Next generation of northern mines ‘at risk’

Vancouver — A report by Canada’s auditor-general warns that new diamond mines and other resource projects could be at risk unless the federal government reforms the arduous permitting regime that prevails in the northern territories.

Sheila Fraser aims her salvo at Indian and Northern Affairs Canada (INAC), which funds and oversees various review boards in the north. She says diamonds and other non-renewable resources offer enormous potential for economic development, but warns that “the opportunities of the coming decade” may not be realized if the department continues its hands-off style of management.

Fraser says many government-appointed boards are floundering because INAC has not provided enough resources and guidance to help them carry out their duties. Technical guidelines are lacking, and in some cases applicants seeking water permits are not told what specific water-quality standard they are expected to meet.

The report concludes that government neglect has led to an “uncertain investment climate,” which, in the case of mining in the Northwest Territories (N.W.T.), threatens an industry that currently accounts for 42% of the economy, compared with 24% just three years ago. Also at stake are multi-billion-dollar gas developments in the Arctic and a proposed pipeline through the Mackenzie Valley, which, combined with the diamond sector, would make the north less dependent on federal transfers.

Fraser’s findings are no surprise to industry representatives who met with northern mines ministers last fall to discuss the deteriorating investment climate in the Yukon, the N.W.T., and neighbouring Nunavut. In the case of diamonds, all sides agreed that the regulatory regime for the sector is “out of sync with how other mines, which generate greater environmental impacts, are regulated in Canada.” At the same time, the basic costs of working in the north are far higher than in other parts of Canada, owing to climate and infrastructure restraints.

In a separate development last year, mining associations, the jewelry sector, and northern mines ministers endorsed a National Diamond Strategy Action Plan, which calls for “streamlining and clarifying environmental permitting processes and timelines for environmental assessment, without compromising environmental protection.”

Those in favour of reform point out that the producing Ekati and Diavik mines have transformed the N.W.T. and made Canada the world’s third-largest diamond producer by value. The two mines employ 2,000 people, mostly from northern communities. Government sources estimate that about one in eight employed persons in the N.W.T. works directly or indirectly in the diamond exploration and mining sector.

After the Snap Lake project enters production, the gross domestic product of all three mines over their lifetimes will be about $30 billion, a third of which is destined for various government coffers.

The diamond industry has also transformed northern societies. Between 1994 and 2002, for example, N.W.T. aboriginal post-secondary students jumped to 120 from just two. Aboriginal businesses benefited from the diamond boom, taking in just under $1 billion over four years.

The regulatory regime was transformed too, seven years ago, when the federal government created various boards and panels to put more decision-making into local hands. The process was driven by a series of land-claim agreements with aboriginal groups, which in turn added layers of complexity to a permitting regime that remains poorly understood by Canadians, including investors.

In a 2004 audit, Fraser criticized the federal government “for not keeping the Canadian public informed on the implementation of land-claim agreements” [and their implications]. There’s no evidence that the government took action to remedy the knowledge gap.

The northern regulatory system is complex even for resource companies. In the N.W.T., for example, developers could face: the Mackenzie Valley Land and Water Board; its two panels (the Gwich’in Land and Water Board and the Sahtu Land and Water Board); and the Mackenzie Valley Environmental Impact Review Board. Still, the federal government remains the lead regulatory authority, despite having passed various responsibilities on to local boards and panels.

Critics claim the balkanized, rudderless system is not serving the industry well, and cite the slow development of several advanced diamond projects, namely Snap Lake and the smaller Jericho mine. Both are scheduled for production in the next few years.

To its credit, the federal government recently took action to reform the notorious Mackenzie Valley Land and Water Board, a thorn in the industry’s side almost since its inception. The board’s lack of openness, fairness, and professionalism was such that even circumspect government officials described it as “a disappointment.”

