The Northern Miner, Monday, January 12, 2009
Juniors Looking For A Lifeline
By Alisha Hiyate
When a mine closes down, it makes news — and so do the attendant layoffs, which even for a small mine, can number in the hundreds.
Mine closures in the past few months — zinc and nickel in particular — have made it obvious that miners are feeling the double sting of commodities prices that are at multi-year lows and the global financial crisis.
But Canada’s exploration industry is also hurting. And even though the downturn’s effects on the sector are less concentrated and harder to quantify, they will be apparent by the spring, when new exploration programs don’t go ahead, says Tara Christie, the chair of the Prospectors and Developers Association of Canada’s financial and taxation committee.
“By March, I think people will really start to understand that the junior exploration industry has a huge economic impact in this country,” Christie says.
Having already extended some aid to the ailing auto and financial sectors, the federal government has hinted it may toss miners a lifeline as well when it tables its next budget on Jan. 27. And the PDAC is doing its best to ensure juniors don’t get overlooked in the fray of politics on the Hill — which almost saw Prime Minister Stephen Harper’s Conservative government toppled by an opposition coalition in December.
“The exploration industry affects communities across Canada in incremental ways, and that’s one (reason) why I think the government should take a hard look at how they can help our sector,” says Christie, who’s also a partner in Gimlex Gold Mines, a small placer gold operation in the Yukon. “We provide jobs and employment in rural and remote places that otherwise it would be very difficult for the government to provide economic stimulus in. . . There isn’t a lot else that those communities have.”
Rather than looking for a bailout, the PDAC is lobbying for some new, modest tax relief to be included in the budget that could help some capital-starved juniors stay afloat a little longer.
The financial and taxation committee presented four proposals to civil servants with the Finance and Natural Resources ministries in late December, and has scheduled meetings with MPs this month in advance of the budget presentation.
The PDAC wants the government to make the Mineral Exploration Tax Credit or “super flow-through” share program permanent, and to double the credit to 30% from 15% for the next two years. The temporary increase is aimed at helping juniors compete for risk capital and at giving investors an extra incentive to come back to the sector they have been so assiduously avoiding.
The association is also proposing a loosening of restrictions on expenses that can be financed by flow-through so that overhead expenses qualify as Canadian Exploration Expenses (CEE), and that CEE be expanded to cover exploration on former mine sites.
Finally, the PDAC is asking the government to help retain expertise in the exploration sector by putting juniors to work on the $100-million federal Geo-mapping for Energy and Minerals program, announced in August. The Mining Association of Canada has also prepared a prebudget submission for the federal government that asks for interest charges on tax payments due this year to be waived and more time for miners to make pension plan payments.
The proposals are not a blanket solution, and will not help all juniors, Christie says.
“It’s difficult to know how to help the sector,” she says. “Really, what we need is venture capital, and that’s hard to come by right now.”
What is certain is that an industry forced into survival mode can’t plan effectively for the future. And falling prey to short-term thinking could leave the whole industry unprepared for the inevitable upturn, says executive recruiter Andrew Pollard.
“Everyone’s concerned with finding money and a lot of people are concerned with low commodities prices,” says Pollard, president of Vancouver-based Mining Recruitment Group. “They’re just looking to get through the coming months and what I’ve noticed is there isn’t really a long-term vision for what’s going to happen if the economy does rebound in the way that most of the people within the industry think it will.”
But veteran recruiter Chris Stafford, president and founder of C. J. Stafford & Associates, which specializes in mining industry personnel, doesn’t see the mining industry repeating the mistakes of the past. In the last downturn in the 1990s, letting skilled staff go was “the last and first step,” including some of the finest young engineers in the business, Stafford says.
“It was so difficult to get talent when this turnaround started about five or six years ago, and I would hope the industry has learned a lesson from that,” he says. “I don’t think that’s going to happen this time.”
While there haven’t yet been massive job losses in Canada’s mining and exploration industries, juniors have stopped hiring almost completely after four years of manic activity, Stafford says.
“People are waiting for some stability, some of the fundamentals to be put back in place,” he says. “We’re hoping that the market is going to stabilize in around six months, at least to the point that people know where they are.”
While the industry waits for metals prices and demand to pick up again — which some forecasters are predicting could start in the second half of 2009 — Ryan Montpellier, executive director of the Mining Industry Human Resources Council (MiHR), is hoping the bad news and uncertainty don’t scare too many people off working in mining and exploration.
“We’re not talking about structural changes to employment, unlike what we’re seeing in the automotive, manufacturing, textiles or forestry sectors,” Montpellier says, adding that mining is one industry that can’t be outsourced. “These are cyclical changes and when the cycle does rebound — and it will — the labour shortage may be even more acute than it was a few years ago.”
Even if the mining and exploration sectors undergo a four-year contraction in Canada, between 4,600 and 6,200 new workers a year will still be needed over the next eight years because of retiring workers and those leaving for other sectors, according to recent projections by the MiHR. It previously had forecast a need for 9,200 new workers a year over the same period.
While commodities prices are not expected to again reach their lofty pre-downturn heights in the foreseeable future, TD Bank and others are predicting a modest rebound starting late this year.
And the layoffs and bad news in mining are not yet dampening the enthusiasm of students at Ontario’s Haileybury School of Mines, says associate regional director of Northern College’s south campus, Shawn Chorney.
“We’re viewing this as a blip and I think most of our students and our partners are as well,” he says.
New students are still signing on for January, even in the current environment, he says.
Neither are graduating students — whether in the mining technician, diamond drilling or mineral processing streams — worried about the job market that awaits them.
While there have been mine closures — mostly marginal operations that required high prices to be profitable — Chorney says there continues to be strength in gold and copper prices, and new mines are still opening up. Permitted northern Ontario gold projects such as Lake Shore Gold’s (LSG-T, LSGGF-O)Timmins West and Apollo Gold’s (APG-T, AGT-X) Black Fox are hiring staff complements in the hundreds, he says.
“There’s still a lot of good news, in spite of layoffs,” Chorney says.
Whether or not there’s good news for explorers in the upcoming budget, there’s no doubt in Stafford’s mind that they will see good times again.
“The junior industry has to come back,” he says. “It has to return because this is the R&D of the mining sector and the industry cannot survive without replenishing its reserves, and that’s what exploration does.”
As for Christie, she believes resources — as opposed to manufac- tured products that can’t find a market — will help dig Canada out of the economic hole it’s in.
“That’s really what’s going to help bring us out of recession — is Canada continuing to generate wealth through our mineral resources and forestry resources,” she says. “There’s still a demand for our primary resources. Prices are off. . . but when the next upswing comes, we want to make sure that we have companies that can respond to that.”