On December 30, 2002, a Canadian right-wing think tank, the Fraser Institute, released a report that rated the attractiveness of different mining jurisdictions to mining companies. The objectives of the report are clear: The Institute says: "We hope that this survey and companion index will encourage policy makers to create fair, stable, and consistent regulatory frameworks in which mining companies, as a proxy for other industries, can operate without experiencing what appears to be institutionalized bias."
It is clear from the survey that a vote for mining-friendly policy is a vote against fair taxation, against collective bargaining, against environmental protection, against Aboriginal land rights and against protected areas.
After looking at the data used in the report, I have excerpted the following (with comments) to show how they have arrived at their conclusions. My comments are in italics. All other statements are directly from the report and its appendices, available at www.fraserinstitute.ca
1) The report is almost entirely based in the subjective opinions of mining companies, in response to a number of questions asking them how they rate each of the named jurisdictions on a variety of factors: taxation, regulation, mineral potential, etc.
The following pages (in the survey) list factors such as mineral potential, taxation, and regulations that influence investment decisions. Please use the scale provided to rate each jurisdiction with respect to the factor listed in bold at the top of each page. You need only rate those regions with which you are familiar. If you are unfamiliar with a jurisdiction, leave the question blank or circle "6," the 'do not know" option.
1 = encourages exploration investment
2 = not a deterrent to exploration investment
3 = mild deterrent to exploration investment
4 = strong deterrent to exploration investment
5 = would not pursue exploration in this region due to this factor
6 = do not know
After a series of questions about how much they actually invest in these jurisdictions, the company is asked:
2. What country or jurisdiction do you think has the most favourable policies towards mining? why?
3. What country or jurisdiction do you think has the least favourable policies towards mining? why?
4. If there could be one policy change in this jurisdiction, what should it be?
5. If you have an example of either a regulatory "horror story" related to operating in a particular jurisdiction or an example of what you would consider an exemplary policy climate, please describe in the space below.
2) The Objective survey: "As a complement to the survey opinions presented in the first section of the report, (an) appendix has been added to include data on factors such as taxation and labour with which to compare the attractiveness to the mining industry of the business climates of the Canadian provinces and territories".
This "objective index" is new, and provides interesting insights into how Fraser Institute survey respondents see the world. The Institute goes on to say that:
"Finding measurable indicators to compare with the subjective questions asked in the opinion section of the report has not been easy. In some cases, data were unavailable. In other cases, available data were limited....Although there is a positive correlation between the survey results and the objective index results, it is a fairly weak correlation. In some cases, such as Alberta, the results are consistent with the opinion index in the first section of the report. In other cases, most noticeably Quebec, the results are inconsistent. There are many possible explanations for this. The objective data used cannot capture the attitudes of the regulators in each jurisdiction, or the ease with which permits can be obtained. Further, it could be that the data used to create the index do not adequately capture the concerns of exploration managers, or it could be that the opinions about operating in some jurisdictions differ from the reality of operating there. We will continue to investigate these concerns in future editions of this report."
3. "The "objective" index looked at 24 variables in 5 different categories: taxation, regulation, labour, land access, and infrastructure:
Taxation: The first indicator is the total taxes paid over the13-year lifetime of a hypothetical gold mine.The tax burden includes federal taxes, provincial income and capital taxes, and provincial mining taxes. (The figures contradict a more objective study undertaken in the Mintz report 1998. ) The second taxation indicator is the existence of capital taxes. All else being equal, those jurisdictions with capital taxes are considered less attractive than those without capital taxes. The third taxation indicator is a standardized page count on provincial mining tax acts and their supporting regulation... Jurisdictions with lengthier legislation are considered to have more onerous tax systems. The final variable is whether or not the jurisdiction imposes a gross royalty or net smelter royalty tax."
Regulation: "The regulation category includes 10 variables... The first two indicators measure the complexity and costs of environmental regulation in a jurisdiction, first by measuring the percentage of exploration and deposit appraisal expenditures (averaged over the five years 1997 to 2001) spent on environmental compliance, and second, through a page count of the environmental acts and regulations that affect mining, including provincial and territorial parks acts, endangered species legislation, and water and fish protection acts. The next 8 variables apply to regulations and permitting procedures specific to the mining industry. The first is a page count of mining acts and regulations. Both this and the previous variable assume that a higher page count (standardized for page size and bilingual publishing) indicates more onerous policies. The next two variables measure the initial term granted for a mineral claim (exploration phase) and mining lease (mining phase) with the assumption that longer terms are more attractive. We also looked at the maximum area granted for a mineral claim and mining lease assuming that a larger area was more attractive. We also looked at the way reclamation bond requirements are administered in each jurisdiction. Although there appears to be some variability within jurisdictions, some tend to allow bonding requirements to be met over time, while in others the bond must be posted up front. The assumption is that meeting the requirement over time is preferable. Finally, we looked at the annual expenditure obligation per hectare, first at just the initial year's expenditure, and finally averaging it over the first 10-year period. For these indicators, a lower financial obligation was deemed to be preferable. We have not yet determined a satisfactory indicator for a critical regulation variable: delays in regulatory permits, which almost certainly played a role in the subjective evaluation of the jurisdictions. Another important regulatory indicator, the attitude of the regulators, is virtually impossible to measure and therefore is not captured in these data."
Labour: "The labour category contains two indicators: the extent of unionization of the general labour force, and... the number of labour disputes that have occurred in the mining sector in the past decade (1992 to 2001). To put this number into perspective, we have also included the number of mines that were operating in that region on January 1, 2002."
Land Access: "Three variables form the land access category First, the index uses data from Indian and Northern Affairs Canada to determine the percentage of land claims that remain unsettled in each province... The second variable is the percentage of the land base in a jurisdiction that is off limits to exploration because it is protected. The final variable, which is used to assess uncertainty concerning new land to be set aside, looks at how much growth there has been in protected areas in the last year."
Infrastructure: "There are five indicators in the infrastructure category this year: railway density, road density, and ports, geo-science availability... the percent of exploration and deposit appraisal expenditures (averaged over five years, 1997 to 2001) spent on land access."