Canadian Mining Journal February/March 2013 by The Northern Miner Group

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CANADIAN Mining Journal c

www.canadianminingjournal.com

February/March 2013

in MINING ONTARIO A look at Detour Gold’s

Detour Lake Mine

Canada’s largest gold project

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Departments 5 Editorial

Too many mining projects are being held up by red tape involving permits requiring special considerations for the well being of wildlife in the areas of the mines. At least that’s Russ Noble’s opinion as expressed in his editorial this month.

8 Investing

Ned Goodman’s regular “Investing” column talks about how “Building Wealth Involves Uncertainty.”

10 Law

David McIntyre of Norton Rose takes a look at Mergers and Acquisitions by Chinese SOEs.

12 In My Mine(d)

This month Chris Hodgson, President of the Ontario Mining Association, talks about the recently released 80-page report entitled: “Mining: Dynamic and Dependable for Ontario’s Future” and how it highlights the value of mining to Ontario’s economy.

CANADIAN Mining Journal CONTENTS

Mining in Ontario

14 Detour Gold’s Detour Gold

Mine in northeast Ontario is slated to become Canada’s largest gold mine with more than 15.6 million ounces of Proven and Probable gold reserves.

54 Products 56 Risk Management

A look at Canada’s interest in more than 8,000 properties in some 100 countries around the world and the risks involved.

60 CSR and Mining

Marketa Evans, Extractive Sector, CSR Counsellor, Government of Canada, asks the question: “Are Canadian miners ‘good players’ in CSR?”

62 Unearthing Trends

Sean Kruger, a Partner in Ernst & Young’s ITS Transfer Pricing & Tax Effective Supply Chain Management practice, looks at dealing with transfer pricing issues.

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February/March 2013

ABOUT THE COVER This month’s cover is a picturesque view of an ore-storage dome at Detour Gold’s Detour Lake Gold Mine, located 180 km northeast of Cochrane, Ontario.

in MINING ONTARIO Canada Post Canadian Publications Mail Sales Product Agreement No. 40069240

A look at Detour Gold’s

Detour Lake Mine

Canada’s largest gold project

Coming in April

“Safety,” the number one concern for most mining companies, is the subject of Canadian Mining Journal’s next issue.

22 The Sifto Salt mine is located

1,800 feet underground, almost entirely under Lake Huron, and produces more than 9 million tonnes annually. The mine, founded in 1959, employs 550 people.

28 “Roads to Riches” is the title of

this extensive article that is based on the OMA’s report entitled: “Mining: Dynamic, and Dependable for Ontario’s Future.” The report ‘bolsters confidence’ in Ontario’s mining industry by featuring a number of interesting facts and figures.

For More Information

Please visit www.canadianminingjournal.com for regular updates on what's happening with Canadian mining companies and their personnel both here and abroad. A digital version of the magazine is also available at www.digital.canadianminingjournal.com

www.canadianminingjournal.com February/March 2013 • Canadian Mining Journal |

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CANADIAN Mining Journal February/March 2013 Vol. 134 — No. 2 80 Valleybrook Drive, Toronto, Ontario M3B 2S9 Tel. (416) 442-5600 Fax (416) 510-5138 www.canadianminingjournal.com Editor Russell B. Noble 416 510-6742 rnoble@canadianminingjournal.com Field Editor Marilyn Scales 613 832-9087 mscales@canadianminingjournal.com Art Director Mark Ryan Production Manager Print Production Manager Steve Hofmann Phyllis Wright