Resource companies are reluctant to criticize the board publicly, but assessments gathered under the cloak of anonymity by The Fraser Institute are brutal. “Very confrontational” and “anti-development” sum up the prevailing sentiment. The board also has a reputation for being indifferent to timelines (a sore point, as delays for such things as moving supplies over winter roads are costly) and for resisting industry efforts to improve the transparency and fairness of the decision-making process.

In mid-March, Andy Scott, minister of Indian Affairs, appointed Todd Burlingame, a geologist and former oil-and-gas consultant, as the new chair of the Mackenzie Valley Land and Water Board. While industry cheered, some northerners were outraged that the minister had not considered choices put forward by the existing board. As MLA Jane Groenewegen told CBC North: “It’s a sad day when blatant political patronage and disregard for process are handed down to us from some Liberal crony, retread minister.”

Ethel Blondin-Andrew, the federal minister of state for northern development, defended Burlingame as the best person to help the board “be more decisive and make timely decisions.” As the controversy suggests, reforming the present system will be neither easy nor quick. Parachuting one or two ‘industry-friendly people’ to devise solutions may be a short-term fix at best.

Neighbouring Nunavut also faces challenges to improve its permitting regime, according the Industry-Government Overview Committee, established in 2001 to improve the dialogue between mining and government (with aboriginal participation). Last fall, the committee warned the federal government that the fledgling territory needed help to complete its regulatory regime, which still lacks legislation in key areas.

Still, the prevailing view is that it is much easier to get land-use permits in Nunavut than in N.W.T. Exploration spending bears this out, as almost $100 million was spent in Nunavut in 2003, compared with $53.6 million in the N.W.T. Estimates for 2004 show a similar gap.

Across the north, companies with advanced projects must also negotiate Impact Benefit Agreements with local native groups. In the absence of clear criteria, such agreements can become a minefield for mining companies, as the process often triggers secondary issues specific to bands or regions, such as unresolved or overlapping land claims. The unintended result is that resource projects can be held hostage by contentious issues over which companies have no control.

Resource developers must also deal with various environmental groups, including those seeking public and industry funding to oppose their projects. And it is not uncommon for groups unsatisfied with the outcome of permitting decisions to file lawsuits that are not only expensive to defend but that can stall projects for months, if not years.

Adding to industry costs are the shortage of skilled workers and the obligation of hiring northern firms. Northern contractors claim that southern companies are setting up “arrangements of convenience” to circumvent the regulations and that everyone turns a blind eye to them out of
convenience or necessity. Contractors believe such policies were reasonable in the early days of the diamond rush but may no longer be reasonable for mines, because many other businesses are now draining the same limited pool of talent.

Other government requirements imposed on mining companies, such as selling diamonds to local cutting centres, have not yet produced sustainable benefits for the northern economy. Several cutting centres declared bankruptcy in recent years, resulting, in most cases, in a loss of taxpayers’ and industry investments.

More worrisome is that, beyond Snap Lake, no large-scale diamond projects are poised for production. Almost half the world’s exploration budget for diamonds is still targeted at Canada, but Ontario and other prospective regions are competing for, and attracting, many of the dollars that once poured into the north (and the N.W.T. in particular).

Reduced exploration spending, combined with the auditor-general’s report and various other reports and submissions, suggests that the cumulative effects of the northern regulatory gauntlet are taking a toll on industry. Relationships among northern stakeholders are strained to such a degree that the government’s ostensible goal of “consensus-building” in the resource sector seems more elusive than ever. As the president of one junior company active in the north told The Fraser Institute: “The needless concessions extorted from mining companies are killing the industry.”

But as the auditor-general points out, the regulatory regime is new and still evolving, and could improve with ongoing guidance and support from government. Ottawa has promised more help, and has also promised to work with industry, territorial and aboriginal leaders to make the overall process more accountable, transparent and efficient. If these promises are kept, and all stakeholders work together in good faith, the best may be yet to come for Canada’s north.

— A former editor of The Northern Miner, the author currently works as a freelance writer and is based in Vancouver.