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The province’s resource production is forecast to soar, but some feel the left-leaning New Democratic Party, which is leading in the polls ahead of the May 14 vote, could be a threat to that growth.
The Canadian province of British Columbia is headed toward an election on May 14, and the polls don’t look good for Premier Christy Clark’s Liberal government. The Liberals trail the opposition New Democratic Party (NDP) by 14 points, with 45 percent of voters favoring the NDP and 31 percent supporting the Liberals, according to an Angus Reid survey released on April 26. The BC Conservatives (11 percent) and Green Party (10 percent) trail well behind.
A potential win by the left-leaning NDP has Philip Hochstein, president of the Independent Contractors and Businesses Association of BC, concerned that the province’s resource sector could see its growth hobbled.
“Resource development is hugely important to the construction industry and the small businesses that we represent,” he said in an April 26 phone interview. “Mines are huge generators of economic activity, creating work for all manner of small businesses in the surrounding communities.”
“The NDP position on any kind of development starts with ‘no’ instead of, ‘yes, how can we help?’” he added. “Everything [NDP leader Adrian Dix] talks about never includes growing the economy. The NDP is about wealth redistribution, not wealth creation.”
Mining is on an upswing in BC
The province has a reputation as a global mineral exploration hotspot. Some 1,200 exploration firms are located in BC, most in the Vancouver area, according to the Mining Association of Canada’s (MAC) Facts & Figures 2012 report.
BC stood third on the MAC’s list of Canadian provinces with the most metal mines in 2012, with nine, and third in terms of value of minerals produced, at $8.6 billion. The province is perhaps best known for its coal and natural gas, but it also has significant reserves of other resources, including copper, gold, silver and molybdenum. Roughly 29,000 British Columbians work in the province’s mining sector.
Moreover, as we reported in a February 4, 2013 article, exploration spending surged in BC in 2012: during the year, miners spent $680 million searching for mineral deposits in the province, up 47 percent from 2011.
That spending is expected to fuel a big production jump in the coming years: according to the Conference Board of Canada’s Future of Mining in Canada’s North report, which was released in January 2013, Northern BC’s mining output will increase by 300 percent between 2011 and 2020.
The Liberals have promised 17 new or expanded mines in BC between 2011 and 2015. In a January 30, 2013 speech at the annual Mineral Exploration Roundup conference in Vancouver, Clark claimed that BC is making steady progress toward this goal: “here we are, not even at 2015, and we are already halfway there,” she said. “Since 2011, three new mines are in production and three are under construction. Five major mines have received approval to expand.”
In addition, as we reported on December 26, 2012, the Liberals have made efforts to unify the province’s permitting process with that of the federal government to reduce delays in approving new projects. At the Roundup conference, Clark pledged to invest an additional $7 million over six months to further cut permitting backlogs.
Liquefied natural gas: BC’s economic savior?
The Liberals also see huge potential in the development of liquefied natural gas (LNG). In its election platform, the party pledges to have at least three LNG facilities up and running by 2020. These plants convert natural gas to a liquid that can be shipped to Asian markets, where gas sells for up to five times North American prices. Clark’s Liberals have claimed that the LNG industry’s growth could help pay off provincial debt and eliminate the sales tax.
“The projects mean 39,000 jobs to British Columbia during construction with another 75,000 full time jobs created once in operation,” the Liberal platform states. “We can create $1 trillion in economic activity and create the BC Prosperity Fund with $100 billion over 30 years.”
For its part, the NDP has promised to launch a scientific review of natural gas development, including hydraulic fracturing, or “fracking,” which involves using water and chemicals under high pressure to crack open rock and release trapped gas. The party’s platform states that it will support “sustainable LNG development and export as part of a diversified and prosperous economy.”
The New Democrats also accuse the Liberals of taking too rosy a view of resource development. “The government refuses to acknowledge there are downsides to expanding the oil-and-gas sector,” said NDP mining and energy critic John Horgan in an April 23 Vancouver Sun article. “I think most British Columbians recognize there are downsides, and the challenge for the new government, whoever it might be, is to manage those downsides in the best interests of the public.”
Pipeline politics take center stage
Kinder Morgan Energy Partners’ (NYSE:KMP) proposal to increase the capacity of its Trans Mountain pipeline has also become a flashpoint in the campaign. The line pumps oil from Edmonton, Alberta, to the port of Vancouver. Kinder Morgan has not yet made its proposal to federal regulators, but on Earth Day, April 22, 2013, BC NDP leader Adrian Dix came out strongly against the project.
“We do not expect Vancouver to become a major oil export port as appears to be suggested in what Kinder Morgan is proposing,” he said in an April 23 article in The Province. “I don’t think that the port of Vancouver, as busy a port as it is and successful a port as it is, should become a major oil export port.”
Dix’s announcement came as a surprise to some as he had earlier indicated that he would wait for the company to make a formal application before taking a position.
Hochstein sees Dix’s position on the pipeline as both ideologically and politically motivated. “He will give up $1 billion in tax revenue over Kinder Morgan,” he said. “They are worried about the Green Party splitting the vote on the left, so it was no longer expedient to wait for permitting.”
However, not everyone in the resource industry is as pessimistic about an NDP government. “We’ve gone through two previous episodes where the NDP were in power, and we saw some of the drastic effects it had on the mining industry,” said Tom G. Schroeter, CEO of Fjordland Exploration (TSXV:FEX), in a March interview with the Investing News Network. “However, this time around is going to be really different, I think. They are much more educated and attuned to the importance of the mining sector. They have good people there. They understand the issues.”
However, Schroeter feels it likely won’t be completely smooth sailing for miners under the NDP. “The two things that probably will be most noticeable is that there will be an increase in taxes,” he said. “But that will affect the operations already running, mainly. And the second thing is there will probably be a bit more bureaucracy.”
Securities Disclosure: I, Chad Fraser, hold no positions in any of the companies mentioned in this article.
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