INDU Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, February 15, 2000

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[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): I call the meeting to order. The order of the day, pursuant to the committee's mandate under Standing Order 108(2), is a study concerning productivity, innovation and competitiveness.

I understand we have two witnesses, and we want to apologize for the delay with the votes. It appears we're having another vote, but we're going to start anyhow.

We have, from the Mining Association of Canada, Mr. Gordon Peeling; from the Canadian Association of Petroleum Producers, Mr. William Friley, president and CEO, Triumph Energy Corporation, and Mr. David MacInnis, vice-president, strategic planning.

I understand that the Canadian Association of Petroleum Producers will begin. Mr. Friley.

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Mr. William A. Friley, Jr. (President and CEO, Triumph Energy Corporation; Canadian Association of Petroleum Producers): Thank you very much. I appreciate the opportunity to talk and bring this committee up to speed on our industry. I believe everybody has a hard copy of the slides.

Our association, CAPP, comprises about 175 separate companies, most of which are located in Alberta but operate across Canada and indeed throughout the world. Our organization alone produces about 95% of Canada's oil and natural gas. Last year this industry drilled about 10,500 wells; that is in fact low for the last two or three years. We're expecting to drill some 15,000 well bores this year. To that extent, we generated some $35 billion worth of oil and natural gas. Direct taxes paid to federal and provincial governments was about $2.5 billion. Associated royalties and municipal taxes would bring that number closer to $6 billion or $7 billion.

It's interesting to note that of the oil and natural gas produced in Canada, about 70% of that product is exported around the world. In fact it makes up some 14% of the domestic market in the United States.

We employ some 460,000 Canadians from coast to coast in various high-tech and technologically sensitive positions. There are approximately three million investors who invest in our industry through retirement savings funds. We supply power for our Canadian industries, we heat Canadian homes, and we help move people and products throughout Canada. We have significant capital invested in less developed areas of Canada, specifically in the east coast and in the northern regions of Canada, and that capital investment is increasing.

I think the next two slides are interesting; it gives you a bit of a sense of where crude oil and natural gas reside in Canada and how much is left to produce: remaining crude is in red and produced crude is in blue. As you can see, north of 60 we have barely tapped that resource, and there are some 12 billion barrels of oil, we estimate, remaining north of 60.

In Alberta, we have produced some two-thirds of our crude, but still there are some 22 billion barrels of oil left to produce in the province of Alberta, close to 7 billion in Saskatchewan, and as you can see, off the east coast there are about 5.3 billion barrels of crude remaining to be produced and we have made hardly a dent in that. So there's a lot of activity.

The next slide is our natural gas slide. From an environmental standpoint and an energy demand standpoint, this will be one of the great drivers in North America for the next 20 or 30 years. North of the 60th parallel, there are 175 TCF of natural gas remaining. You'll notice in Alberta only about a third of the natural gas has been produced to date and there are still some 270 TCF of natural gas left. On the east coast, there are some 75 TCF left and there's a lot of exploration left to do there. So there's a lot of activity left on the natural gas side.

Technology is the basis of this industry. I started in the industry some 25 or 30 years ago working essentially as a field geologist, and technology is what drives everything that we do on a day-to-day basis. We are innovators in terms of the technology that's used in a lot of other industries, and of course in order to be as cost-efficient as we can possibly be, we have to develop new technologies continually. In fact one of the first places I worked was off the east coast, and at that time, the early 1970s, we had no idea how we'd ever get crude oil and natural gas off the east coast and actually into the markets. Obviously we're going to be producing both natural gas and crude oil off the east coast in significant volumes, and obviously that is a tremendous success story from a technological standpoint.

We're seeing rapid expansion in the far north, and again that has an awful lot to do with technology, the ability to operate in those climates and get that crude oil to market.

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Oil sands: Again, oil sands were not profitable 25 years ago or 20 years ago. It was difficult in that pricing environment. We have some $20 billion of new capital to be invested in oil sands projects over the next five to six years.

This industry has taken voluntary actions to limit environmental impact, and that is something we deal with on a daily basis, trying to improve our operating techniques in environmentally sensitive areas. We have new and improved consultation efforts with all of our stakeholders in all of these areas, from government through to existing landowners. CAPP has initiated a major landowner relations initiative to deal with a number of the concerns from some of the special interest groups and the stakeholders on whose lands we operate. And we are continuing to approach climate change in a cooperative manner and deal with those issues as they come.

One thing that I think is very important to note is there are a lot of oil and gas investment opportunities globally. Canada is not the only place you can invest money. In fact, to that end, there are some 120 Canadian companies that have interests outside of Canada, in numerous countries.

So in order to attract capital to our industry, we have to be competitive. Current oil prices—and everybody is aware of the significant increase in oil prices over the last 12 months—tend to mask some of our challenges. The fact of the matter is that from an investment standpoint this industry is at a low point in attracting capital, for a number of different reasons.

Notwithstanding the fact that this industry is enjoying better pricing, we went through two years of very difficult pricing and we have not seen capital investment return to our business. This industry has spent over one and a half times its cashflow for the last 15 years. A third of that capital is made up by capital invested from the markets. We are not seeing that return of capital.

The cost of development in Canada is high, and therefore we have to remain competitive. Notwithstanding all of that, obviously having looked at those slides and the amount of product left and the number of people we employ, we have a brilliant future in front of us.

In order to enjoy that brilliant future, though, and to achieve those results and be competitive on a global scale—because this is a global industry, as you all know—it's important that we have streamlined regulations. Predictability is an important part of that. We have to have a reasonable regulatory process. We have to know, when we invest money, how we're going to get that money back in a timely fashion.

We have to have access to resources, obviously. If we can't access land and access resources we don't have a business. That is a critical element to what we do. Obviously there's a balance in land use, and we understand that. We also seek government leadership on aboriginal issues. That is of critical importance to us.

In terms of taxes, royalties, fees, and other charges, these are the things that attract or detract from investor interest, and also worker retention. We try to hold onto all our technical people and not see the brain drain that we have seen in a number of industries. In order to do that, we have to have a vibrant industry, so we need to retain as much of that as possible. And of course climate change options matter a great deal to us to the extent that they affect investors' interest in our business with respect to profitability.

Obviously the future for the oil and gas industry looks very bright with respect to technology and the ability to be competitive on a global scale. This is a great success story today. We export technology all over the world, to over 130 countries. And we have been primary leaders in technology in a number of new oil and gas areas. We want to keep as much investment as we can here, but we are sought after by numerous other countries throughout the world for our technological abilities.

We have tremendous potential to expand, as seen by all the activity on the east coast and in northern Alberta and up into the territories. There will be, and already are, abundant economic and social benefits. We'll see a lot of impact on the economic life of a lot of people in eastern Canada, and in Atlantic Canada, as we spend more and more capital and bring more production on. Obviously this industry has spread across many sectors in Canada and all regions of Canada. Of course, very important to us is environmental stewardship and performance, and we recognize that as being a significant part of our future going forward.

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I'd like thank everybody for taking the time to hear our presentation today. We would entertain any questions.

The Chair: We'll continue on with the witnesses, with Mr. Peeling, from the Mining Association of Canada.

Mr. Gordon Peeling (President and Chief Executive Officer, Mining Association of Canada): I might suggest that since my colleagues from CAPP are under a tight time constraint—they have to leave in a few minutes—if there are questions for them, I can make my remarks after the questions to them.

