UNCTAD Secretary-General's
High-Level Multi-Stakeholder Dialogue on Commodities
in the context of UNCTAD XII
28-29 January 2008
Managing Canada’s Mineral Resource Revenues
for Sustainable Development
By
Mr. Keith J. Brewer
Consultant, Canada
The views expressed are those of the author and do not necessarily reflect the views of UNCTAD
Managing Canada’s Mineral Resource
Revenues for Sustainable Development
Presentation to
UNCTAD
Secretary General’s High Level Multi-Stakeholder
Dialogue On Commodities
In the Context of UNCTAD XII
Geneva
January 28, 2008
By:
Keith J. Brewer, Ottawa, Canada
E-Mail:
k.brewer@rogers.com
Telephone: +1 613 824 6754
1
Managing Canada’s Mineral Resource
Revenues for Sustainable Development
•
•
•
•
•
Private Sector/Open Economy Drives Investment
Government Taxation Policies
Government Measures for Environmental Sustainability
Government Measures for Social Sustainability
Getting Consensus on How Mining can Contribute to
Sustainable Development
• The Dimensions of Canada’s Success
• Lessons/Observations
2
Needs of Private Sector Investors
Pre-Production
Period
Production Period
3
Needs of Private Sector
Investment
• Private Sector Determines the Pace of Mineral
Development
• Government Plays a Complementary Role
• Rules and Regulations Are Known in Advance
• Range of Stakeholders are Consulted on Proposed
Modifications
4
Metal Prices 1971-2006
Indexes: 1971 = 100
800
700
600
500
400
300
200
100
0
1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004
Nominal
Real
Linear (Real)
5
Canada
Canada
United States
United States
2003
2007
Australia
Peru
Peru
Chile
Chile
Indonesia
Australia
Cash costs US¢/lb.
Average Production Costs of Major Western World
Copper Mining Countries
Indonesia
Cumulative Production (millions of pounds)
Source: Natural Resources Canada. Based on data from AME Mineral Economics. Costs are in 2003 dollars.
6
Managing Canada’s Mineral Resource
Revenues for Sustainable Development
•
•
•
•
•
Private Sector/Open Economy Drives Investment
Government Taxation Policies
Government Measures for Environmental Sustainability
Government Measures for Social Sustainability
Getting Consensus on How mining can Contribute to
Sustainable Development
• The Dimensions of Canada’s Success
• Lessons/Observations
7
Investment Tax Credit for Exploration
Ranges of Tax Treatment by
Province/Territory
8
Impact of Deductions on the Tax Base:
Project with 10 Percent Internal Rate of
Return in Ontario
Million dollars
Net Revenue
Taxable Income
Other Tax
Expl. & Dev.
Write-offs
Depreciation
Taxable income
is area
remaining
between “Net
Revenue” and
“Write-Offs”
Preproduction
Years
Production Years
9
Impact of Deductions on the Tax Base:
Project with 10 Percent Internal Rate of
Return in Indonesia
Million dollars
Net Revenue
Taxable Income
Other Tax
Expl. & Dev.