Editorial

All animals deserve a chance, but miners deserve a better one By Russell Noble

“Migrating” and “Mating” are getting to be two of the more overused excuses for slowing the mining process and I’m getting a little tired of hearing how the cariPublisher bou won’t be able to find their way home Robert Seagraves 416 510-6891 because there’s now an open pit mine on rseagraves@canadianminingjournal.com the trail, or how whales and other sea Sales creatures won’t be able to concentrate on Western Canada, Western U.S.A. Bonnie Rondeau making babies because huge ore carriers 416-510-5245 are making too much noise overhead. brondeau@canadianminingjournal.com Toll Free Canada: It seems to me that ‘excuses’ are getting 1-800-268-7742 ext 6891 or 5245 in the way of mining more than the creaToll Free USA: 1-800-387-0273 ext 6891 or 5245 tures themselves and from my experiencGroup Publisher es with wildlife, animals tend to adapt to Doug Donnelly their surroundings by going around or President Vice-president avoiding obstacles in their path. Bruce Creighton Alex Papanou I don’t think the caribou or the whales Established 1882 are so stupid as to stop in their tracks, so Canadian Mining Journal provides articles and information of practical use to those who work in the technical, administrative and supervisory aspects of to speak, and simply die, or not reproexploration, mining and processing in the Canadian mineral exploration and mining industry. Canadian Mining Journal (ISSN 0008-4492) is published duce, because there’s a mine or a ship in 10 times a year by Business Information Group L.P. BIG is located at 80 Valleybrook Dr., Toronto, their way. In fact, I think if the caribou or ON, M3B 2S9. Phone (416) 442-5600. whale ‘whisperers’ actually knew what Legal deposit: National Library, Ottawa. Printed in Canada. All rights reserved. The contents of this magazine are protected by copyright and may be used only these creatures were thinking, they’d for your personal non-commercial purposes. All other rights are reserved and commercial use probably hear “It’s no big deal, I’ll just is prohibited. To make use of any of this material you must first obtain the permission of the owner of the copyright. For further information please contact walk or swim around.” Russell Noble Regardless, more and more mining at 416-510-6742. Subscriptions — Canada: $47.95 per year; $76.95 for two years. USA: US$60.95 projects seem to be getting trapped by perper year. Foreign: US$72.95 per year. Single copies: Canada $10; USA and foreign: US$10. Canadian subscribers must add GST and Provincial tax where necesmit stipulations thanks to environmentalsary.GST registration # 809744071RT001. ists, or even worse, naturalists crusaders From time to time we make our subscription list available to select companies and organizations whose product or service may interest you. If you do not who seem to know what’s best for wildlife. wish your contact information to be made available, please contact us via one of the following methods: Phone: 1-800-668-2374; Fax: 416-442-2191; E-mail: Granted, the creatures are being displaced privacy officer@businessinformationgroup.ca; Mail to: Privacy Officer, somewhat by some mining operations but Business Information Group, 80 Valleybrook Dr., Toronto, ON, M3B 2S9. Publications Mail Agreement #40069240. PAP Registration No. 11000. We on the whole, they’re not being slaughtered acknowledge the financial support of the Government of Canada through the Publication Assistance Program towards our mailing costs. Return undeliverlike the buffalo were when the railways able Canadian addresses to: Circulation Dept., Canadian Mining Journal, 80 went through in the 1800s. Valleybrook Dr., Toronto, ON, M3B 2S9. E-mail: bigcirculation@bizinfogroup.ca There’s a big difference between “shooCanada Post: Publications Mail Agreement PM40069240. Please forward Forms 29B and 67B to 80,Valleybrook, Toronto, ON M3B 2S9. ing” and “shooting” and I think the minCanadian Mining Journal, USPS 752-250. US office of publication: 2221 Niagara ing projects that are proposed for areas Falls Blvd., Niagara Falls, NY 14304-5709. Periodicals Postage Paid at Niagara Falls, NY. US postmaster: Send address changes to Canadian Mining Journal, PO Box where fish and animals have traditionally 1118, Niagara Falls NY 14304. called home will adapt and survive. They We acknowledge the financial support of the Government of Canada through the Canada Magazine Fund toward our editorial costs. won’t be intentionally killed because man has moved into their neighbourhood. In fact, if nothing else, man’s presence often brings more attention to their living conditions and on many remote sites Canadian Business Press Indexed by Canadian Business Periodicals Index Circulation Manager Cindi Holder 416 442-5600, ext. 3544 cholder@bizinfogroup.ca

