7th November 2012

Ontario’s New Mining Act: The Good, the Bad and the Very, Very Ugly – by Stan Sudol (November 6, 2012)

posted in Ontario Mining, Stan Sudol Columns/Media References and Appearances |

This speech was given at the Ontario Prospectors Association: 2012 Ontario Exploration & Geoscience Symposium in Sudbury Ontario, November 6, 2012.

Check Against Delivery

Intro

Good evening everyone. It’s always great to get back to my hometown. I was born and raised in Sudbury and even worked at Inco’s Clarabell Mill for one year before going off to college.

And I also spent one summer underground at the Frood-Stobie mine way back in 1980, digging ditches, helping the miners, and digging more ditches. Regardless of all that ditch digging, the Inco jobs ensured a lifelong interest with this fascinating industry.

I was on a recent site visit at Superior Copper’s Bachawana Bay properties – 70 kilometers north of Sault Ste. Marie – when I heard the terrific news that McGuinty had resigned. I almost wanted to kiss the chalcocite outcrop that CEO Judy Baker was showing both me and a reporter from the Northern Miner.

I think northern Ontario history will not be kind to McGuinty. His many green legacies – including the detested Far North Act – and his economic mismanagement have left this province a much poorer place. McGuinty’s resignation is a small glimmer of hope for the junior exploration sector which has seen a really tough year.

Financing is almost non-existent, a few high-profile conflicts between First Nations and juniors, were highlighted in the national media and starting November 1st, major changes to the Mining Act – some good, some bad and some very, very ugly.

Junior Sector vs. Senior Sector

Before I get to those Mining Act changes I want to talk a bit about the differences between the junior exploration sector and major miners.

The general public, First Nations and quite often the media do not seem to understand that these are two very different “animals.”

Prospectors and junior explorers are the critical lifeblood of Ontario’s “mining ecosystem”. The work they do could be considered the industry’s version of research and development.

Over the previous few decades, there has been a significant change in who does exploration.

Today, the majors do significantly less grassroots exploration work focusing instead on deposit delineation at their operations.

Without new discoveries by the juniors, the majors mining would have problems replenishing their declining ore bodies.

Mineral exploration is a very risky business. Only one out of every 10,000 discoveries becomes a commercial operation. And it often takes about 10 years before the mine is built and production starts.

Prospectors usually make their money by selling or optioning their properties to interested junior explorers.

Juniors with economical deposits are most often bought out by producing majors.

Since the odds of finding an economic deposit is rare, it’s vital that the mineral exploration sector must have access to as large a land base as possible to lower the risk.

Very few junior mineral exploration companies have operating mines that contribute to their cash flow.

They normally rely entirely on the financial capital markets by selling shares to investors to fund their exploration activities.

That funding of juniors helps make Toronto a global financial powerhouse.

The Toronto Stock and Venture Exchanges have the largest number of listed mining and energy companies in the world. In 2011, sixty per cent of global mining equity capital was raised on these two exchanges.

The sector’s economic impact in Ontario is immense. The province’s mining sector in 2011 was worth just shy of $11 billion, the largest in the country.

And exploration expenditures were just a little over $1 billion – 26% of the Canadian total.

That figure is roughly split between the major producers and junior grassroots and advanced exploration.

Without a doubt, a healthy and vibrant junior exploration sector is fundamental to finding and developing the next generation of mines.

And the critical policy initiative that is essential for all this economic activity is the Free Entry System.

In Praise of the Free Entry System

During the past few years, many environmental organizations and some First Nations communities have been arguing for the elimination of the Free Entry System.

Benny Hollinger, Jack Wilson, and Sandy MacIntyre,– just to name a few of the old-time prospectors – must all be spinning in their graves.

The Free Entry System is the ability to claim stake crown land that will give prospectors or junior explorers the exclusive right to do further geological work in the hope of finding a valuable mineral deposit.