Write-offs
Depreciation
Pre-production
Years
Production Years
Taxable
income is area
remaining
between “Net
Revenue” and
“Write-Offs”
10
Analyzing Tax Choices
Combinations of Taxes: 5 Cases
Model
Profit
Tax
Case 1
Case 2
Case 3
Case 4
Case 5
40%
35%
35%
25%
25%
Gross Mining
Royalty
0%
2%
5%
2%
0%
Export
Tax
0%
0%
0%
10%
0%
11
Calculation of Average Tax Rates for
Five Cases with Three Types of Tax
(PT - profit tax rate, GR - gross royalty rate, ET - export tax rate)
10% IRR Project
25% IRR Project
87%
54%
36%
22%
37%
41%
44%
40%
35%
23%
Case 5
Case 1
Case 2
Case 3
Case 4
(25% PT, 0%
(40% PT,0%
(35% PT,2%
(35% PT,5%
(25% PT,2%
GR, 0% ET)
GR, 0% ET)
GR, 0% ET)
GR, 0% ET)
GR, 10% ET)
12
Average Effective Tax Rates
for Project with 10% IRR
(PT - profit tax rate, GR - gross royalty rate, ET - export tax rate)
87
54
54
48
46
37 40 43
36
36
28 30 30 32
28
26
26
18 22
13
Average Effective Tax Rates
for Project with 25% IRR
(PT - profit tax rate, GR - gross royalty rate, ET - export tax rate)
23
37
38
30 32 34 35
38
38
26 29
40 43 44 44
50
14
Other Types of Tax Measures
• Community Development
– Water Supplies
– Hospital
– Housing
– Other
15
Sharing Tax Revenue and Financing
the Canadian Federation
• Canada’s System of Government
–
Federal
–
Provincial/Territorial
16
Share of Tax on Mine Income
17
Total Federal Transfers – 2007/08
$67 Billion to Provinces and Territories
Canada Health & Social
Transfer
$53.7 B
Equalization
$12.9 B
Territorial Formula
Financing $2.2 B
Other
18
Managing Canada’s Mineral Resource
Revenues for Sustainable Development
• Private Sector/Open Economy Drives Investment
• Government Taxation Policies
• Government Measures for Environmental
Sustainability
• Government Measures for Social Sustainability
• Getting Consensus on How mining can Contribute to
Sustainable Development
• The Dimensions of Canada’s Success
• Lessons/Observations
19
Environmental Regulations in Canada:
Recent Developments
• Canada-Wide Accord on Environmental Harmonization
• Federal-Provincial Agreements to Cooperate on
Environmental Assessments
• Federal Coordination Regulation and Guidelines for Panel
Reviews
20
Special Tax Treatment for
Mine Reclamation Funds
• Mechanism
• Tax Treatment
21
Managing Canada’s Mineral Resource
Revenues for Sustainable Development
•
•
•
•
•
Private Sector/Open Economy Drives Investment
Government Taxation Policies
Government Measures for Environmental Sustainability
Government Measures for Social Sustainability
Getting Consensus on How mining can Contribute to
Sustainable Development
• The Dimensions of Canada’s Success
• Lessons/Observations
22
There is Increasing Participation of Indigenous
Communities and Businesses in Resource Sectors
Aboriginal Direct Employment
Athabasca Oil Sands Development
1998, 1999 & 2000
• 85% of the more than 1,300 communities
(greater than 20% Aboriginal population) in
Canada are located within 200 km of natural
resource-based activities.
1,200
D ire c t E m p lo y m e n t
• The majority of the some 20,000 Aboriginal
owned businesses in Canada are owneroperated contractors and sub-contractors to
natural resource sectors.
1,400
1,000
800
600
400
200
0
• Of Aboriginal Canadians who are employed in
the primary resource sectors:
– 31% were in forestry and logging sectors;
and
– 26% were in mining and energy sectors.
• Between 1991 and 1996, Aboriginal
employment increased by 25% in forestry and
10% in mining, oil and gas.
1998
1999
Company
Contractor
2000
Total
Source: Athabasca Oil Sands Developers & Canadian Association of Petroleum Producers
23
Impact and Benefits Agreements
• An arrangement between a company and a local
community,
• Government is not party to the arrangement
24
Managing Canada’s Mineral Resource
Revenues for Sustainable Development
•
•
•
•
•
Private Sector/Open Economy Drives Investment
Government Taxation Policies
Government Measures for Environmental Sustainability
Government Measures for Social Sustainability
Getting Consensus on How mining can Contribute to
Sustainable Development
• The Dimensions of Canada’s Success
• Lessons/Observations
25
Domestic and International
Discussions and Negotiations
In Canada: Periodic Stakeholder Discussions &
Negotiations on the Investment Climate
-Whitehorse Mining Initiative (WMI)
- Mines Ministers’ Conferences
- NI 43-101 “Qualified Person” restraint
- Intergovernmental Working Group
Internationally:
-Mines Ministries of the Americas (CAMMA)
- UN/World Bank bilaterals and multilaterals
- MMSD
- Global Mining Initiative (GMI)
- World Mines Ministries Forums
26
Outcome of September 1993
Mines Ministers’ Conference
• Multi-stakeholder process
• Estimated cost $1.1million (approximately one
third federal; one third industry; one third
provinces)
• Department of Natural Resources(NRCan)
Minister was 1 of 3 co-chairs on the WMI
Leadership Council
• NRCan led the federal participation
27
Structure of the Whitehorse
Mining Initiative Process
• Federal-Provincial Studies 1992, 1993 on the
Structure, Conduct, Performance, Competitiveness,
and Regulatory Issues facing the Mining Industry
• Four Issue Groups
– Finance and Taxation
– Land Access
– Environmental
– Workplace/Work Force/Communities
• Leadership Council Accord
28
Framework for Sustainable Development
RESORTING TO THEORY
• Economic Efficiency ?