I’ve visited, mining companies have gone above and beyond by diverting routes and building roadway underpasses specifically with the fish and animals in mind. Some have even built more fences than found at Guantanamo Bay to protect the “good” animals. At great expense to the miners (and not government(s) or other “caring” organizations), I’ve seen streams and rivers deepened and widened, I’ve seen entire waterways moved to shorten spawning distances, and I’ve seen roadway underpasses engineered and built with only the animals in mind. And the latter, in most cases, is done so on the initiative of the mining company because they don’t want to risk the safety of the animals (and their employees) by having accidents. Being hit by a caribou or even worse, a charging moose, can have devastating results and I can attest to the fact that a moose bolting out of roadside brush and across the road in front of a vehicle is a pretty scary and dangerous thing. It’s a white-knuckle experience that makes most drivers stick cautiously to the middle of the road where possible to give the animal, and themselves, a fighting chance. And that’s what miners and Mother Nature’s other creatures deserve…. a chance to survive. Problem is, I think the balance of survival is getting a little once-sided in that some groups of people are losing sight of the fact natural resources, not natural inhabitants, are what Canada’s economy thrives on and unless those disrupting the permitting process come to grips with the fact that our “original” animals will survive, then they too will find themselves out in the woods looking for a new life. All animals deserve a chance and like it or not, humans deserve a better one. CMJ

February/March 2013 • Canadian Mining Journal |

Mining Matters Volume 134

Once again this year, thousands of prospectors, developers and investors attended AME BC’s annual meeting in Vancouver to learn more about exploration activities and opportunities primarily in B.C., Yukon and NWT.

FEB/MAR 2013

Top business women Xstrata Nickel’s Dominique Dionne, Vice-President, Corporate Affairs, and Sepanta Dorri, General Manager, Business Development, have been recognized as two of Canada’s leading businesswomen by the 2012 Canada’s Most Powerful Women: Top 100 program. Another boost for Yukon exploration

Province sets record for exploration spending

The Association for Mineral Exploration British Columbia (AME BC) welcomed Premier Christy Clark’s announcement at Mineral Exploration Roundup last month in Vancouver that $680 million was spent on mineral exploration in British Columbia in 2012, a record for the province. Mineral exploration expenditures rose 47 per cent over the previous record-breaking number of $462 million set in 2011. At the same meeting, (AME BC) also welcomed the signing of an Economic and Community Development agreement between four Ktunaxa Nation communities and the provincial government. This agreement will enable the Ktunaxa Nation, comprised of the four communities of St. Mary’s, Tobacco Plains, Lower Kootenay and Akisq’nuk First Nation to share revenues from new coal mine projects in the Elk Valley. The agreement also links to the Strategic Engagement Agreement between B.C. and Ktunaxa Nation, which provides for a decision-making and project-review process for new mine projects.

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Columbia

Investing

Building wealth involves uncertainty By Ned Goodman

have personally found that building wealth for life’s major long-term events is always accompanied by significant uncertainty. Historically, the powers that are charged to frame those uncertainties have largely produced disappointing results. Novelist Ayn Rand has told us that as individuals, we have “innate nobility,” and that our highest duty is to “flourish by realizing our potential.” She also told us that we can develop and join a culture that may be different and be able to create material wealth in profoundly different ways. In 1974, Alan Greenspan, a follower of Ayn Rand who was yet to become the central banker for the U.S., told us that: “In business, inflation creates uncertainty and risk, which makes planning more difficult and discourages managers from hiring or building factories or, indeed, doing any kind of investing for growth.” Both Alan Greenspan and Ayn Rand were “crazy gold bugs” in their younger days. The basic fact is that the U.S. dollar

has had zero backing since 1971. Notwithstanding, the dollar has become accepted as the world’s reserve currency. The idea of returning to the classical gold standard has moved today from being a fringe concept as suggested by those “crazy gold bugs” to that of political discussion amongst some important mainstream players. The proposal that is currently floating around is that a new Basel III accord will move gold to a Tier 1 banking asset from its current Tier 3 position. Tier 1 assets can be issued as banking collateral from 100% of their value. Tier 3 as at present, only allows 50% of gold’s value as collateral for banking purposes. We are living through a period of time when all of the world’s paper currencies are almost in disrepute as to their value. The unpredictability of the current global monetary and financial systems needs desperate repair. We are enjoying the positive aspects of extremely low interest rates as created by central bankers in order to service the