Free Entry protects the intellectual property and knowledge of prospectors or junior explorers. Regardless of the name, it is not free.

After one year, claim holders must conduct, on an annual basis, a variety of assessment work.

This work may include geophysics or geochemical surveys, stripping or trenching, line cutting, drilling or bulk sampling. All of these activities have a low impact on the environment.
First Nations reserves are closed and cannot be claim staked. But their traditional territories which encompass much, if not all of the crown land in northern Ontario are open.

Claim staking is a private and highly competitive undertaking due to the fact that millions of dollars can be on the line if the prospector has chosen the right mineral-rich ground.

For this potential payoff, most explorers endure years of tough economic conditions, harsh weather, uncomfortable insect infested swamps and rugged forests with the occasional cranky bear or moose.

And historically, it was this System that allowed many of the great mineral discoveries that made both Ontario and Canada global mining powerhouses.

In no uncertain terms, eliminating the Free Entry System would kill the exploration sector in Ontario.

During the past decade, the industry witnessed a perfect storm of problems that included:

• an unfortunate series of junior explorer/Aboriginal conflicts,
• the jailing of First Nations people,
• intense and critical media scrutiny,
• a Liberal government that ignored these issues for far too long and hung us out to dry,
• a very media savvy environmental movement,
• and very little media or public education from government or industry to help contain these issues.

These events significantly tarnished our reputation and caused an enormous public outcry. The results are significant changes to the Mining Act which we now have to deal with.

Mining Act – Good, Bad, Very, Very Ugly

Ontario’s first Mining Act was passed in 1869 with a significant revision in 1906. Since that time the Act has continuously evolved along-side technological and environmental changes and political and public demands.

So let’s start with some of the good news. There is a new on-line Mining Act Awareness Program that sooner or later every current and new explorer will have to take. A non-issue!

First Nations communities are now able to withdraw sites of Aboriginal significance so mining claims cannot be staked. This is a terrific idea eliminating potential conflict.

MNDM will also be conducting 44 workshops in strategically located in Aboriginal communities to help educate communities about the mineral sector.

Individuals or companies can now rehabilitate existing mine hazards they did not create and not be liable for pre-existing environmental issues.

Plans are also in the works to provide funding for Aboriginal Mineral Technical Officers who will be located in First Nations communities to deal with plans and permit applications.

However, they have not decided on the number, and due to resource constraints, I fear too few will be hired.

Now let’s get to the bad and very, very ugly issues.

You will now be expected to fill out exploration plans and exploration permits that will highlight your activities over the next two and three years respectively.

These plans and permits will be vetted by First Nations, surface rights owners and the general public.

In a perfect world, if no problems arise, it will take 30 or 50 days to get approval for these plans and permits. If there are problems, be prepared for significant and costly delays.

And what is to prevent environmental groups from using this process to needlessly delay exploration activities that have very low impact on the environment.

In addition, the timeframe of these documents do not reflect the usual operating procedures of explorationists. Who knows where they will be drilling in two or three years? So any changes to these plans must go through the same 30 or 50 day process.

Expect a lot of additional paperwork and potential holdups for activities that have very little impact on the environment even if you have engaged with First Nations communities at an early stage.

Many small junior companies have only three to five employees and subcontract much of the field work to contractors and consultants.

Demanding investors, flow-through share funding time-limits, spectacular or terrible drill results all require agility and rapid decision making to exploit opportunities as they occur.
Many small juniors and First Nations communities presently don’t have the capacity or the financial ability to handle the enormous increase in regulations and red tape.

Furthermore, this is an enormously risky time to implement these changes. Global financial instability has caused enormous volatility on stock markets putting downward pressure on stock values.

This has been a brutal year to try to raise funds for juniors and many fear these changes will cause a significant migration to other provinces or international jurisdictions.

Now let’s touch upon the real elephant in the room that these changes do not address.

That issue is the additional payments to First Nations communities that are used purely as an “access or permission fee” for explorers to work on their claims.

