May 2011

MAC Economic Commentary

Innovation and the Canadian mining sector

By Paul Stothart

In late 2010, the federal government launched a review of its core research and development (R&D) funding and tax programs. In so doing, it established an “expert review panel on R&D” tasked with providing recommendations to the government by October 2011. Based on the premise that Canada does poorly converting knowledge to innovation, the overall intent of the exercise is to improve Canada’s ability to stimulate innovation, capitalize on knowledge and create economic value. In some circles, the launching of this review has drawn cynicism, given that the federal government has conducted similar exercises in recent years without leading to appreciable improvements.

The Mining Association of Canada prepared a submission to the expert panel in late February 2011 that highlighted the following three key messages:

  1. The mining industry is a major contributor to Canadian prosperity.
  2. The sector contributed $32 billion to the GDP in 2009, employed 306,000 workers in mineral extraction, processing and manufacturing, provided business to 3,200 supplier companies, ranging from engineering services to drilling equipment, and paid around $10 billion in taxes and royalties to Canadian governments. Canada remained the top destination for global exploration spending in 2009, while internationally there are some 1,000 Canadian exploration companies active in over 100 countries. The Canadian mining industry is highly global, accounting for 19 per cent of Canada’s goods exports, 10 per cent of its direct investment stocks abroad and 14 per cent of all inward investment stocks. In this sense, the Canadian industry should be viewed by the expert panel as an important player in the global economy.

  3. The mining sector is a noteworthy investor in R&D and has important innovation challenges lying ahead.
  4. According to Statistics Canada, the mining sector invests more in R&D than do any of the oil extraction, motor vehicles, wood products or machinery sectors. This same catalogue also suggests that there are more R&D workers in the four stages of the mining industry than in the aerospace and pharmaceutical industries, and both receive a very high level of government support. Seven mining and oil sands companies rank among the top 100 private-sector R&D investors in Canada. The sector also draws upon expertise contained within the federal CANMET laboratories, as well as a broad number of small R&D centres with university links that coordinate mining research undertakings on behalf of their members.

    Looking ahead, it is unlikely that the R&D and innovation hurdles facing the exploration, extraction and processing stages will decline. In mineral exploration, it is evident that economically feasible resource deposits are becoming more difficult to find, and this at a time when society demands increasingly minimal disruption to the environment. In extraction, a high portion of Canada’s remaining base metals mineral inventory is located at depth, potentially several kilometres below surface. This presents technical challenges to the industry’s efficiency, productivity and profitability. In the mineral processing stage, incremental improvements to smelting technologies continue to be made with the aim of maximizing metal extraction while minimizing energy use and air emissions.

    The need to continuously improve environmental performance underlies many of the industry’s R&D and innovation priorities, particularly in that such improvements can also be closely linked to efficiency and productivity gains. In the coming years, industry will be directing increased attention to energy and carbon management although, as in most sectors, this pace will be affected by world oil price trends. Perhaps the largest single environmental challenge facing the mining industry relates to managing the large volumes of waste tailings and associated water usage. In the oil sands, companies are investing in technology research that could allow water to be released and land to be dried and reclaimed more quickly. Improved tailings management will remain a future priority for most mining companies. R&D relating to the lightweight materials segment and to enhanced metal recycling activities could also become more important, depending on societal priorities, as reflected through public policies.

  5. The mining sector does not appear to receive federal R&D support commensurate with its importance and innovation challenges.
  6. The largest federal program – the Scientific Research and Experimental Development (SR&ED) tax credit program – has helped some companies improve process efficiency and tailings management, although on balance the mining sector is a relatively minor beneficiary. Some suggest that officials administering the SR&ED program do not view the mining industry positively, feeling that capital investments will occur in Canada as a rich ore body country regardless of innovativeness, and that support is therefore better directed towards software, IT and other sectors. In terms of spending programs, annual mining-sector support through key entities such as the Natural Sciences and Engineering Research Council (NSERC) and Sustainable Development Technologies Canada likely totals a few million dollars – far less than amounts directed towards other sectors.

MAC’s submission also proposed a few recommendations to the expert panel, most notably:

  • Take into consideration the industry’s scale, global nature and technological challenges, as well as the recent formation of the Canada Mining Innovation Council as a body mandated to help enhance strategic federal R&D support to the sector.
  • Establishing a technical steering commitee involving partners such as Natural Resources Canada, combined with a more active dialogue between officials administering the SR&ED program and the affected companies, could serve to reduce cynicism and improve predictability, efficiency and timeliness of the claim review and appeal processes.
  • Federal support for R&D should increasingly encourage the implementation of process improvements and, hence, be linked more closely to productivity and environmental improvements.

Paul Stothart
Paul Stothart is vice-president, economic affairs, at the Mining Association of Canada. He is responsible for advancing the industry’s interests regarding federal tax, trade, investment, transport and energy issues.

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