November 2010

Supply Side

The economic impact of mining supply

By Jon Baird

For years, CAMESE has lamented the fact that there is no quantitative measure of the revenues, job creation or GDP contribution of the supply side of the mining industry. While the extractive and processing elements are relatively easily captured by economists, the supply of the input goods and services that mining companies need is much more difficult to quantify.

This is due to the fact that mining supply covers a wide range of sub-sectors as diverse as geophysical surveys, drilling services, software, consulting engineering, mining machinery and shaft sinking. The companies providing these goods and services are usually not classified as being within the mining industry, so statisticians include their contributions in other parts of the economy.

After encouragement from CAMESE, Natural Resources Canada undertook a study of the mining supply sector and published its findings in 2000 in the report, “Canadian suppliers of mining goods and services: links between Canadian mining companies and selected sectors of the Canadian economy.” Although it offers a considerable amount of useful material, it falls short of quantifying the economic contribution of the mining supply sector.

In recent publications, the Mining Association of Canada (MAC) states that “there are over 3,200 Canadian goods and services firms that provide technical, legal, financial, accounting, environmental and other expertise to the mining industry.” While this is a large number of companies, there is no measure of the value of those inputs. Even if the annual revenues of these firms were known, the sum would be misleading because the revenues of most of them must come from many sectors, not only mining.

In its “Facts & Figures” publication, MAC states that “The mining industry’s impact extends beyond its significant direct GDP contribution. For example, the industry contributes over half of Canada’s rail-freight revenues and Canadian port tonnage.”

It adds: “The Canadian investment services sector is also a prominent supplier to the mining industry. During the past five years, fully 32 per cent of global mining capital and 82 per cent of global financing transactions were handled through the Toronto Stock Exchange. It is estimated that several thousand Canadian brokers, analysts, exchange workers, consultants, trade finance experts and securities lawyers draw benefit from the strength of the mining industry.”

The Ontario Mining Association (OMA) approached the contribution of suppliers in another way in a 2007 publication entitled “The economic impacts of a ‘representative mine’ in Ontario.” This report, based on a “model” mine, 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 (induced employment) in the economic activity that is generated when the employees of the mine and their suppliers spend what remains of their wages after taxes and savings. The ratio of indirect to direct employment in this study is 2.3.

The Quebec Mining Association and Quebec Mineral Exploration Association have approached the problem in their recently published results of a study on “Quebec’s mineral industry cluster: socio-economic contribution to the development of Quebec and its regions,” which claims 36,000 mining jobs in the province against 16,000 in the supplier network. It is likely that the mining jobs include more than extraction and concentrating, and carry downstream into metal production and fabrication.

A new survey, prepared for the Ontario North Economic Development Corporation by Doyletech Corporation, demonstrates the importance of mining supply in Northern Ontario. This study was based on interviews with 150 mining supply companies and then extrapolated to the approximately 500 firms and organizations in Northern Ontario, all of which derive more than 50 per cent of their revenues from supplying the mining industry.

The result shows total annual revenues of the mining supply sector in Northern Ontario of $5.6 billion, with employment of 23,000 people. The direct employment for the extraction and concentrating part of the mining industry is estimated at about 10,000 (OMA reports 16,000 in the whole province), so the ratio of supplier jobs to mining company jobs is once again about 2.3.

Thus, there is a good deal of qualitative and semi-quantitative evidence that the employment of the mining supply sector in Canada exceeds that of the mining industry itself. Given the difficulty of using standard statistical methods to capture the value of mining supply, it will take more study, perhaps using the Northern Ontario methodology, for the full economic impact of the mining “cluster” across Canada to be fully recognized.

Jon Baird
Jon Baird, managing director of CAMESE and the immediate  past president of PDAC, is interested in collective approaches to enhancing the Canadian brand in the world of mining.

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