8 | Canadian Mining Journal • February/March 2013

increasing debt loads being faced by almost all global economies. Money printing is going on in the U.S., Europe and almost everywhere else, including China. The very intense unpredictability of the fate of paper currencies and monetary exchange is actually inhibiting those of us who think long term in our investment process. Recently, the famed Warren Buffet has criticized gold as a standard of currency measurement. He told us, in his Annual Report, that all of the gold ever produced can be fitted into two Olympic swimming pools. On this, he was not quite correct in that the facts are that only 85% of the gold ever produced can still be found above ground. But, yes, what is there can fit into two swimming pools. His joking manner may get him press reviews but does not really make much sense because to suggest that all of the gold that can even be found above ground can fit into two small containers is actually wonderful evidence of why gold serves the purpose as a backing for paper currency – it is scarce.

www.canadianminingjournal.com

Investing

Ned Goodman is President and Chief Executive Officer of Dundee Corporation

Gold is scarce, it is hard to find, and it is very difficult to extract from its geological trappings. American economist Ben Bernanke, who should know better, likewise continues to throw a bunch of so-called reasons why the gold standard would not work. His main point is not the swimming pool answer, but he says we do not have enough gold to go around. He goes on to also say that it costs too much to get it out of the ground. Both can be corrected by a higher gold price. Ben says these things with a straight and serious face but it’s hard for me to accept this when one considers that he is the one that can push the electronic buttons that can create trillions of paper dollars over the course of a week or two on a cost-free basis. That is precisely why we need a gold standard to back our world currency. Financial writer Jim Grant puts it easier to understand and frankly with better academic clarity and common sense. He says that we should not confuse the classical gold standard with that of the Bretton Woods

Agreement which President Nixon killed in 1971. The true gold standard was in place for many years prior to World War I. My personal understanding about the role that gold has played throughout history says that we cannot comprehend how to look at the future without remembering and deliberating the past. It has not been the classical gold standard that creates the constant rise and fall of the value of money. Money that was supposed to be “sound” in value according to central bankers. Even historically, it has been politicians and their bankers who have controlled the rules about our money. If you can ever believe like I can, that money could be gold or that in fact, gold is money, then you can determine that the value of our paper money rises with deflation, and falls with inflation. When gold can exist in a free market, then it too, would decline with deflation and rise in value with inflation. The fact is that gold is not necessarily a hedge against inflation, but as Martin

Armstrong Economics says: “Gold is a hedge against political mismanagement.” I agree with Martin, and personally work on the basis that the price of gold comes from a free market, through which those of us who care about “political mismanagement” and its uncertainty and unpredictability that gets into the way of future wealth creation, can actually vote on our confidence about the future promise of our success and how we feel those in authority are handling the affairs of state. A new gold standard is what the world needs in order to provide us with a true, positive outlook for the world’s investment climate which today is in severe disorder. Its ability to create monetary stability – predictability and investment objectivity – would be a “boon and a blessing” says Jim Grant. We could have a monetary system whose exchange rate would be fixed and business could be conducted on a global basis without concern and guessing about what the politicians and money mavens are going to do with the value of our money. CMJ

February/March 2013 • Canadian Mining Journal |

Law

Chinese M&As in mining can be challenging By David McIntyre

ergers and Acquisitions by Chinese state-owned enterprises in the Canadian natural resources sector has been a hot topic lately. There have been some interesting emerging trends in Chinese outbound M&A that have been challenging traditional conventions—and may be of particular interest to the Canadian mining sector.