The Chair: All right, that will be fine.

Mr. Penson, are you prepared to proceed?

Mr. Charlie Penson (Peace River, Ref.): Sure. Thank you.

Thank you for that presentation. Coming from a northern Alberta riding, I appreciate some of the comments about how important this industry is to our area, but also to all of Canada. I have a couple of questions arising out of it.

You've touched on some of the challenges for your industry, such as the need to have investment in your industry. The amount of direct foreign investment in Canada hasn't been keeping pace with that in other places of the world. Our percentage has been falling off.

You've identified a few areas: environmental challenges, and government leadership on aboriginal issues. In my own riding, oil companies are contacting me, telling me they're having difficulty because of the possibility of opening up land claims on existing treaty land and Treaty 8 and having to pay off people to do work in areas that are outside the actual treaty area, the so-called disputed land or traditional land. I see that as a way of hurting investment possibilities, not only with your companies but with the forest industries as well in my riding. So I'd like your comments on how that might be addressed.

Also, in regard to the environmental challenges of Kyoto, for example, I'd like to know what the cost is going to be to meet those targets to which government has agreed, whether your industry is prepared to meet those targets, specifically as it pertains to flaring in your industry.

I have a real problem with that. We have land in that area, and we really don't need any yard lights at night from all the flares that are burning there. It seems to me that's a wasted resource, and I wonder how you're intending to deal with that and how that would relate to the emissions under Kyoto.

Mr. William Friley: If I could address the first issue, we encourage all our members to operate within the existing framework of various treaties.

One of the most difficult things for us is land access. As we represent 175 individual companies, obviously individual companies will pursue different avenues to get the job done.

One of the biggest drivers for us is that when we raise capital and commit to spend capital for our investors and for the investment community and we get projects partially along the road, it does cause problems when access becomes controversial or difficult in the middle of projects. Some individuals within our organization, and without our organization, pursue—and are free to pursue—their own specific route to get through those problems.

So it's not something CAPP can direct on behalf of our members. We have a process, and we put an enormous amount of effort into that consultative process with the aboriginal groups involved. But it is continuing to be a source of difficulty for us. We need some federal and provincial guidance, and we need the federal and provincial governments at the table on these issues to help us through this. It's a constantly changing landscape for us. We need long lead times to invest capital, and we need to know what the playing field is, going forward.

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Mr. Charlie Penson: I take it from your comments that when you've bought mineral rights from the Alberta government, for example, on crown land—

Mr. William Friley: You bet.

Mr. Charlie Penson: —you are dealing with the Alberta government in that case. Would it be your position that those are the only people you need to deal with, considering that they have sold—

Mr. William Friley: That is not always the case, though.

Mr. Charlie Penson: I know that's not always the case, but what is your position? Is it that you should deal with the Alberta government, considering that they have sold you that?

Mr. William Friley: Absolutely, and so we need them at the table. In those particular situations, they have to be the leader. Yes, absolutely. They have sold us the mineral rights. That is who we need to consult with, and that is what we recommend as an association to our members.

Mr. Charlie Penson: Okay. What about the other part of the question, the flaring and your Kyoto commitments?

Mr. William Friley: Flaring is something on which we have made tremendous headway. Obviously there is still flaring, you know that. We have made tremendous headway over the last 20 years. Personally, in all the areas I'm involved in producing, I see that this is obviously a wasted resource.

In some particular situations, though, while we work to reduce or eliminate flaring, there is a cost associated with that. In some areas where there is no natural gas pipeline, we try to convert it to energy use or burn it as fuel gas, and that sort of thing. So certainly we are committed as an organization to eliminate flaring.

In certain areas of the province, remote areas, it's just plain impossible at this time to eliminate flaring, but it is obviously a cost factor for us and something we try to use in our operations and to conserve.

Mr. Charlie Penson: Mr. Friley, in order to meet the commitments that government has agreed to for Kyoto, is that not part of the solution, to reduce your flaring? That should be part of it, shouldn't it?

Mr. William Friley: Absolutely. But flaring is one of our issues, as is conservation, at every one of our facilities. Of course, in everything we do, we try to conserve every molecule of the product, because we try to sell every molecule of the product. So that is a high priority, not just to the association but to every member of the association. That is our lifeblood. That is what we sell.

Mr. Charlie Penson: Following up on that, the economics I've heard from some of the industry people are, “Well, we're producing an oil well here and it has some solution gas that really isn't economic”, but they don't consider the total economic feasibility of the oil produced. The gas is sort of considered a spinoff that has to be considered separately. It seems to me that's a poor approach.

In order to produce that well, there's a certain cost involved, such as land acquisition, drilling, and all that.

Mr. William Friley: Yes.

Mr. Charlie Penson: It seems to me that the gathering of the gas there should be also thrown into that mix as the total economics of the well. It seems to me that your industry is going to have to show some leadership here and move, because I don't think the public is going to continue to put up with this.

Mr. William Friley: That is very high on our priority list, no question about it, and obviously it has to be driven from economics.

In the development of oil pools in Alberta, there are situations you have to appreciate, where 99% of the product produced from an oil field is the oil itself, where maybe a fraction of 1% is in fact flared gas. You're talking about shutting in thousands of barrels a day in some cases. Obviously, in any of these projects, we try to develop the project to the size and scope where we can conserve every molecule of product and all that flared gas, and that is high on our priority list.

Mr. Charlie Penson: The last comment I would have is that I understand there's going to be some difficulty meeting certain Kyoto commitments, but it seems to me that a very visible sign of that problem is the flaring.

Mr. William Friley: Eliminating flaring.

Mr. Charlie Penson: When all this stuff is going up the stack every day, you're not going to have a whole lot of public support for saying, “Well, we're having trouble meeting those commitments.” So I'm saying it's sort of a public relations problem as much as anything.

Mr. William Friley: Absolutely, and we understand that.

Mr. Charlie Penson: Okay.

The Chair: Mr. Lastewka.

Mr. Walt Lastewka (St. Catharines, Lib.): Thank you, Madam Chair.

You mentioned that the objective was to have 14,000 wells drilled last year, but you drilled only 10,500. You didn't finish off and explain why.

Mr. William Friley: No, sorry, not the objective; that's actually not quite what I meant. The number of wells drilled in Canada every year is really a function of available capital.

Available capital comes from two sources. Over the last 15 years, it has traditionally come two-thirds from revenues generated from the sale of oil and gas and one-third, give or take—it changes year to year—from new capital invested in our industry. So that well count is really a function of how much available capital our industry has to spend.

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Last year, of course, with $12 crude—David, you might correct me—I think we saw a rollback of two-thirds of the oil wells drilled the year before. I think we only drilled one-third of the wells drilled for oil the year before. So it is very sensitive to the amount of capital generated.

Mr. Walt Lastewka: Where are we on the amount of oil and gas produced, versus the amount of oil and gas used in Canada?

Mr. William Friley: About 70% of everything we produce is exported. We are a net exporter for 70% of the produced commodity in this country.

Mr. Walt Lastewka: On the oil sands project, I know what the break-even point was a number of years ago, but has that changed over time and with new technology?

Mr. William Friley: Absolutely.

Mr. Walt Lastewka: What is the dollar now?

