Sunday 25th September 2016

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Consider the benefits

A study examines what one new gold mine could do for Ontario

by Greg Klein

It’s theoretical but “representative”—one new gold mine, presented as either an underground or open pit operation, in a fairly remote part of Ontario. It’s the creation not of explorers, geologists, engineers and investors, but two economics professors commissioned by the Ontario Mining Association. The mine exists not over a deposit but on paper, in a report released October 21 called An Au-thentic Opportunity: The Economic Impacts of a New Gold Mine in Ontario.

“It’s a public document but the target audience is government,” OMA communications manager Peter McBride tells ResourceClips.com. “It’s really to make sure decision-makers know there’s a lot of economic opportunity in different parts of the province for a new gold mine.”

A study examines what one new gold mine could do for Ontario

Why examine the benefits of one mine as opposed to the industry as a whole? The OMA does tackle industry-wide research regularly, most recently in the 2012 report Mining: Dynamic and Dependable for Ontario’s Future. But the new study points out that “policy decisions do not usually revolve around the existence of an entire industry. Instead, it is the opening of a new mine, or policy action needed to maintain the production of an existing individual mine, that is usually the focus of decision-making.”

Why gold? “About half the exploration dollars in recent years has gone into gold exploration,” McBride says. In 2007 the OMA commissioned the same profs, Peter Dungan and Steve Murphy, both of the University of Toronto Rotman School of Management, to study the benefits of a representative nickel-copper mine in the Sudbury region. Now, with the lure of gold drawing explorers into more remote parts of the province, this study examines the benefits of bringing infrastructure to the wilds and jobs to local communities.

Apart from estimating impacts on GDP, employment and government revenue, Dungan and Murphy look at indirect and “induced” benefits. Just as a typical mine “has multiple layers of activity, our analysis of a new mine’s impact extends down to several layers below the economic activity at the mine site itself.” Companies and individuals providing goods and services directly to the mine require goods and services from others, indirect benefits which the authors call an extensive “‘backward chain’ of inputs into inputs.” Induced benefits come from the purchasing power of workers in the mine and its suppliers.

The study looks at construction and production, excluding pre-construction expenditures. Boiled down to basics (see an infographic), the modelled open pit and mill would cost $750 million to build over three years, during which the project would generate 996 direct jobs averaging $66,000 a year. Direct, indirect and induced economic impacts would total over 1,900 jobs, pay $60 million in annual government revenues and add $183 million a year to Ontario’s GDP.

During production, potentially lasting over 20 years, the mine would provide 440 direct jobs averaging $142,200 annually. Direct, indirect and induced impacts would create over 1,800 jobs, pay government revenues of $95 million and add $301 million to provincial GDP annually.

Policy decisions do not usually revolve around the existence of an entire industry. Instead, it is the opening of a new mine, or policy action needed to maintain the production of an existing individual mine, that is usually the focus of decision-making.

The underground model would cost $600 million to build over three years, including a mill that would process less rock than the open pit operation. Some 805 direct jobs during construction would average $66,000. All told, this phase results in 1,500 new jobs. Governments would get nearly $50 million and Ontario’s GDP would grow by $150 million annually.

Once into production, the underground operation would create 620 direct jobs averaging $145,500 and 2,200 jobs altogether. The mine would add an annual $100 million to government revenues and $330 million to provincial GDP.

The figures are conservative, the authors maintain.

“Part of the value of these reports is they are scalable,” McBride says. “For a mine half the size of this one, you’d take 50% off the numbers. If it’s twice the size, double them. You’re going to be close.”

One of the report’s three chapters covers potential benefits to aboriginal communities. Natives now comprise nearly 10% of Ontario’s mining workforce and the number seems destined to grow. “That’s a reflection of where the new mines are going,” McBride points out. “They’re going farther north and bringing new mineral developments closer to aboriginal communities.”

With most jobs being local, the mine would bring obvious economic benefits, as well as skills that might be transferable once the mine closes, the report states. The mine would also encourage local entrepreneurship. Not included in the study are Impact Benefit Agreements, which “historically have tended to be confidential.”

Other benefits costed into the study would be local infrastructure such as roads and electrical grid connections that would remain after the gold’s gone.

It’s too early to gauge response to this study. But McBride says the OMA’s 2007 report on a Sudbury base metals mine was received “very well, which is why we’ve done a bit of a reprise, but with a different metal and different parameters.” The earlier study has “become a major reference. It’s quoted quite a bit by government, by investors, by companies. It lives on.”

Download An Au-thentic Opportunity: The Economic Impacts of a New Gold Mine in Ontario.

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