Chinese bidders can have different objectives Canadian public company take-over rules are designed to ensure fair and equal treatment of shareholders. Further, the rules accommodate bidders to acquire 100% of the target by a “squeeze out” or “compulsory acquisition” when the requisite support of shareholders has been obtained. Typically, a non-Chinese bidder wishes to obtain 100% ownership of the target, one way or another, and much of the discussion in planning the M&A focuses on the risk of, maybe, not getting to 100%. Chinese SOEs differ from other bidders. Chinese SOEs frequently ask us, when planning an M&A, how can we keep the target company listed and trading? Can we just acquire control without buying the whole company? The answer is: the Canadian rules are quite accommodating to these objectives—but there is a bit of a bias against it. The perception is, it’s more “proper” to buy the whole company and squeeze out the “straggling” shareholders, than to leave them as minority investors in a majority controlled company. But the situation is changing. Another situation is changing. Chinese bidders are now becoming willing to wade into the “fray” in outbound deals—by either making an unsolicited bid or competing against another ongoing transaction. These types of transactions are not possible in China. Acquisitions of control only, not the whole thing When we are asked by a Chinese SOE how they can acquire control of a company only, and not the whole company— depending on the circumstance, the response is typically: • You can acquire shares from treasury in a private placement, but this must be put to a shareholder vote • You can make a take-over bid to all shareholders, but with a cap on the maximum number of shares. • Or lastly, you can make a bid for the whole company, but just do not continue on with a second step squeeze out or compulsory acquisition, if you do not want to do that. 10 | Canadian Mining Journal • February/March 2013

We warn that options 1 or 2 aren’t typically done. In Canadian M&A, it is expected that an acquisition will result in 100% control, and private placements to one investor above 19.9% are almost unheard of. Under option 3, you run the risk that 100% of the shareholders will tender. But the different considerations and new approaches of Chinese bidders are causing us all to re-think what is, or ought to be, considered acceptable in structuring the M&A. Private placement for control: Shandong Gold & Focus Minerals Canadian corporate laws permit a company to issue as much stock from treasury and to whoever they determine. There is no legal limit. TSX rules introduced in recent years require a private placement resulting in a change of control to be put to a shareholder vote. Otherwise, it is allowed. Canadian corporate Boards typically have no interest in such transactions, however, in Australia, Chinese gold miner Shandong Gold found a target willing to test this convention with Focus Minerals. Shandong Gold agreed to acquire a 51% control position of Focus through a private placement of treasury stock for $227 million. The transaction was priced at a 13% premium to market. Focus negotiated a right to accept a superior proposal prior to closing (not common for a private placement transaction). The transaction was approved by 82% of shareholders in a vote and subsequently closed successfully. The transaction makes one ask if these types of transactions might, against conventional wisdom, also find support in the right circumstances by shareholders of Canadian companies who are similarly looking to partner with a big player like Shandong Gold. Bid for less than all: Chinalco Bid & SouthGobi The Aluminum Corporation of China, or Chinalco, similarly tested the “boundaries” of what is conventionally considered acceptable in Canadian M&A in its announced bid for Mongolian coal company SouthGobi in April 2012. Chinalco announced it would acquire between 56% and 60% of TSX-listed SouthGobi Resources from TSX-listed Ivanhoe Mines at a 28% premium for $890 million. The end result of this transaction would have been to leave SouthGobi as a publicly listed Canadian company controlled by a Chinese SOE. The transaction was in the end rejected by the Mongolian government for other reasons, so shareholders were never given the opportunity to consider the proposal. There is no question there is a conventional bias against these sorts of transactions in Canadian M&A—so they are extremely www.canadianminingjournal.com