Mr. William Friley: Personally, I cannot speak to the specific economics of those projects, but there's no question that the push for 20 years has been to reduce the input costs necessary to produce a barrel, through technology. Today's price is not a good example, because it's certainly well above the average for the last ten years. But at the average of the last eight or ten years of commodity price for oil, that industry is very viable and productive, and represents a very significant capital investment in western Canada.

Mr. David MacInnis (Vice-President of Strategic Planning, Canadian Association of Petroleum Producers): We can get that break-even cost for you, Mr. Lastewka, and leave it with the clerk.

Mr. Walt Lastewka: Thank you very much.

The Chair: Mr. Jones, please.

Mr. Jim Jones (Markham, PC): You said 70% of all oil and gas is exported. Is that over and above all the stuff that is imported—

Mr. William Friley: We have a net export of 70%, I believe. Is that correct?

Mr. David MacInnis: That's right.

Mr. William Friley: Of course crude oil and natural gas are going back and forth across both sides of the country. We send crude south in Alberta and we bring crude back into Ontario and Quebec, so we don't have to transport it all the way across the country. But yes, the answer to your question is 70% of everything we produce is exported on a net basis.

Mr. Jim Jones: So what do we import? At 100%, what percentage is imported and what percentage is exported—like what we import from Saudi Arabia and places like that?

Mr. William Friley: Actually, I can't tell you. We can sure get those numbers for you.

Mr. David MacInnis: We can get those numbers for you.

Mr. William Friley: Absolutely the only reason we do that is to minimize the cost of transportation. We can produce two and a half times Canada's need for crude and natural gas. We are producing more than that—I guess we produce and export about three times our need.

We move crude and natural gas back and forth across the border to accommodate transportation issues. To minimize the cost to a refinery in southern Quebec, we move crude from the United States back into Quebec, as opposed to trying to move it all the way across the country.

Mr. Jim Jones: You mentioned in your presentation that you're at the low point in attracting capital. What is the reason for that?

Mr. William Friley: We obviously had very difficult commodity pricing from the fall of 1997 through 1998 and into the first two months of 1999. Share prices dropped by 50%, 60%, and 70% in some cases. Obviously that was hard on investors. That was a difficult period of time in our business. As commodity prices started to return and increase in February and March of last year, it was coincident with a significant ramp-up and investment in the technology sector.

Certainly other sectors are pulling capital away from the oil and gas industry, but the dynamics of investment are many, and it is important to our industry that we provide a visible rate of return to our investors. The low pricing scenario of 1998 and 1999 and the opportunities available to invest capital in alternate sectors—the technology sector being one of them—is drawing capital from our business.

We have to do everything we can to make our industry and Canada as a whole as attractive as possible in order to attract investment. An enormous amount of our money over the last ten or fifteen years has come from the United States as investment in equities in our member companies and all the other companies that operate in Alberta.

Mr. Jim Jones: When I look at your reserve of 22 billion barrels, how much of that is in the oil sands?

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Mr. David MacInnis: Let me just double-check.

Mr. Jim Jones: Is this conventional oil resources?

Mr. David MacInnis: This is conventional.

Mr. Jim Jones: So the oil sands are—

Mr. David MacInnis: Over and above that number.

Mr. Jim Jones: Okay.

Mr. David MacInnis: It's anticipated that by 2004 the oil sands will probably be responsible for approximately 25% of Canada's heavy oil production.

Mr. Jim Jones: So you have 22 billion in conventional, but you have another 22 billion in oil sands.

Mr. David MacInnis: There is more.

Mr. William Friley: We're producing about 2.2 million or 2.3 million barrels a day, and right now I think the oil sands account for about 400,000 of that. We're probably at about 20% or 22%. That number will continue to grow, unquestionably.

Mr. Jim Jones: On the $20 billion you're going to invest in oil sands, is that one plant or two plants?

Mr. William Friley: That is the commitment on a number of different projects.

Mr. Jim Jones: On the east coast reserve of 5.3 billion barrels, is that a known reserve and there's a lot more potential there, or is that all you think is out there?

Mr. William Friley: That is what is estimated, based on the work that has been done to date. Obviously not nearly as much work has been done there as in places like Alberta and parts of the territories. That number is an estimate based on the bore holes drilled—the amount of reservoir rock we estimate from the seismic work and the drilling work that has been done. The number could be more substantial than that. Reserves always change a bit. As more work is done, we will be able to put a harder number on that, but that is the estimate, based on the amount of work that's been done to date.

Mr. David MacInnis: Just to put it into perspective, in Alberta this year alone we'll probably drill about 15,000 wells. In Nova Scotia and Newfoundland combined, we might reach the 150 mark. As Bill mentioned, the more wells you drill, the better the idea you have of what's down there.

Mr. Jim Jones: Those wells are offshore, though.

Mr. William Friley: Yes, they are more substantial wells, no question.

Mr. David MacInnis: There are some onshore as well in Nova Scotia.

The Chair: Thank you very much, Mr. Jones.

Mr. Penson has one quick clarification question.

Mr. Charlie Penson: I just need to explore this business of product coming into eastern Canada, both natural gas and oil. Would some of that be offshore, from Saudi or wherever, and would other parts of it be coming through the Canadian distribution system that goes to Chicago and then back into Toronto? Is that how it works?

Mr. William Friley: I can't say what the mix is, but we bring crude in from Venezuela. I don't know how much Saudi crude lands here, but of course both the U.S. and Norway, for example—

Mr. Charlie Penson: In Canada?

Mr. William Friley: Sure. Crude is a commodity that is moved. Depending on where it is, if it comes, if it flows, if it's destined for the United States and they wind up with too much, that crude can move north and be taken offshore in Canada. It can be moved into the United States—

Mr. Charlie Penson: What about natural gas, then?

Mr. William Friley: We have natural gas lines going back and forth.

Mr. Charlie Penson: So some of that product would go down through Canadian pipelines into the United States and then maybe back into Montreal or wherever.

Mr. William Friley: Sure. We send natural gas to the Chicago market, and that is distributed far and wide. It's a constant balancing act, obviously, because it gets cold in the northeast United States and Canada, and it gets warm in the midwest, so it's a very fluid business.

Mr. Charlie Penson: Okay.

The Chair: Thank you very much, Mr. Penson.

Mr. Friley, we'll release you. We know you have a plane to catch. We apologize for the delay in starting.

Mr. William Friley: I appreciate everybody accommodating us. Thank you so much.

The Chair: Thank you. I understand Mr. MacInnis is going to stay.

Mr. Peeling, we'll hear your opening comments.

Mr. Gordon Peeling: Thank you, Madam Chair.

[Translation]

Good afternoon, and thank you for inviting me here today to share with you some perspectives on the issue of productivity and competitiveness in the Canadian mining industry.

My name is Gordon Peeling, and I am the President of the Mining Association of Canada. Our organization, better known as MAC, or AMC in French, is the national association of the Canadian mining industry. It comprises companies engaged in mineral exploration, mining, smelting and refining. Member companies account for the majority of Canada's output of metals and major industrial materials.

[English]

Canada has a well-established mining industry. I will try to keep my remarks short. The members can follow this by really focusing on the figures I've attached to the longer presentation. Hopefully they will capture the key points related to productivity and competitiveness.

I will quickly just go through a couple of key statistics about the industry. We employ 367,000 people—one out of every 40 working Canadians. Strong productivity growth has enabled the minerals and metals sector share of employment to remain relatively constant over the past two decades, with some adjustment between decreases at the mining end of the business and increases at the value-added end of the business.