• How Much Environmental Disruption?
• Social Compensation ?
29
Framework for Sustainable Development
Resorting to Consultation and Negotiation
Who to Consult With and Why?
Who to Negotiate With?
A Lasting Solution?
30
Managing Canada’s Mineral Resource
Revenues for Sustainable Development
•
•
•
•
•
Private Sector/Open Economy Drives Investment
Government Taxation Policies
Government Measures for Environmental Sustainability
Government Measures for Social Sustainability
Getting Consensus on How mining can Contribute to
Sustainable Development
• The Dimensions of Canada’s Success
• Lessons/Observations
31
High Wage Rates and Mining
• $1,000 weekly wages in mining - highest in
Canada.
– $650 average weekly wage in Canada.
• Over 100 communities (60,000 people) depend on
mining alone.
• 2.5 % of Canadian employment is in mining
32
Exploration Expenditures in Canada
1969-2007
Millions of 2003 dollars
2 000
1 800
1 600
1 400
1 200
Seniors
Juniors
The introduction of the
federal Investment Tax
Credit for Exploration in
October 2000 has helped to
increase exploration in
Canada
1 000
800
600
400
200
19
69
70
71
72
73
74
75
76
77
7
19 8
79
80
81
82
83
84
85
86
87
8
19 8
89
90
91
92
93
94
95
96
97
98
19
9
20 9
00
20
0
20 1
0
20 2
0
20 3
04
20
0
20 5
0
20 6
07
0
Source: Survey of Mineral Exploration, Deposit Appraisal and Mine Complex Development Expenditures.
33
Sources of Equity Financing for Global
Mineral Exploration and Development
2004
C$11.5 Billion
United States
7%
Unspecified
9%
South Africa
10%
Canada
48%
United Kingdom
11%
Australia
15%
Source: Natural Resources Canada, based on Gamah International Limited and company reports.
34
Managing Canada’s Mineral Resource
Revenues for Sustainable Development
•
•
•
•
•
Private Sector/Open Economy Drives Investment
Government Taxation Policies
Government Measures for Environmental Sustainability
Government Measures for Social Sustainability
Getting Consensus on How mining can Contribute to
Sustainable Development
• The Dimensions of Canada’s Success
• Lessons/Observations
35
Lessons from the Canadian Experience
•
•
•
•
•
•
•
•
•
•
Global Shortage is of Good Projects, not Finance
Countries Compete on Geology/Investment climate
Private Sector Property Rights have to be Secure
Tax System Recognises Public Good/Social Aspects
Government Share is Taken by Means of Taxation
Taxation Rules as Simple as Possible & Stable
Clearly Explain Taxation Regime to Investors
Agree Taxation between Levels of Government
Do Not Impede the Cross Border Flow of Capital
Companies Negotiate Agreements with Communities
36
Lessons from the Canadian Experience
•
•
•
•
•
•
•
•
•
•
Global Shortage is of Good Projects, not Finance
Countries Compete on Geology/Investment climate
Private Sector Property Rights have to be Secure
Tax System Recognises Public Good/Social Aspects
Government Share is Taken by Means of Taxation
Taxation Rules as Simple as Possible, Stable
Clearly Explain Taxation Regime to Investors
Agree Taxation between Levels of Government
Do Not Impede the Cross Border Flow of Capital
Companies Negotiate Agreements with Communities
37
Managing Canada’s Mineral Resource
Revenues for Sustainable Development
END
38