Law

David McIntyre is a Partner with Norton Rose Canada LLP

rare. Target Boards have been reluctant to support such partial bids, and most shareholder rights plans implemented by Boards preclude partial bids as being considered “Permitted Bids”. However, the Canadian rules, unlike some other countries, do permit such transactions, and it will be interesting to see if other Chinese companies will in the future make similar attempts to support an objective of keeping the target a Canadian public company. From the perspective of an Investment Canada review (where applicable), maintaining a Canadian listing, under a partial bid or a private placement for control, would be an appealing factor. Entering the fray: Discovery and Talison transactions Chinese bidders have conventionally been reluctant to be involved in contested transactions. Two recent transactions are testing this convention. One is the case of Discovery Metals. In October 2012, Cathay Fortune Corp., a Shanghai based private equity firm, teamed up with China Africa Development fund, a Chinese sovereign wealth fund, to make an $848 million unsolicited bid for Discovery Metals. Discovery is an Australian listed company with a mining asset in Botswana. The bulk of transaction funding is coming from China Development Bank. This transaction, which is currently ongoing, is trendsetting for including the involvement of Chinese private equity in a mining transaction—in partnership with SOEs; for being a rare unsolicited bid from China; and the fact that the bid was launched with main Chinese regulatory approvals already in place. In December 2012, another Chinese SOE, Chengdu Tianqi Industry Group Co., Ltd. announced that it had reached an agreement to acquire TSX and ASX listed Talison Lithium Limited for $847 million. Talison had previously been in an agreement to be sold to US firm Rockwood Holdings Inc. for $724 million. Chengdu made an unsolicited offer to break up that deal. The Chengdu advance was originally rejected, but Chengdu did not back down. The target ultimately reached agreement for a sweetened offer at $847 million. Chengdu agreed to lodge a deposit of US$25 million in escrow as a reverse break fee should the transaction fail (another new approach by a Chinese firm). Conclusion Although these transactions have not received much public attention, they are illustrative of the incremental changes taking place in Chinese outbound M&A in the mining sector. They also shine a light on the opportunities that are emerging for Canadian companies looking to raise capital or partner with Chinese miners. CMJ

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Join us at the PDAC Convention! Booth No. 245 February/March 2013 • Canadian Mining Journal |

In My Mine(d)

Study outlines strengths of Ontario’s mining industry Chris Hodgson is President of the Ontario Mining Association

By Chris Hodgson “Mining: Dynamic and Dependable for Ontario’s Future” is an important economic impact study, which was released in December 2012. It could not have been completed without the support of Ontario Mining Association members, who provided data and insights to develop a clearer picture of the range of benefits mining brings to the society and economy of Ontario. The OMA thanks Peter Dungan, Director, Policy and Economic Analysis Program, University of Toronto, and Steve Murphy, Research Associate, Policy and Economic Analysis Program, University of Toronto, for dedicating their expertise to produce this multi-faceted study. The support of the Ministry of Northern Development and Mines was valuable and we hope this document helps us work with government to develop Ontario responsibly and make local regions and communities stronger. In addition, we also thank Russ Noble and the Canadian Mining Journal for giving such prominence to the findings of this economic study in this edition of the magazine. In its full 80 pages, which can be found on the Ontario Mining Association website www.oma.on.ca, there are 47 charts, 32 tables and four maps, which emphasize and dramatically support the “dynamic” and “dependable” nature of the mining industry in Ontario. There is, however, also a softer side to mining that may not be as well appreciated as its harder core economic benefits. Mining is a big business full of engineers, geologists, scientists, hard-working equipment operators, drillers, big machines and big hearts. Hard business decisions, dealing with international markets, fluctuating commodity prices and production scheduling don’t crowd out community support. As one mine manager said to me recently,

“We try to be involved in some way, shape or form in all local events because many of our employees will be involved in these events in the community.” Mining companies support their communities and their employees in a number of innovative ways. The economic report shows mining companies in Ontario making charitable donations of $10 million annually. In their communities, we see support of health related, educational, social, environmental, cultural and recreational activities. Recent examples see mining companies restoring fish habitats, supporting energy research, replenishing local food banks, providing schools with emergency medical equipment and training and enhancing literacy programs. Also, in any given year, there are major donations from mining companies to hospitals, universities, colleges and research institutions. Ontario is one of the safest mining jurisdictions in the world and mining is one of the safest industries in Ontario, achieving a 91% improvement in its lost time injury rate over the last 20 years. There are numerous factors contributing to this collective improvement in safety performance. One is the $1,800 per employee annually that the industry invests in training and health and safety. The economic impact study shows that employment in the Ontario mining industry is growing and these employees are safe, highly skilled, highly paid and highly productive. The Ontario mining industry is a world leader in environmental protection. The industry devotes millions of dollars annually to environmental protection, environmental improvement and pollution prevention. According to the recent economic impact study, these investments