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Mining jobs rank amongst the top 10 highest industrial paying jobs in Canada, and on figure 1 you can see that and put mining services, primary metals, in a sort of ranking of the top 10, versus security brokers, tobacco, petroleum and gas, etc.

The average weekly earnings of mineral employees are more than double those in the services sector and more than 50% greater than in the manufacturing industries, and you can see that very clearly in figure 2, giving you the 1985 to 1998 picture. Roughly $4.5 billion in annual wages are paid directly to workers in the mining, smelting, and refining sectors.

Mining and mineral processing production is valued at $26.5 billion in 1998, or approximately 3.7% of the nation's gross domestic product. The mining industry exports 80% of production, valued at $45 billion, equivalent to one in seven Canadian export dollars. The reason a $26.5 billion industry can export $45 billion is the fact that on the export statistics, when we look at stage 1 through stage 4, there is a stage 3, semi-fabricated metal products, obviously directly related to the flow of products coming from mining and smelting, and into the fabricated business as well. So there is a large export business built upon the foundation of the mining industry.

Mineral and metal exports have increased by almost 60% over the period 1993 to 1998. For every billion dollars in output created by the mining, smelting, and refining sectors, direct demand for goods and services increases by $615 million in the Canadian economy. It doesn't matter whether that $1 billion is additional in Canadian operations in Chile, Peru, or northern Ontario.

More than 600 domestic consulting services and equipment companies earn in excess of 30% of their revenues and 50% of that through export to the Canadian industry by supplying Canadian mining companies.

What we've seen is that as the industry itself has expanded globally, our Canadian suppliers have come with us and are now supplying not only ourselves but the world mining industry.

Mining is responsible for 55% of rail revenue freight, 69% of annual port volume, and approximately 23% of the TSE trading volume. We don't have a rail system and we don't have a port system without mining and mineral commodities.

So the minerals and metals sector spends about $360 million in annual research and development, claiming four of the top 50 research and development companies in Canada.

So why productivity, and why should you be interested in it? I'm pleased that you are. I think it's absolutely essential, and I'll quote from Professor Paul Krugman, who noted that:

Productivity isn't everything, but in the long run it is almost everything. A country's ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.

That's what I want to focus on today in the presentation.

Productivity gains in Canada's primary resource sector, and mining in particular, were generally strong over the past two decades. The average Canadian annual rate of total factor productivity growth grew by 3% in the mining sector over the period 1984 to 1998, almost double the 1.7% growth in the manufacturing sector and triple Canada's total economy productivity of 0.95%. That's evident in figure 3, which shows you the average annual total factor productivity growth, which includes returns on capital, labour, etc.

So this is a multifactor approach, and you can see that even as you break down mining—quarries, primary metals, non-metallic, etc.—that they all exceed the total economy average, and all except for the fabricated metal exceed the average of the manufacturing sector.

According to a recent report by the Centre for the Study of Living Standards, mining, primary metals, and quarries represented three of the top 10 leading industries in average annual total factor productivity growth in Canada over the period 1984 to 1998.

So again, when you look at figure 4, you can see where this industry stacks up against electrical products, rubber products, refined petroleum, pipeline transport, etc. So we do rank amongst the top 10 even on a breakdown basis.

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Productivity growth in the mining industry has exceeded the average productivity growth for all industries in Canada—that's the average of all industries—two decades. In fact productivity growth in the coal industry grew at a rate of 8% per year, outperforming some of Canada's other high-tech industries such as electronics and communications, whose productivity rates grew by 6.6% and 1.6% respectively. You can see these in figures 5 and 6. Again, with that heavy dark line being the average of the total economy, then you see coal mines stand out from metal mines, non-metal mines, and total mining at 3.08%.

Just to broaden your look and to help you put it in context, I've taken a graph from the centre showing agriculture, mining, petroleum and gas, and forest products, then looked at some of the manufacturing service industries, which have not had quite the same level of performance in the Canadian economy.

In 1998, mining and quarries were amongst the top 10 industrial contributors to the gross domestic product per hour of work in Canada, creating in constant 1992 dollars more than double the Canadian average of $26. From the numbers on figure 7, you can see that quarries at $64.68 and mining at $52.80 are more than double that general Canadian average.

So wealth creation per worker in the minerals and metals sector has made a significant contribution to raising the standard of living for urban and rural Canadians and making Canada one of the wealthiest nations in the world. In this case, just to define wealth for you, it's simply an asset that yields a flow of income.

Canadian metal industries have generally outperformed their competition as well, when we look at ourselves versus the United States as our major market and major competitor. I haven't given you a figure of this, because this is rather a simple comparison. Over the period from 1984 to 1997, average annual total factor productivity growth in the primary metal sector exceeded that in the U.S. by a significant margin, at 2.42% versus 1.46% in the U.S. The fabricated metal sector exceeded that in the U.S. more narrowly, at 1.41% per annum versus 1.36%.

Again, I think you have to look at the fact that we're on the right side of the ledger compared to our most important competitor and our most important market.

Turning to productivity and innovation performance, what are the reasons for this? First, there has been considerable investment in human and physical capital. The ratio of gross fixed capital formation to value added in the minerals and metals sector was 50% greater than that of the manufacturing sector over the past decade. You can see that in figure 9. Even when you break it out here, you can see it tracks above the manufacturing industries for the whole period.

Maybe just to read a bit more into that, what that really signifies is that we are investing in machinery, equipment, and technology as soon as it's available and taking it up and putting it in place. That's one of those drivers for innovation: are you staying ahead? We are outperforming the manufacturing industry in general throughout this period.

That is a commitment to continuous innovation. According to Industry Canada analysis, the primary metals industry is among the top 10 most innovative industrial sectors in Canada. Figure 10 shows you that in fact the Canadian primary metals industry invested alone $1.3 billion in computer equipment over the last six years. That's just a sort of by-the-by, but here's an example. We have a very large uptake of the latest developments in software and computer technology applied to process systems, etc.

The investment doesn't stop at computers. Canadian mining companies continue to invest in research and development, the creation of knowledge, and skills development in their employees.

In 1998 the minerals and metals sector invested approximately $363 million on research and development, with an additional $15 million expended on research into services related to the mining industry. I want you to keep in mind as well that compared to other sectors of the economy—and oil and gas would find itself in the same boat—even though we have a strong commitment to R and D, we also take part of that cashflow from the industry to continuously look for new deposits. There was another $600 million spent on exploration in 1998, and $820 million in 1997, which is a different form of investment in the future. Of course a portion of that—about 40% to 45%—is attributed to the major industries.

So you'd have to say that in addition to the $363 million spent on R and D, there'd be another $300 million to $400 million spent in exploration, and certainly the CEOs of my member companies look at that as an R and D expenditure at least equivalent thereto.

• 1710

Based on Statistics Canada data, the mining sector spent more on R and D in 1998 than the motor vehicle parts and accessories sector or the electric utilities sector. In fact, the mining sector was responsible for approximately 4% of the total 1998 industrial sector R and D in Canada. So compared to a 3.7% share of GDP, we're batting above our weight in the R and D portion.

In 1999 MAC undertook a survey of innovation in the Canadian mining industry and it concluded that the R and D expenditures represent approximately 1% of total company revenues, and R and D employees about 1.4% of total company employees. Highly educated, trained, and skilled employees include technicians and technologists, 33% of that 1.4%; those possessing a bachelor's degree, 29%; master's degree, 12%; PhD, 14%; with other R and D staff comprising the missing 12%.

