State of the BC Mining Industry: “Seize the Day”

Representatives of British Columbia’s mining industry gathered Tuesday in Vancouver to report on the industry’s near-record expansion in 2010. PricewaterhouseCoopers’ (PwC) report, “Seize the day: The mining industry of British Columbia 2010,” was the center piece of the industry update, providing a survey of 42 mining industry representatives and leaders operating within the province.

The consensus within the industry is that British Columbia is witnessing a “mining renaissance” not seen in over a generation. “The 2010 financial performance of the MC mining sector was outstanding” said Michael Cinnamond, PwC’s co-author of the report. Companies across the province reported record growth and increases in 2010, with gross mining revenues increasing 13 percent to CA$7.9 billion and increased cash flows from operations by 32 percent to CA$2.9 billion. Overall the industry’s aggregate pre-tax net earnings were CA$3.7 billion in 2010, up 65 percent over 2009. Capital expenditures also increased by 120 percent to CA$1.252 billion in 2010.

The increases are attributed to strong coal and metal prices, growing demand and three new major metal mines currently under construction or in the commissioning phase (Copper Mountain, Mt. Milligan, and New Afton). Overall, the report noted that BC is driven by its healthy basket of mineral resources, with strong metallurgical coal, copper, zinc and gold deposits.

Coal

The province benefited from the rise in average coal prices, which were US$181/tonne in 2010 up from US$157/tonne in 2009, alongside an increase of 32 percent over the previous year in the volume of coal shipments now standing at 22.3 million tonnes. “Coal remained the most significant contributor to net revenues in 2010, generating approximately 51% of total mining revenues for BC [46% of which came from metallurgical coal],” the report said. However, the report also cautioned that “as demand for the Province’s minerals increase, port capacity will remain a key element of ensuring that new projects and expansions are able to ship product to the Asian markets.”

Copper

While shipment volumes decreased by 2 percent between 2009 and 2010, the revenues were driven up by 13 percnet over the prior year to CA$1.4 billion thanks to the 45 percent increase in copper prices from US$2.35/lb to US$3.40/lb in 2010. This trend in revenues is expected to continue as copper was trading at US$4.38/lb in the first quarter of 2011 and with copper futures contracts expiring in May 2012 slated at US$4.24/lb.

Other Minerals

The report also noted growth in zinc and zinc concentrate, gold, silver and molybdenum. Zinc, silver and molybdenum all saw increases in prices of more than 30 percent each and revenue increases across the board as well. Both lead and zinc also saw price increases, 24 and 26 percent respectively, while decreases in lead shipments of 4 percent and gold revenues by 28 percent were witnessed despite price increases in both minerals. On the whole, the numbers support CEO of the Association for Mineral Exploration B.C., Gavin Dirom’s claim that the province was in the midst of a “new gold rush.”

Canada’s Mining Province

As Pierre Gratton, ex-officio President and CEO for Mining Association of BC (MABC), noted “more than 50 percent of Canada’s mining projects are located within [BC]”, and the implications for the provincial economy have been substantial. In total, the industry provides some 8,195 jobs with an average salary of some $108,100. In 2010, the BC mining industry (of those interviewed in PwC’s survey) made total payments of CA$691 million, an increase of $280 million from 2009.

Outside of market forces driving the mineral boom within the province, Steve Carr, Deputy Minister of Energy and Mines for British Columbia, attributed some of the industry’s success to the province’s policy and infrastructure support. Key amongst these efforts were the “historical agreements with First Nations groups” on revenue sharing programs which have helped to provide predictable permitting and clarity for operators and investors and increased benefits for impacted First Nation and Aboriginal communities. Alongside this, the province’s “world class environmental standards” were said to be critical for the overall sustainability of mining within the province.

Looking forward, the provincial government and the industry’s efforts to push ahead development of the Northwest transmission line (NTL) along Highway 37 in the northwest of the province will be a critical component in expanding future mineral developments in the relatively unexplored region. MABC’s Gratton stated that “the [NTL] project has the potential to attract $15 billion in new capital investments and create almost 11,000 jobs, as well as reduce greenhouse gas emissions.”

The PwC report also noted that the controversial introduction of the provincial Harmonized Sales Tax (HST) in 2010 had an overall favourable impact “producing anticipated cost savings in key areas such as capital expenditures.”