A bullish outlook for Alberta’s mining industry, including the oil and gas sector, mirrors a buoyant forecast for Canada’s mining operations.
But the rosy picture is being tempered by an industry call for more stability and certainty if Canada is to remain a major player in world mining markets.
High prices, combined with a positive outlook for base metals, will denote stronger exploration and development opportunities both in Alberta and across the country, says Patricia Mohr, vice-president of industry and commodity research for Scotiabank.
Mohr, in Edmonton last week for industry conference and exhibition Mining North, said coal prices that have been rejuvenated in the past six months are a positive sign for Western Canada’s coal industry.
“One of the key reasons for that growth and demand is China,” said Mohr, noting that despite its own coal-mining sector, China has temporarily turned to imports to fire up its power plants and steel mills.
Rising demand is good news for both Alberta and British Columbia, said Mohr, because the coal sector has been “fairly depressed for quite some time.”
“With its large coal reserves, this does represent a competitive advantage for Alberta.”
While the province sells a lot of steam coal into North American markets, which are priced differently, Mohr said that coal prices are probably perking up in these markets as well.
In metallurgical coal, China’s net exports will decline from 10.5 million tonnes in 2003 to only 1.9 million in 2004 and 0.1 million in 2005, as China briefly becomes a net importer.
“These developments have unsettled international coal markets and driven up the price of metallurgical coal,” she added. “China exports steam coal but has recently been cutting its exports in favour of increased domestic use for electricity generation. China has a shortage of electric power, and this development has also pushed up global prices for steam coal.”
Coal prices are now rising in China, Japan, South Korea and Europe.
On the base metals side, the outlook is good for copper, zinc, nickel and aluminum, driven by last year’s expansion in China and a pickup in demand from the United States, said Mohr.
“It is very good for 2004 and 2005. Base metals right now are at the bottom of a broad trading range and at some point, possibly late this year, base metal prices should rebound again,” said Mohr. “As we get into the second half of 2005 and move into 2006, we may find metal prices move down cyclically.”
Mining contributes $40.8 billion to the Canadian economy and employs 400,000 Canadians. In Alberta mining, including oil and gas, was responsible for 22.2 per cent or $31.7 billion of the province’s GDP in 2002.
Meanwhile, the oilsands still represent a tremendous growth opportunity for Alberta, with production that has risen from 300,000 barrels per day in 1992 to today’s level of a million barrels a day. That number, is projected to reach 2.5 million barrels per day by 2015, said Jim Carter, Syncrude president and chair of the Mining Association of Canada.
Carter, one of eight participants in a Mining North plenary session on strategies to ensure that mining remains a critical component of Canada’s economy, said to keep the mining locomotive running, the industry’s interests must be represented as public policy is being developed.
“I also think the industry itself has to be prepared to change with the times and that means that people need to appreciate what is happening in the industry,” he said.
Mohr also believes that current high crude oil prices could move back down to the $29 a barrel level next year as global inventories will be built back up though 2004. However, she expects prices will stay high for now.
“There’s more crude available now than the market would indicate,” said Mohr. “The key factor is geopolitical.”
There is great unease around the world about the possibility of political unrest and terrorism in Saudi Arabia, she said, and while it hasn’t yet affected oil production, there is worry that it might.
“There’s also a lot of unease in Iraq – the recent kidnappings of foreign workers don’t bode well for further rapid development of Iraq’s oil supply,” Mohr added.
“In Venezuela and Nigeria, there’s the potential for oil disruption. These risks are what account for the very high oil prices right now.”
The conference also heard concerns that the mining industry needs to be attracting more investment to survive and prosper.
“It’s the same in Canada as it is in a lot of jurisdictions. People are looking for more certainty,” said Inco president Peter Jones. “Mining projects are very capital intensive and all money up front. Then not only do you have the risk of having done that, but you also go through the metal cycles so you don’t need any more variables.
“If somebody spends $1 billion on a project and then, before they’ve even got the project built, the government comes along and says: ‘Well, we decided that you’ve got to reduce your emissions even further or we have to put a royalty on instead of a straight tax’, all of the things on which that investment was based go out the window. People will eventually say enough is enough,” said Jones.
Jones noted that mining is a long-term business, and governments tend to operate within the four-year windows between elections.
“We have to break that, somehow,” he added.
Meanwhile, the Canadian mining industry has developed guidelines it says could lead to independent audits of environmental and consultation measures companies undertake on new mining projects.
“We’re pretty confident that we’re going to see better performance from the industry and therefore we’re going to improve the image of the industry,’’ Syncrude’s Carter told the conference.
“Eventually, down the road we will find ourselves in a situation where we’re going to want to give it the stamp of approval and that’s going to mean third-party verification.’’ The guidelines cover tailings management, community consultation, greenhouse gases and crisis communications.
Company actions under each topic are to be rated on five levels. They will range from purely reactive responses with no formal policies to ongoing talks with representatives in affected communities.
Company performances will be posted on the Mining Association of Canada’s public website.
There are sound business reasons for going to public, third-party audits in mining, said Derek Pannell, president of Noranda/Falconbridge Ltd.
A company that develops one project responsibly is likely to have an easier time developing a second one, he said.
One environmentalist welcomed the announcement.
“They should be commended for moving in the right direction,” said the Canadian Nature Federation’s Julie Gelfand. “When you hear the industry talking about their social licence to operate, that’s a good thing.”
– with files from Canadian Press