Furthermore, all companies believe they will require more R and D staff over the next five years, especially PhDs, technicians, and technologists. In figure 11 you can look at the labour force breakdown among non-metallic, manufacturing, primary metal, fabricated metal, and mining in terms of labour force with post-secondary education in the goods sector in Canada. I've been told—but I've not been able to verify this number for today's committee—on a number of occasions that we hire more PhDs outside the university academic community than any other sector of the economy.

The mining industry's long history and commitment to innovation has made it a world leader. New technologies in extraction, milling, and metallurgy have been progressively introduced. In the past five years alone, this commitment has resulted in important technological advances in mine automation, software technology, continuous and remote mining technology, and computer-automated process controls, just to name a few. This R and D focus on process ensures that we will continue to derive a significant flow of benefits from the development of our mineral resources into the future.

So today's mining bears little resemblance to the practices of the last century, or even the last decade in many instances. Intense competitive forces have driven industrial modernization, stimulated innovative activity, and resulted in considerable productivity gains in the mining industry throughout the 1980s and 1990s. Why is that? I believe it's because the Canadian mining industry has recognized that unique cost-reducing technologies, processes, and products were required to extract low-grade, complex, and deeper ore deposits.

R and D is a long-term commitment. It's also a long-term incremental and often synergistic investment. It's not something you can turn off and on, and should not, or you will not achieve the ultimate benefits.

The ability to retain competitive production costs requires the adoption and development of new technologies faster than our international competition. We don't necessarily have a factor advantage in our resource base. We have a lot of ground to look at, but in terms of our ore grades, we're not as well off as some of our competitors, so we have to develop and adopt technology faster than they do.

In conclusion, I would like to say that Canada does require a competitive corporate and personal income tax structure. It needs a public policy base to encourage research and development and reward innovation. It needs a commitment to education and human resource development. We need clarity and robustness in our regulatory structures, and we need a clear commitment to reducing uncertainty in our land access policies and treaty settlements with aboriginals and first nations. We look for the government to take the lead in that.

Let me say that we have been exposed through our international competitiveness and our need to access international markets to move that 80% of our product. We've been forced—and there is a certain truth to the fact that necessity is the mother of invention here—to meet that competition head-on, whether it's in the U.S. market, the European market, or the Japanese market. And often our competitors are operating from higher-value ore bodies, and they often have a generalized system of preferential tariff access. Now, that's largely disappearing as we go through the free trade agreement, NAFTA, the Uruguay Round, etc., but that has not entirely disappeared.

So let me conclude and say that

[Translation]

the Canadian mining industry has embraced the challenge to be innovative and competitive. We believe that under a system of conducive public policy, mining will improve its productivity and competitiveness and continue to prosper in the 21st century.

Thank you. Merci.

• 1715

[English]

The Chair: Thank you very much, Mr. Peeling.

We'll start the questions with Mr. Penson.

Mr. Charlie Penson: Well, Mr. Peeling, I think it's a good thing you came to our committee today. We've been hearing quite a bit about the resource-based industries, maligned as industries in decline, and about how we should be putting our money on knowledge-based industries as opposed to primary production. But I hear you saying today that you're doing pretty well, that you're being pretty innovative, and that the commodity price reduction is really a function of your costs coming down because of the innovations you've put in place.

Now, there are still some problems in the industry—land acquisition, taxes, and uncertainty in those kinds of areas—but with regard to the mainstream thinking that it seems we've been hearing here, you're saying the primary industries can function pretty well given some moves in taxes and those other areas you talked about. Is that true?

Mr. Gordon Peeling: Yes. Quite frankly, when I look at the price graph for most commodities over the 20th century, for example, it is true—and I did some of these calculations myself, in my prior life—that there is a long-term decline in real prices. But the positive side of that story is that, first of all, through technology, through a highly educated workforce, and through continued application of new technology, we're able to deliver our product today for less, in some cases, than what we were able to deliver it for in 1920.

That long-term decline in price should give the consumer comfort that there is no shortage on the horizon for these materials that are so needed. Whether it's in the high-tech sector, in the computer industry, or in the aerospace industry, etc., we're able to deliver that product on a competitive basis.

What I would echo, though, from the comments made by my colleagues at CAPP, is that Canada is in a much more competitive world now than it was in 10 or 15 years ago. Many more countries around the world are putting in place constitutional changes and mineral act changes, etc., to make themselves much more attractive to mineral investment. Canada is having to compete for that capital, much more so than ever before.

Our industry has responded, in actual fact, by operating out of a strong Canadian base and being a very active participant in those opportunities. They've taken abroad the developments here in Canada, the technology and the expertise, to become the significant investor in Chile, Peru, Argentina, Mexico, the United States, Australia, and so on.

So we are a world leader as well as a Canadian leader, and in actual fact, if other sectors were to follow that path of a commitment to the uptake of new technology, we think....

You have to be just as aware of what's happening in the other sectors of the economy. We will take what the high-tech sector delivers, adapt it for our own purposes, and change it to be more beneficial to wealth creation in the resource sector. As well, we have fundamental commitments, with companies like Inco and Noranda, to the development of entirely new technologies.

From a public policy point of view, the government, in my view, should not want to play favourites here but should create a dynamic commitment to innovation, research and development, rewards for innovation, an appropriate and competitive tax structure, and a education. Education is absolutely essential in all of this.

Mr. Charlie Penson: I hear you saying it isn't necessarily a bad thing that commodity prices are going down. Innovation has made it possible in the same way that food is cheaper than it was 100 years ago for the average person. But your industry, like many others, is facing a competitive environment in other markets, and you have to be able to meet that competitive challenge head on. Therefore, we have to do the types of things that get taxes down where we can.

Market access is still a problem for you. I just wonder what you mean by “problems in market access”, because I'm not aware of what those are.

Mr. Gordon Peeling: We still have certain tariff barriers that are significant. For example, we were totally unsuccessful as a country in the last round to have any reduction whatsoever in a 6% aluminum tariff into Europe. A 6% tariff on a metal basis is ridiculous in today's terms.

• 1720

We have not seen their removal entirely in Japan, but obviously we've achieved the benefits of the free trade agreement with the United States and now NAFTA with regard to bringing in Mexico in terms of a ten-year horizon. In some ways, then, our most significant market is secure, but we market to over 100 countries, and we're competing with everybody in those markets. It's important that the rest of those tariff barriers come down.

We're also seeing that governments and other competitors are very adept at non-tariff barriers as well. Generally when you look at the WTO, commentators and experts who follow the trade issues very closely have seen, and I think WTO studies themselves have shown us, that if tariff barriers have come down, non-tariff barriers have gone like this, and in a variety of areas. We have to be very vigilant against that, because that has a potential to affect our access. With an industry that exports 80% of its product, we live or die on access, fair access, to those markets.

Mr. Charlie Penson: Okay.

The Chair: Thank you very much, Mr. Penson.

Mr. Lastewka.

Mr. Walt Lastewka: Thank you, Madam Chair.

I really appreciated your report. I had a chance to attend a mining conference last year in Sudbury, where people from around the world met to discuss mining and technology. Sometimes we get a bad rap in the mining industry. People think it's the old culture rather than where it is today, using high technology and all the new types of equipment in tooling, for instance, which continue to improve.