These fees are roughly averaging two or three percent of exploration budgets.

Many in the First Nations communities feel this is an acceptable form of “taxation” due to disruptions on their traditional territories or a way of establishing self-sufficiency.

This is a highly contentious issue throughout the exploration sector ranging from hardliners to the more pragmatic that have factored in these fees as an additional cost of doing business.

However, everyone is concerned about the increasing escalation of these financial demands and if they become too high, some juniors may have no choice but to leave the province.

MNDM does not condone these fees yet is doing nothing about them.

So where do we go from here?

A vital first start is to find some consensus among ourselves that these additional payments have now become a cost of doing business.

Unfortuantely, the barn door is now open and you are not going to get those horses back in.

Industry and government reps should then meet with the First Nations leadership from the various tribal councils, NAN, Union of Ontario Indians and Grand Council of Treaty 3 to hammer out a consistent and transparent fee schedule.

Then ensure that government ministries will treat these “fees” as expenses that can be tax deductable.

A second valuable initiative is for MNDM to fund Aboriginal Mineral Technical Officers in most of the First Nations communities throughout northern Ontario.

Some of these individuals should be able to be responsible for two or three reserves that may be very small or not in a currently active exploration area.

Train these individuals on how to efficiently deal with the Plans and Permits. In addition, they should also be responsible for educating their respective communities about the exploration and mining sectors.

And finally, since this knowledge/capacity does not currently exist in most First Nations communities, we must delay the mandatory requirements startup on April 1, 2013, for an addition six months or a year.

During that time period, we could implement these initiatives and work out any potential bottlenecks or problems with the least amount of disruption.

The exploration industry was worth slightly over one billion dollars in 2011 and is the critical starting point for Ontario’s $11 billion mining sector.

It’s worth delaying the “Mandatory” requirement of the new Mining Act regulations to get this right, especially during a cyclical downturn in the industry!

No one ever said this business was an easy one.

There is enormous risk, but enormous gain as well.

However take heart, even though the entire global mining industry is slowing down, the commodity super cycle is still with us.

Over the next few decades, as billions of people in China, India and the rest of the developing world become middle-class consumers, the demand for metals will only continue to grow.

Northern Ontario – including First Nations communities with economic challenges – can be the beneficiaries of this enormous global transformation, with the high-paying jobs that come from new mines.

But we need to meet, talk and come to a consensus that will benefit both Aboriginal and non-Aboriginal communities.

The wealth is definitely there but we need to allow the prospectors and junior explorers access to the land to find these future mines that will eventually provide long-term, well-pay jobs to many Aboriginal communities.

Closing

In closing, we have to pay homage to Timmins prospectors Don McKinnon and John Larche who sadly passed away this year.

They are two of the three men credited for the discovery of the Hemlo gold mining camp. David Bell is the third discoverer. Without a doubt, their economic and social legacy to the province of Ontario is astonishing.

The Hemlo region has produced almost 22 million ounces of gold over the past 27 years and has become the province’s fourth largest gold camp.

During those decades, tens of thousands of jobs and billions of dollars worth of economic activity have resulted at both the mine site and throughout the province.

An exceptional legacy to say the least, that will continue for some time yet.

I am going to end my talk with a few sentences from another speech given in 1938 by William Sulzer, a former governor of New York. Yes, I am cheating a little.

His language is somewhat “grandiose and patriarchal” as women were almost invisible in the mining sector, at that time, but these final thoughts are priceless nevertheless.

Govenor Sulzer wrote, “Those who decry mining are ignorant of history.

If they knew anything about metals, they would know that all business, all industry and all human progress depends on mines.

The wealth from mines, from the dawn of time, is the epic of human advancement, of man’s heroic march along the path of progress.

Show me a people without mines and I will show you a people deep in the mire of poverty and a thousand years behind the procession of civilization.

All honor to the miner. All hail the prospector.”

Thank-you and have a great evening.

 

 

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