Policy uncertainty continues to hurt Canada’s mining industry

To attract the investment required to develop resources, mitigating the risks of policy uncertainly needs to be a top priority

By Jairo Yunis
and Elmira Aliakbari
The Fraser Institute

The COVID recession has hurt Canada’s natural resources sector, with supply disruptions, commodity price declines and greater uncertainty regarding future demand. Not surprisingly, capital investment in the Canadian mining industry has dropped to its lowest level since 2009.

Of course, business investment should be a key pillar of Canada’s economic recovery, as the governor of the Bank of Canada recently stated in a speech delivered to the Vancouver Board of Trade. Amid these conditions, government policies are critically important in attracting much-needed investment. And according to our recent survey, policy uncertainty continues to hurt several Canadian provinces in the eyes of mining investors.

Every year mining investors are surveyed around the world to determine which jurisdictions are attractive-or unattractive-for investment based on government policies and geological potential. The survey spotlights policies (taxes, duplicative regulations, availability of labour and skills, etc.) that impact investment decisions. The most attractive jurisdictions in the world match their mineral potential with a competitive policy environment and/or overcome a lack of mineral potential with solid policies.

This year, three Canadian provinces-Saskatchewan (ranked 3^rd), Quebec (ranked 6^th) and Newfoundland & Labrador (ranked 8^th)-are in the top 10 most attractive jurisdictions for mining investment.

However, despite the relatively strong performance of these provinces compared to international competitors, several provinces with enormous potential continue to struggle because of poor government policies.

Consider British Columbia. This is a textbook example of how a jurisdiction endowed with abundant mineral resources can become unattractive for investment due to poor policies. Based on pure mineral potential, B.C. ranks 10^th out of 77 mining jurisdictions. On mining policy, however, B.C. ranks 41^st. When taking into account both mineral potential and policies, B.C. ranks 17^th.

Given B.C.’s poor performance in the survey, the province would benefit from resolving its ongoing policy issues. For instance, 78 per cent of survey respondents cited disputed land claims as deterrents to investment in B.C. and 75 per cent cited “protected areas.”

Similarly, Ontario, which was the 7^th most attractive jurisdiction for mining investment in 2017, this year ranked 20^th. On policy factors alone, the province went from ranking 20^th in 2017 to 31^st in 2020. Like in B.C., investors view Ontario’s ongoing issues with disputed land claims and protected areas as major policy factors hindering the province’s mining competitiveness.

This trend continues with Quebec, which ranked in the top 10 most attractive jurisdictions worldwide this year. However, the province’s strong performance is largely driven by improved investor perceptions of the province’s mineral potential. When considering government policy factors alone, Quebec ranks 17^th, suggesting room for improvement, with investors noting Quebec’s uncertain regulatory regime, disputed land claims and protected areas.

Indeed, uncertainty around disputed land claims and protected areas are among the top two greatest deterrents to investment in every Canadian province included in the survey. If mining investors are uncertain whether they can access land for exploration and production, they’ll be hesitant to invest.

Clearly, governments can’t solely rely on their jurisdiction’s mineral potential to attract investment. In reality, policy uncertainty matters to investors and if provincial governments hope to attract the investment required to develop these resources, mitigating these risks should be their top priority.

Jairo Yunis and Elmira Aliakbari are analysts at the Fraser Institute.