I wanted you to review with me productivity growth, which you talked about on page 4. I heard you say that we exceeded the U.S. in both the primary and the fabricated metals section of that. We haven't heard that too often. We're always hearing that we're lagging behind the U.S. I'm glad to see that you've brought that forward.

As well, you talked with Mr. Penson about the problems you're having with Europe, as you mentioned. Have you been part of putting together an approach for the next round of WTO to make sure we get a better foot forward there?

Mr. Gordon Peeling: First, just to touch on that U.S. comparison, since that is our major market and our major competitor as well, and plus we are competing against everybody else who wants to supply to that market, I thought that should be a telling point. By outperforming the U.S. over this 15-year period.... Granted, it gets tougher, as we get further into the fabricated area, to see that difference, but we are.

I think that's a telling point about this industry and its commitment to technology and innovation and research and development, because that's the real challenge for us. And 80% of 80% goes to the U.S. market, so that's the real bread and butter for us.

In terms of the WTO, we have made a couple of presentations to the parliamentary committee on foreign affairs and international trade with respect to what Canada's trade objectives should be. We've also submitted material directly to the department and to the minister.

Obviously we are very concerned about how we go forward, given that Seattle was a non-starter. Clearly, this is not the only time we've had false starts in trade rounds, but this is disappointing, particularly since, from our sector's point of view, we didn't succeed as much as we would have wished to succeed out of the last round.

Mr. Walt Lastewka: Can you expand—and I'm glad the parliamentary secretary from finance is here—on the tax treatment of Canadian mining in the primary area, how it's treated versus other countries with which you have to compete, whether it's the U.S., Europe, or Japan?

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Mr. Gordon Peeling: I'm not a tax expert.

I would encourage you to ask this question of Natural Resources Canada, which certainly in the past has done tax comparisons with our major competitors in the resource sector, such as the United States, Chile, and Nevada.

Now you're going to have me draw upon memory, and that may not always be the best thing to do. You have to break Canada down almost on a provincial basis. If I remember correctly, Quebec leads the way in terms of favourable tax treatment for the resource sector within the Canadian provincial grouping, but Ontario and others are not far behind, such as Manitoba. But above them are Nevada and Chile. Australia is in that mix too. So we have a mix, but not all provinces are up there as attractive sites.

Quite frankly, I must tell you right now that with the difficulties we see with a number of projects going through the environmental assessment process and achieving production.... Well, it's not just the environmental assessment process. This goes to the streamlined regulations or what I would call regulatory fitness, which might be a better term for this. When we see Cheviot get its environmental assessments, but the government ends up back in court for, in the eyes of some, not having applied the act appropriately; when with Diavik the government finds itself back in court, and we don't yet have a production decision, even though it has its environmental assessment approvals from Minister Anderson; when we see Voisey's Bay with no end in sight, this is not a positive message we're sending to the rest of the world with regard to the Canadian investment climate.

As I said earlier, as a country and as a sector, we still are capital importers. We do not generate sufficient capital to meet all our own investment requirements. We need to guard that capital competitiveness and attractiveness very carefully. Quite frankly, it's at a low point right now.

The Chair: This will be your last question.

Mr. Walt Lastewka: I was just responding to your paragraph on page 8 concerning the federal and provincial taxes and treatments. Since the provincial minister of natural resources is in our neighbouring riding, I thought maybe I'd give him a little dig. So if you could provide some information there, we'd be happy to get it.

Mr. Gordon Peeling: We have made submissions to the finance minister, and we'd be happy to forward those as well to the committee. But I would encourage you as well to make inquiries of Natural Resources Canada because they can bring forward a body of research on a comparative basis with other countries. I think that will demonstrate the need for Canada to be competitive.

The Chair: Thank you, Mr. Lastewka.

Mr. Jones, please.

Mr. Jim Jones: Thank you, Madam Chair.

You said that in 1998 you had 367,000 people. Is that what you had approximately 20 years ago?

Mr. Gordon Peeling: Off the top of my head, I can't give you the number for 20 years ago. It would have been higher. In 1990 the total was 390,000. So we've seen a little bit of a shrinkage. It is a substitution of capital and technology for employees.

Mr. Jim Jones: So in 1990 the GDP or whatever—

Mr. Gordon Peeling: It was roughly the same.

Mr. Jim Jones: So if I were to extrapolate, in 20 years you're probably going to have a lot fewer people in the mining sector and still produce the same GDP.

Mr. Gordon Peeling: Probably. I wouldn't say a lot fewer, because when you go from 390,000 to 367,000, that's not a lot. But I would also note that the wage bill has stayed exactly the same. Although we have fewer workers, they're making more money individually than ever before. In actual fact, that's likely to stay as a constant as well. We don't expect the wage bill to go down, simply because we're seeking multi-skilled, highly educated employees.

The mine worker of the future, and I'll use Inco as an example, is going to be sitting on his sailboat in Georgian Bay operating three scoop trams 10,000 feet underground by remote control. That's what we see as mining of the future. This is robotics, this is telecommunications, and this is people operating on the surface but with machinery deep underground. So it is going to be quite a different world.

But new opportunities arise out of that as well. What we've seen is that there has been a shift within that 1990 to 1998 period, with fewer miners at the mining end but more workers involved in the value-added activities. We're seeing some overall shrinkage, yes, but we're also seeing growth at the value-added end of the business, which is what you'd like to see, and I think that's a positive sign.

• 1730

Mr. Jim Jones: Is this figure of $26 billion what the mining industry was, and does the $45 billion include $19 billion of value added?

Mr. Gordon Peeling: Following the practices of Natural Resources Canada, which bases all of their reports on Statistics Canada, I've reported the production side strictly as the mining and smelting, what we call stage 1 and stage 2. For the export side, because it's all continuous, value-added chain and interlink industries, they report stage 1, stage 2, and stage 3, which is semi-fabricated. If I take a copper shape and make it wire, or I take an iron bar and angle-iron it and make it into a right-angle bar, that's a semi-fabricated product, with a fabricated product being, for example, an aluminum window frame. But it's all based on Alcan production, etc. I've just followed the way it's reported generally by Statistics Canada.

If you want a breakdown—and I can supply this to the committee—we give a sub-breakdown of the employment at each stage. As I say, I have 1990-98 numbers in this most recent publication of ours. I'd have to go back to an earlier publication in order to get that.

Mr. Jim Jones: Would it be fair to say that you could see a lot of growth in the value added from what it is today?

Mr. Gordon Peeling: Absolutely. Part of that 60% export growth for this industry from 1990 to now is in that value-added area. Why is that? Because we're looking at free access to the United States market, our most important market. That's one of the reasons.

Let me just give you an example. Before the free trade agreement, Canada was the largest zinc concentrate producer in the world, and the largest zinc metal producer in the world. But to be a zinc alloy producer, we were facing a 19.5% tariff going into the U.S. market. We had no choice but to sell them the concentrate or the metal. We couldn't supply a zinc alloy to the automotive sector on a 19.5% tariff, because on a value-added basis that becomes about a 45% tariff. Ten years ago I would have said, take it away, and we will have opportunities in front of us. I couldn't guarantee you that we would take advantage of it. That would depend on the economic circumstances at the time. But I can tell you that with a 19.5% tariff, we would never be a zinc alloy producer. Now we're into those sorts of value-added activities, and you're seeing employment growth there.

