March/April 2008

Supply Side

New OMA study sheds light on the economic impact of mining supply

By J. Baird

The economic impact of the supply side of the mining industry is difficult to quantify because the manner in which governments collect statistics does not capture the mining-specific activities of companies engaged in supplying industry. However, a study sponsored by the Ontario Mining Association (OMA) released in December 2007 opens a new window on the subject.

Authored by Peter Dungan and Steve Murphy of the University of Toronto’s Institute for Policy Analysis, the document is entitled “The Economic Impacts of a ‘Representative Mine’ in Ontario.” The report shows how 480 jobs in the production phase of a mine (direct employment) create 1,103 jobs in the upstream supply chain (indirect employment) and another 697 positions in the economic activity that is generated when the employees of the mine and their suppliers spend what remains of their wages after tax and savings (induced employment). Thus, the representative producing mine “employs” 2,280 people.

But that is not where the story ends, because there is a wide range of additional economic activities that are also stimulated locally, regionally and some even internationally.

The study’s representative mine is a nonferrous metal mine producing nickel, copper and some precious metals. It is located in northern Ontario in an area that is already serviced, such as Sudbury, and includes the initial milling of the ore. The annual revenue of the operation is $270 million.

In addition to the production phase, the authors have calculated the economic impact of the construction of the mine, estimated to cost $150 million per year over three years. Annually, this is estimated to create 957 direct jobs, 441 supplier jobs plus 561 induced positions, for a total employment of 1,959 person years.

Looking at dollars, the $270 million annual revenues of the producing mine fund its direct payroll of $69.5 million. Another $52.3 million goes to pay the workers of the firms supplying the mine. Because 2.3 employees work in supply companies for every one mine worker, the labour compensation per employee is much higher for the latter ($144,700 per annum compared to $47,500). This comparison shows how mine productivity is kept high (around $500,000 per employee per year) with support from the efficient supply sector.

In the construction phase, of the $150 million annual expenditure, $54.5 million go to pay 957 direct employees ($56,900 per employee) and $21.3 million pay 441 supplier employees ($48,300 per employee).

Contributions to GDP are another measure. During a year of production, the mine contributes $155 million to Ontario’s GDP directly. The closely connected upstream supply sector (construction, manufacturing, wholesale trade, retail trade, as well as professional, scientific and technical services sub-sectors) contributes another $57 million. The more remote supply sub-sectors of utilities — finance, insurance, real estate, rental and leasing, waste management, remediation services, administration and support — add another $41 million to the province’s GDP.

The modelled mine is in Ontario largely because the supply sector is strong in that province; 92 per cent of the GDP created in Canada is retained in the province and much of this is local to the mine. Quebec receives 2.8 per cent of the GDP created in Canada, Alberta two per cent and British Columbia one per cent. In an open economy like Ontario’s, many indirect inputs are imported from other countries and generate no further impact on the Ontario economy. It would be interesting to know what these effects are, and further, to know how a mine in another province affects Ontario’s well-developed mining supply sector.

Anyone who would like to know more about how mining affects the economy and the community should read this report. It can be obtained on the Ontario Mining Association website at http://www.oma.on.ca/eNews/repmineproject.htm.


Jon Baird
Jon Baird is the managing director for CAMESE.

Post a comment

Comments

PDF Version