Despite operating in a well-respected and politically stable jurisdiction, miners in Ontario continue to struggle to compete on costs. Energy costs, and in
particular electricity costs, are the second-largest expenditure for most mines, after labour. Despite the key role mining plays in the industrial output
of the province, Ontario’s advertised electricity rate – the price before rebate and incentive programs are factored in – ranks among the highest in North
America, affecting both profitability and new investment.
The Association of Major Power Consumers in Ontario (AMPCO) estimates that an average transmission-connected class A industrial user pays more than any
other comparable North American customer. In 2012 AMPCO’s methodology found an average cost of 7.6 cents per kilowatt-hour in Ontario compared to 7.3 cents
in Alberta, 4.9 cents in British Columbia, and 4.5 cents in Quebec. Jennifer Beaudry, a spokesperson for the provincial minister of energy, contests these
figures; comparisons made by her office put Ontario ahead of some provinces and U.S. states. [For more on the global energy market see our feature “Live
But the competitiveness of Ontario’s electricity pricing depends on a number of industrial energy rebate and incentive programs – among them, the
Industrial Electricity Incentive (IEI), the Industrial Conservation Initiative (ICI), and the Northern Industrial Electricity Rate Program (NIER), in which
seven mining companies participate. These help lower the price most miners pay but are not a long-term solution, industry leaders say.
“The challenge you’ve got is that anybody that wants to invest new capital for a 20-year mine life can’t base their economics on a three-year, temporary
program,” says Ontario Mining Association president Chris Hodgson, “or a year-to-year program, in some cases.”
Clarity around the long-term price is a problem, agrees John Mullally, director of corporate affairs at Goldcorp. “We have to have certainty of supply and
some sense of what the electricity rate is going to look like in five or 10 or 15 years.”
For some companies, the government’s rebate programs create a competitive disadvantage. Wesdome Gold for example does not qualify for NIER because the
company uses too little electricity. At its mine and mill facilities, which produced a total of 58,230 ounces of gold in 2014, Wesdome paid an all-in (net
of taxes) effective rate of 7.84 cents per kilowatt-hour (kWh) last year and more than 10 cents per kWh for its assay laboratory facility in Wawa.
According to Wesdome COO Philip Ng, the company uses less power to produce an ounce of gold than almost anyone else in the province but is not rewarded for
its efficiency. “We actually get penalized. If we used seven per cent more electricity, we could drop our unit costs, because we’d get a 16 to 17 per cent
reduction in our unit cost for electricity through NIER.
“They should create a level playing field, whether you’re a 50,000-ounce producer or a 500,000-ounce producer.”
And more than that, Ng says the paperwork to prove that a company qualifies for any incentive program is burdensome. Mullally agrees: “It takes major
producers considerable effort to understand and to apply to the Independent Electricity System Operator to take advantage, and then to implement these
programs, and then manage and report as required, and the teams you need,” he says. “I would guess that this would be very challenging for a smaller
operation with less manpower. They’re also not easily accounted for when considering long-term investment in the province. ”
What infrastructure investment?
Another ongoing issue is getting power to mine sites. Other provinces have recently invested in upgrading and extending their electricity infrastructures.
British Columbia last summer finished the $746-million Northwest Transmission Line project that will power Imperial Metals’ new Red Chris copper and gold
mine. The new line extends low-cost, hydroelectricity 344 kilometres further north in the province than the previously existing network, opening up the
economic development of a mineral-rich area and linking nearby communities to the grid.
Ontario does have similar projects in the works, according to Beaudry. “We have made it a priority to ensure there continues to be a stable, reliable and
cost-effective supply of electricity,” she says. “Northwestern Ontario is going to get the power it needs, including the power required for economic
expansion.” She cites several upcoming projects in northwestern Ontario, including the Thunder Bay Generating Station conversion, the East-West Tie
Transmission Line, and the proposed Northwest Bulk Transmission Line.
However, a closer look suggests that none of these options will improve the situation for miners any time soon. The Thunder Bay Generating Station
conversion aims merely to replace some of the generating capacity that was lost when Ontario closed the old plant while phasing out coal, according to
Ontario’s Long-Term Energy Plan. The East-West Tie, meanwhile, will add redundancy and reliability, but without significantly boosting capacity or grid
coverage. Neither will help lower costs for existing or new mines. The Northwest Bulk Transmission Line could eventually add significant transmission
capacity and open up opportunities to connect currently isolated northwestern communities and mines to the grid, but the line remains in early planning
Historically, Ontario has also provided tax credits for companies that take on the upfront risk of capital investment. Hodgson considers this preferable to
the approach taken in Quebec and British Columbia, where the province makes the capital expenditures. “If the company can borrow the money, they can build
the road, or they can build the hydro line,” he explains. “Over the life of the mine, the government gives them tax credits back, so that there’s no risk
to the taxpayer. We’re basically funding that infrastructure but without taking the risk.”
But with no guarantee of cheap electricity even if they do build the infrastructure, investors have avoided undertaking any such projects in Ontario. As
Hodgson points out, there is no way to quantify the amount of investment the province has missed out on because of high energy prices.
Some companies count electricity among the reasons for moving or cancelling projects. The rising cost figured into Xstrata’s 2010 decision to move its
smelting operations – and 670 jobs – from Timmins to Quebec. Uncertainty about the future of the massive Ring of Fire development hinges on infrastructure
issues, including electricity.
It always comes back to the cost of producing metal. “Gold is produced around the world, and it’s sold at the exact same price, a fixed price,” says
Mullally. “We have no control over our customers either. So, in mining, one of the most critical concerns is managing your production costs. Ontario must
compete and remain economic compared to other jurisdictions in order to continue to attract investments from a finite pool of capital.”
Fundamentally, miners and potential investors in Ontario want to see the price that most of them already pay reflected in the advertised sticker price of
electricity. “We’re fairly competitive if you can get into these programs, but they’re just short-term programs,” says Hodgson. “You can’t blow a billion
dollars on a 15- to-20-year payback based on a three-year program.”
Ng adds: “To create jobs and make Ontario competitive, to be the business engine of Canada, Ontario needs a competitive energy infrastructure.”
Next: Beyond the backyard
Northern Ontario mining suppliers outgrow their traditional customers