The challenge is that we're not perhaps getting as far ahead in that annual productivity growth in those value-added activities as we are earlier in the chain. As we get farther into that manufacturing sector, and you can see those comparisons with general manufacturing and the rest of the economy, we're not taking up that challenge as efficiently as we are at the front end of the business. So there's still a challenge there. We are doing well, and we're outperforming the United States, but there's a lot of growth and a lot of potential yet to come.

Mr. Jim Jones: Your report seemed like a good-news story. Are there any things that are inhibiting you? I'm thinking from a tax standpoint. You said that you're having trouble attracting investment. What are the reasons for that?

Mr. Gordon Peeling: As you heard earlier from our petroleum people, the last two years have been very tough in the commodity cycle. Prices have been down. We've had the problem with the Southeast Asian economies, which were a strong engine of growth in demand for metal products in the late 1980s and the early part of the 1990s. It has been a combination of factors. That hit at a time when there had been a heavy investment in new copper capacity, for example, and that new copper capacity, which was going to feed that growing demand in Southeast Asia, suddenly didn't have the Southeast Asian demand, and it came back into the rest of the market and depressed copper prices even more than we might have expected from an oversupply situation.

There also has been a very difficult situation with regard to the former Soviet Union, and here I'll give you the example of aluminum. They are a 2.3 million tonne per year aluminum producer, about like us or maybe a little more than us. In normal circumstances back in the 1980s and 1970s, they may have exported 100,000 to 200,000 tonnes a year, but the rest would be absorbed by their own industrial defence production. Today, from 1991 or 1992 on, they've been exporting anything from 1.8 million to 2 million tonnes; 300,000 tonnes might stay in the local domestic market. They have actually added to that by bringing in material from Australia and then putting it back out into the market.

• 1735

We've seen that Russia, instead of being almost at a balance, is a major net exporter of raw materials. So we've had to compete and adjust to that, and that's been an additional challenge.

We've had these two years and that has made it difficult to raise capital. We've had Bre-X at the exploration end of the business. That's made it difficult to raise exploration funds. These are challenges there.

There are some fundamental issues. In Canada we still need to make sure we have a competitive tax structure, good infrastructure support, reasonable R and D policies and support policies, rewards to those who invest in R and D, and rewards to those who innovate. I think we haven't gone as far as we should in those areas.

The Chair: Thank you very much, Mr. Jones.

Mr. Murray, please.

Mr. Ian Murray (Lanark—Carleton, Lib.): Thank you.

Mr. Peeling, I wasn't able to be here for your presentation, but I've quickly gone through your notes. I'm interested in the connection you mentioned between education and productivity, and also the seeming success of the industry in raising productivity and just the level of education generally.

We've been told that fat and happy companies and countries are not innovative. Usually there's something that has to kick-start that innovative process if they're going to survive and prosper. Sometimes they're facing great adversity before this happens.

You may have mentioned this in your presentation earlier, but at what point did the mining industry in Canada become one that had such a highly educated workforce and that started to see these improvements in productivity through use of technology? Was there something that kick-started that?

Mr. Gordon Peeling: Let me start by saying I believe it to be a gradual thing. One thing that perhaps stands out for this sector more so than others is the historic reality that in the post-World War II period, when the mining industry in Canada really blossomed, we have been a major exporter almost throughout that.

The industry has not ever been able to survive on simply supplying the Canadian market. It has always had to face that competition and gain access into the international marketplace. Obviously in the 1950s, 1960s, and 1970s, it had much higher tariff barriers to overcome against even metal products in going beyond the concentrate stage. So it's always had a competitive challenge that hasn't necessarily been so directly in front of other sectors of the Canadian economy.

By the same token, even for the domestic industry, Canada has run a relatively open economy, at least in the resource area. It's had to compete against others even for its own domestic market, particularly U.S. suppliers. We have faced that competitive challenge for a long time.

I go back to the oil price shock, the recession of the early 1980s. Perhaps those were additional pokes of the stick, you could say, to this industry that said it had to not only do what it was doing, but do it a lot faster and a lot smarter. It had to change the nature of its workforce and its culture. It had to emphasize multi-skilling among its workforce, not compartmentalize single skills. It had to look at new ways of extracting ore bodies. It looked at new processes, new technology. It is a gradual thing.

I would emphasize that this point is also made in a study of the U.S. copper industry, which is a more obvious example of this one fundamental event that put the challenge to the U.S. copper industry to become competitive. It did become competitive. That was in 1979 and 1980, when they moved to put dumping actions against Chile and the Canadian industry lined up with Chile against the United States, saying “This is not dumping; you're just uncompetitive.” The administration at that time, which actually was probably one of the rare times it did the right thing, said “We will not protect the U.S. copper industry, and this is not dumping.”

• 1740

As a result of that, although there was great structural change in the U.S. copper industry, it is now as competitive as, if not more competitive than, the Chilean industry. I would like to tell you that we're better than both of them. But we've been forced to do it longer, and you can't point to a single, individual event of that nature.

In terms of the oil shock, we've been part of the CIPEC process and energy efficiency in this industry. We've been going at the rate of 1% per annum energy efficiency improvement per unit of output since the early 1970s. So it's incremental for a large part of it, but it means you have to have that commitment to take up new technology where you find it. You have to develop your own as well and adapt it to your uses.

Mr. Ian Murray: The image of somebody operating the mine by remote control from a boat in Georgian Bay is probably great for a recruitment poster, I would think. I want to ask you if you have any trouble finding the highly educated human resources you need. Is it hard to convince graduates that there's an interesting future in mining and it's not down at the bottom of a mine?

Mr. Gordon Peeling: Yes, that is a challenge. The high-tech sector is obviously very attractive these days, and we're having a tougher sell to have our niche identified within that high-tech sector.

We're finding that we need to work a lot more closely, and we do have companies like Syncrude, for example, who have done a great job of working with the educational institutions in Alberta in helping to shape their needs in terms of well-educated potential employees coming out of the system. They are also working with first nations communities to develop an educated workforce at that level as well, because we do operate in remote areas. It is a competitive demand, because when you look at it, 14% of the R and D workforce is PhDs. We're having to compete against a lot of other demands.

I'll give you one concrete example where we've made a recent commitment, and it's on the environmental side. We have a joint research program with Environment Canada, Fisheries and Oceans, the Geological Survey of Canada, and Natural Resources Canada, along with the Canadian Network of Toxicology Centres. There are some scientific gaps in our understanding in terms of how metals behave in soils and in air, what sorts of risks they pose, what are bio-available forms, when they transform into unavailable forms, etc.

Since the regulatory system has grown up around organics such as DDTs and dioxins, etc., it is found that with the things we use to distinguish the riskiest chemicals in that regard, the organics, that model doesn't fit very well for things on the periodic table, like metals, which are by their nature persistent; we can't create them or destroy them.

We've actually needed to develop, and we now have, a program to develop multidisciplinary PhD and master's students working through the toxicology centres and the academic community by engaging them in very important research, which will ultimately be a foundation for appropriate regulatory and policy development with respect to metals in the environment. That's what we call the program: Metals in the Environment. The National Research Council also helps to fund this because of the academic connection.

We're trying to create ultimately that supply of new scientists who will help us solve some of the environmental problems. The compartmentalized structure that so far has been delivering us chemists who are organic chemists hasn't been the right thing. Geochemists who are strictly geochemists isn't the right thing either. We need a mixture of all of these things. We're trying to put that together with the academic community and the government.

