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As recently as 2010, mining was a cornerstone of the Canadian economy, contributing close to a quarter of Canada’s total equity value, according to Bloomberg. While the sector’s total contribution to national GDP has increased from just over C$120bn in 2012 to just over $140bn in 2020, the sector’s relative influence has declined, with mining’s contribution to national equity falling to just 10.8% by January of this year.

This collapse has seen mining and forestry shrink to be the fourth-largest industry in Canada over this period, falling behind the industrials sector for the first time in the last decade, and raising questions about Canadian commitment to mining across the sector. With geopolitical pressures, domestic tensions between economic and environmental priorities, and the country’s spotty safety record, the Canadian mining industry has been plagued with operational inadequacies, and faces a host of uncertainties heading into the future, both of which have influenced the country’s gradual shift away from what was once a vital sector.

Shifting valuation

This decline, however, is not for a lack of effort. GlobalData mining analyst David Kurtz noted that, despite this trend, there has actually been a renewed commitment to new mining projects across Canada.

“Data from the Mining Association of Canada (MAC) [shows] a 5% increase in capital expenditure in 2018 and a prediction of over 5% growth in 2019,” he said. “There has also been a small improvement in the value of projects under construction or in planning within an upcoming ten-year period, from $72bn (2018 to 2028) to $80bn (2019 to 2029).

“This activity and capital expenditure is still far below the peak earlier in the decade, but it’s not so different from what is happening globally as miners focus on quality rather than quantity and capex ticks very slowly upwards.”

This focus on quality also extends to high operational standards; with a recent history of poor health and safety compliance, many Canadian miners are shifting towards operations that are, first and foremost, safe and secure, not necessarily driven exclusively by profit. In 2017, a UN report into tailings disasters found that Canada had the world’s second-worst record with regard to preventing tailings spillages over the last decade, behind only China.

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By GlobalData

Events such as the 2014 Mount Polley dam collapse, which released 25 million cubic metres of tailings and wastewater into the local environment, and sparked 15 lawsuits concerning the dangerous infringement of mining operations on indigenous-owned and protected land, have helped characterise the Canadian mining industry as one with a poor record of safety and regulatory compliance, perhaps influencing the country’s gradual shift away from mining over the last decade.

In response, the Canadian Government announced a new mining policy in 2019, the Canadian Minerals and Metal Plan (CMMP). The project aims to tighten many of the regulations involved with Canadian mining, including indigenous involvement and environmental protection, and will be supplemented by a number of “action plans” to be released over the course of this year. However, the CMMP was not supported by mining ministers from Ontario and Saskatchewan, significant absences considering the former produced the highest value from mining of all provinces and territories as of 2017, and together the regions accounted for around a third of the national mining value of that year.

Cultural and environmental challenges tighten funding

This combination of central pressure to clean up mining’s performance, and local resistance to moves that could impede profitability, has hamstrung the sector, with Kurtz noting that “one constraint appears to be the struggle to attract funding and investment.

“Foreign direct investment was flat from 2016 to 2018, whilst it grew by 5% in 2018 and 3% in 2017 across all industries in Canada. Also, exploration expenditure is expected by the MAC to have fallen in 2019 after a small rise in 2018, down from C$2.32bn to C$2.16bn.”

The shrinking of foreign support for Canadian mining is not surprising considering the sector’s recent controversies on the global stage. The Canadian Supreme Court has heard allegations of human rights abuses at the Eritrean operations of domestically-headquartered Nevsun Resources, with the hosting of the trial on Canadian, rather than Eritrean, soil something of a watershed moment; the simple existence of the case places the responsibility for the crimes on the Canadian firm, not its local subsidiaries, and foreign investors may now be hesitant to involve themselves in a country whose companies are forced to be responsible for infractions at their operations.

“The slow movement can also be seen in the number of projects being submitted for federal approval,” continued Kurtz. “In 2019 there were only five projects submitted and four in 2018.”

These challenges to the reputation and cultural perception of Canadian mining are echoed by environmental challenges, with the national government again caught between an ideological desire to protect the nation’s environments, and a practical need to make the most of its abundant natural resources.

The Frontier project, a proposed tar sands mine operated by Teck Resources, recently received federal approval, despite the operation’s gargantuan environmental footprint; the mine’s surface area alone will cover 113 square miles, and is predicted to produce 260,000 barrels of oil a day, at an environmental cost of producing six million tonnes of carbon dioxide a year. The mine is also expected to operate for more than 40 years, giving it a lifespan that exceeds the Paris Climate Agreement targets set for 2050, raising questions about how seriously Canada is committing to this vital climate deadline.

The future of mining

These dual economic and environmental needs present a delicate balancing act for the Canadian Government, but as the Trudeau Administration tries to please all parties, ultimately both sides feel shortchanged.

Earlier this month, First Nation protestors blocked rail traffic in the state of Ontario in response to Trudeau’s ongoing support for mining projects, and the C$6.2bn Coastal Gaslink Pipeline, which is set to disrupt territory belonging to the Wet’suwet’en Nation, has triggered protests from local groups opposed to the move. On the other side of the debate, efforts to promote mining projects, while ensuring their environmental credentials, has led to a muddled policy: the government has committed C$3.5m to green energy technology in the mining hub of Sudbury, but has done little to deal with Nevsun’s alleged human rights violations.

These policy uncertainties are also further disrupted by economic instability, which Kurtz suggests could be a key factor behind the mining industry’s recent decline.

“Challenges in Canada are coming from environmental groups, but I think it is an economic effect rather than a social one,” he said.

“There are weaknesses within the global economy, growth in China is slowing and, aside from precious metals, commodity price trends are not promising. However, it is important Canada remains competitive and that means continuing to invest in technology and improving productivity to survive during these weak commodity price conditions.”

Maintaining its competitiveness could be the most significant challenge ahead for Canada, with global powers such as the US, China and Russia looking to develop energy projects in the Arctic Circle, close to Canadian borders. CNBC reported figures from financial firm Guggenheim Partners, which found around 900 energy projects planned or already in development in the Arctic, with Russia alone contributing $300bn to new infrastructure developments in the region.

As the Earth’s mineral reserves become increasingly vital geopolitical resources, with rare earth minerals leading the way, regions such as the Arctic, one of the world’s last few true wildernesses, will see increased attention from countries and companies eager to establish themselves as suppliers of key resources; already struggling with internal problems, Canada could soon be left even further behind the world’s biggest miners as attention shifts to undeveloped land near its borders.