competitive mining sector.

I mentioned at the outset that some foreign jurisdictions are enabling their mining industries by streamlining the regulatory process. Canada needs to do the same and we have already taken steps down that road. For example, proposed amendments to the Canadian Environmental Assessment Act, currently before Parliament, promise to make federal assessment of proposed mining projects more efficient, more effective and less costly. That's good news. But we must also admit that this journey has only just begun. Before we reach our destination, it will take us through just about every provincial and territorial jurisdiction.

One example that underscores the need for regulatory reform lies in the widely recognized fact that metal recycling has the potential to deliver very substantial environmental, social and economic benefits. It conserves natural resources, takes the pressure off overcrowded landfills, and lessens the land, air and water impacts that accompany primary extraction. Recycling is also an excellent way of reducing GHG emissions. As a bonus, the process would also enable Canadian producers to meet the increasing market demand for recycled content in manufactured goods.

Yet our industry cannot fully seize this competitive advantage because current federal regulations constrain the shipment of metal-bearing recyclable materials much as they control the movement of hazardous wastes destined for landfill. As a result, industrial processors cannot secure recyclable materials from their point of use in volumes sufficient to support economic recovery at distant smelters. Environmentally minded countries such as Sweden and Belgium have shown that such materials can be managed safely for recovery. Canada must do the same.

I want to reassure those who might interpret such remarks as a call for deregulation that it is not. But it is a

plea for smarter regulation of our industry and MAC has been a champion of this for a long time.

Regulation is needed to set minimum standards for all industry players. It plays an important role in protecting our environment and the health and safety of those who work for and with us. Regulation can also be instrumental in pushing industry to do things more efficiently. And, as the last federal Throne Speech noted, regulation can do much to enhance the climate for investment.

We need regulation, but it must be sensible. So we applaud the efforts of the federal government to streamline its regulatory processes through the Smart Regulation initiative.

I could say similar things about fiscal policy and, in particular, the existing taxation regime. To compete successfully on a global scale, to boost our national trade surplus and to encourage additional investment in our sector, Canada needs to provide an attractive tax environment.

Many provinces and territories have already adjusted corporate tax rates downward, sometimes with specific reductions for the mining industry. Yet, we continue to request that our federal partners include our sector in the 7-percent corporate income tax rate reduction that was announced in the 2000 federal budget. This is not simply in the interest of equity, it is a matter of competitiveness.

According to a recent study by the C.D. Howe Institute, mining's effective tax-rate net of subsidies is higher than most Canadian sectors including services, public utilities, forestry and construction. In fact, with our effective tax rate at well over 40 per cent, we have the largest tax differential between Canada and the U.S. of any economic sector. In my mind, that's not something to be proud of.

Canada's effective tax rate for our industry places us in the upper quartile of all mineral-producing nations. If we add to this our concern about the government's continuing reliance on taxes that are not based on profit, such as the dreaded Large Corporation Tax (which is a tax on capital) and taxes that penalize those who commercialize their innovations, you can see how the mining industry is ill-served by such policies.

Simply put, we are overtaxed. This diminishes our competitiveness, our attractiveness to investors and our ability to create new jobs.

Government can and must introduce positive, forward-looking policies that encourage investment. Sometimes when we least expect it, it does just that. And I would be remiss if I did not applaud the fed's determined efforts to define a national strategy on innovation.

This policy is especially important to the mining industry, which is investing more and more in knowledge workers and their R&D efforts because the benefits of investment in innovation are tangible. And they can already be seen in such things as our productivity gains and our reduced GHG emissions.

But Canada has yet to capitalize, as it must, on Canadian companies implementing innovations in Canada. We need to talk seriously--emphatically--about how we're going to commercialize all these great ideas. The path from idea to action remains too onerous and too slow.

I would argue we need incentives that reward those with the uncommon ability to commercialize their progressive thinking. We need to spur them on and expand the role of public agencies such as the National Research Council and the CANMET Mineral Technology Branch so their scientific prowess can be translated into new products, new processes and new services.

These changes matter because a positive, forward-looking partnership between our industry and the federal government enhances the quality of life of average Canadians. To illustrate this, let me give you one final example from the oil-sands business.

Beyond the substantial investments made in the original Syncrude and Suncor plants, a further $24 billion has been invested or firmly committed to new oil-sands projects since 1996.

As you might expect, Alberta receives the lion's share of the income effect from this development, some 40 per cent. But let's look at where the other 60 per cent goes. Ontario alone receives 27 per cent. Quebec gets 19 per cent. Eight per cent ends up in the Atlantic region, and the rest is distributed across the other western provinces.

All this from one component of the mining industry, in one part of the country. And yet its positive effects ripple throughout the national economy.

The lesson is clear: invest in industrial innovation and every Canadian will benefit.

Optimizing Our Prospects

Ladies and gentlemen, I began my talk today with a few words about investor confidence. Let me conclude by stressing how the mining industry has created a profile that encourages investment and how this can be optimized with some appropriate action from our public and government partners.

Today's mining industry is not the same one your parents invested in. It has matured a great deal in recent decades, in fact, to the point where Canada is a world leader in innovation and productivity.

Our maturity is reflected in the strategic thinking that now pervades the executive suite. Our leaders understand the value of knowledge capital, the value of mutually rewarding relationships with stakeholders in the communities where we work, and the value of co-operation with our partners in government. We have successfully redefined our industry mission in terms that are socially responsible and economically attractive. And it shows in our performance.

But we can and we will do more. We will work harder to ensure that global investors have a clear and accurate image of our industry so we can get the attention and the investment we deserve.

The facts show that a stronger, more competitive mining sector will generate some very significant benefits for Canadians, and I believe that is a worthy goal indeed.

So, I thank you for listening to me today and I certainly thank you for your continued support of one of Canada's bedrock industries.

Thanks very much.

The appreciation of the meeting was expressed by Charles S. Coffey. Executive Vice-President, Government and Community Affairs, RBC Financial Group and Director, The Empire Club of Canada.