Mr. Ian Murray: Thanks very much.

The Chair: Mr. Penson, you had another question?

Mr. Charlie Penson: It's a short question. I'm assuming that this great country of ours has an abundance of natural resources that we haven't even discovered yet in the mining area. If that is the case, given the limitations you've addressed today in terms of policy that could help your industry expand even further, what is your industry capable of in terms of growth? What's the market out there? Can you double the size of your industry if investment were available to you to invest in these industries, if some of the tax issues were addressed? What's the scope we're talking about here?

• 1745

Mr. Gordon Peeling: I want to put this in a global context, because you have to understand that this Canadian industry, which has the potential to grow in Canada, will also grow worldwide. We are significant investors. In fact, in exploration terms, we already take up 40% of exploration in the United States, and the bulk of exploration in South America compared to other countries. Canada is going to be a world leader wherever we develop resources.

The Canadian challenge in terms of being competitive.... First of all, we have good geology, and although we have been looking for diamonds for a hundred years in this country and a lot of people have said “No, you're never going to find them, the conditions are not right”, if we create the right conditions, the right stimulus, the right dedication on the science side, we're going to be one of the world's most significant diamond players in the very near future, with unlimited potential for growth.

Voisey's Bay tells us that you can walk over a piece of land in this country a lot of times and miss something obvious. The more general challenge, though, is that either there is a sense that we've exhausted those near-surface deposits in the southern part of the country, and perhaps not so much so in the northern part of the country.... There's tremendous potential up there, and there's great geology. In terms of attractive geology, we have some of the best real estate in the world—and a big, big chunk of it.

The technology requirements are going to be operating in cold climates, but we already have more expertise than any other country in terms of operating in cold climates. Can we see deeper? If we're going to find deposits in the south, we're going to find them deeper. That's where our whole technology is going, with RADARSAT and the use of satellite imagery and other types of geophysical technology. We control 70% of the airborne geophysical market in the world—not Canada, but the world. We're at the leading edge.

We've developed sniffing techniques for metals, and these spin off into.... You want your bomb detection techniques? You use technology developed by the mining industry to detect bombs. There are all sorts of applications that spin off from this industry. There are all sorts of applications that we bring in.

That's the challenge: to be smarter in Canada. But we'll also take that and we'll be a very significant developer all around the world. What that means is that we'll see dividend flows, profit flows, R and D, employment, all those benefits, and supplier companies, which, as I said in my presentation, are now suppliers to us all around the world and are using the Canadian base net to become a supplier to the world industry. And they're growing tremendously as a result of that. CAMESE, the Canadian Association of Mining Equipment Services for Export, is the only export-oriented association that has that mandate, and it services us.

Mr. Charlie Penson: But in regard to my question, we are pretty much aware of what has happened in Chile, with the Canadian mining industry making big investments in Chile. I guess the obvious question arising out of that is, are Canadian companies going to move where the investment climate is the best? And that may mean other countries. I guess what I'm asking is, if we take the harness off the Canadian companies here and let them operate, will they create those jobs here?

Mr. Gordon Peeling: Yes, they will, because that geology is still very attractive. As I said, for those discoveries like Voisey's Bay and Ekati and Diavik, people will spend a significant portion of those exploration dollars here in the right conditions—no problem.

The Chair: Thank you, Mr. Penson.

Last, Mr. Cullen.

Mr. Roy Cullen (Etobicoke North, Lib.): Thank you, Madam Chair.

Thank you, Mr. Peeling and Mr. MacInnis. I'm sorry I missed your presentation. I have a very brief question.

You're probably aware our government intends to introduce species-at-risk legislation, and I think clearly we need something. Will it have any impact upon you competitively? How does the legislation, as it's proposed now, stack up against the countries you compete against and the jurisdictions you compete against? Have you been consulted at this point in terms of the legislation? Are there any mitigating elements of the legislation required to deal with any competitive issues you might have?

Maybe we can start with you, Mr. MacInnis.

Mr. David MacInnis: Have we been consulted? Yes. Quite frankly, within a week after becoming the environment minister, Minister Anderson came out to Calgary and met with the Canadian Association of Petroleum Producers and its members. Both Mr. Peeling and I were involved in meetings, about three weeks after he became minister, in which he met with a group of national resource associations here in Ottawa. The minister, his staff, and the department have been very good.

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As for species at risk, our association is supportive of the development of the act. We don't want to see an act developed that results in behaviour like we see in the States, where landowners, etc., are encouraged to shoot, scoop, and shut up. If they find a burrowing owl on their property, because of the litigious nature of the act in the United States, they'll simply kill the owl, bury it, and never talk about it again. Minister Anderson is obviously aware of that concern and is acting to ensure it doesn't happen.

That brings us to the compensation side of things. It's very clear in discussions with Environment Canada officials that there is going to be a move to recognize compensation in SARA, at least as it affects ranchers, etc. The concern is that we need to make sure that compensation measure is in place for our membership who are operating on non-crown lands as well, and in fact we're meeting with his officials this morning on this very issue.

Mr. Roy Cullen: Mr. Peeling.

Mr. Gordon Peeling: The Mining Association of Canada is a member of the species at risk working group with the Sierra Club, the Canadian Nature Federation, the Canadian Wildlife Federation, the Canadian Pulp and Paper Association, and the National Agricultural Environment Committee, and we have made a joint submission both to Minister Anderson and to the Canadian wildlife directors and the ministers across Canada at the provincial level and territorial level about what we would like to see in species-at-risk legislation. We're quite pleased with the paper that has come out so far.

We certainly are encouraged by the stewardship and cooperative approach that he appears to be taking. We indeed appreciate the commitment to compensation, which we think has to be part of a cooperative, stewardship-based approach to species at risk. We have worked hard with our environmental colleagues to develop joint positions, and that's the group we're continuing to work with as an association. And obviously we are continuing to talk with our broader resource-based community.

Our members and employees follow the same pattern as the Canadian public does. They do not want to see species go extinct. They want to see a safety net. They don't want to see a species put at risk simply because it's somewhere in the borders between two jurisdictions and we can't figure out who should act or whether both should act cooperatively to seek a solution.

We believe in the science-based approach. We need a science-based approach to species listing. We also need to see a bill that is well funded. It would not do anyone, including us in the resource sector, any favours to see a bill put in place with all sorts of expectations but not to have the financial or human resources to actually meet those expectations.

This is not a great time to talk about those sorts of expenditures, but in actual fact I believe this is a requirement, because failure doesn't help anybody. We are out there on the land, perhaps not as close to the sharp end of the stick as the agricultural community, but as a land user and a resource user, we need to have good legislation and appropriate regulation. Inappropriate regulation doesn't help anybody.

I would say that regulation, by its definition, will impose a cost, yes, but if I go back to my scenario of that long-term, sloping, downward trend in the price and our productivity increases going like this, we've absorbed a lot of environmental regulation and have been productive and competitive.

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So if it's done right, we don't see a difficulty. There may be some hiccups, but I think we're capable of meeting the challenge.

The Chair: Thank you very much, Mr. Cullen. No other questions?

I want to thank our witnesses for being here this afternoon. I want apologize again for the delays and the difficulties we had this afternoon in beginning the committee. We appreciate your presentations. They're very thorough and will obviously add to the report we're going to prepare as a committee. If you have any further comments, you're welcome to forward them to the committee at your convenience. We thank you again.

The meeting is adjourned.