12 | Canadian Mining Journal • February/March 2013

in environmental protection top $60 million annually. It is impossible to remove minerals from the Earth and process them without impacting, to a certain degree, the immediate land, air and water as well as animal and plant life. Modern mines and the entire breadth of Ontario’s mining history impose a very small footprint on the environment. Past and present mining operations occupy 250 km2, or 0.023% of Ontario’s total area of 1,076,395 km2. The goal and commitment of modern mining operations is to minimize the temporary disruption of the environment during exploration and production and to maximize restoration at the end of a mine’s life. Also, the mining industry helps all electricity consumers in the province through load shifting. Production schedules are designed so the highest demand by the mining industry occurs during the time of day when the overall demand on the system is at its lowest. Conversely, the mining industry ensures its lowest demand coincides with the highest demand in the overall electrical network. Mining has responded to the government’s efforts to reduce peak power demand and in 2011, it shifted 150 megawatts of electricity consumption away from coincident peaks in demand across the system. This is enough power to meet the average peak needs of a city the size of Greater Sudbury. The investments by the mining industry to improve its environmental footprint, which builds upon its investment in health and safety training and its social investments, are not reflected in measured output or productivity for the industry. However, the societal benefits of this spending by mining companies in Ontario cannot and should not be overlooked. CMJ www.canadianminingjournal.com

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BOLD

| Mining in Ontario

NO DETOURS EN ROUTE By Russell Noble

President and CEO Gerald Panneton speaks with Pierre Beaudoin, COO (left) and Director of Operations, Drew Anwyll (right) during construction in October 2011.

14 | Canadian Mining Journal • February/March 2013

he word “detour “ is in Detour Gold Corporation’s name but it certainly wasn’t in its vocabulary when it came to building the Detour Lake Mine, located due south of James Bay, about 180 km northeast of Cochrane, and just 12 km from the Ontario/Quebec border. By definition, “detour’” means (in part), “to avoid,” but Detour Gold avoided nothing when building what is being slated to become Canada’s largest gold mine. In the words of its Toronto-based owners, “Detour Lake is way up there” in the northwestern portion of the Canadian Shield where gold is prevalent and obstacles are many. But, with more than 15.6 million ounces of Proven and Probable gold reserves at stake, nothing was going to get in the company’s way of tapping into one of the larger gold finds in Canada. In fact, even the 185-km, two-and-a-half hour trek along a paved (151 km) and gravel (34 km) road in from Ontario’s Highway 652, near Cochrane, didn’t discourage the thousands of contractors and other Detour Gold personnel who boldly made the journey to the place where some could possibly call “home” for at least the next 20 years. www.canadianminingjournal.com

GOLD

TO DETOUR GOLD’S MINE

Aerial photo of Detour Gold’s processing plant. Taken October 2012, the site was 95% complete.

At a pre-production capital cost of $1.5 billion, the new mine is expected to have an operating life of 21.5 years (for now) with an average annual gold production of approximately 657,000 ounces. Forecast for 2013 (with Q-1 being start of production) is for between 350,000 and 400,000 ounces. For Detour Gold, the drive behind getting its Detour Lake project up and running has been a six-year commitment since it bought the property in January 2007. Like most mine sites, however, the Detour Lake property is not a totally new discovery because in fact, it’s the same place

One of two 68 ft tall electric rope shovels works in the open pit.

February/March 2013 • Canadian Mining Journal |

| Mining in Ontario Detour Goldâ&#x20AC;&#x2122;s state-of-the-art permanent camp boasts golf simulators, billiards tables and a full gym.

where an open pit and underground operation produced 1.8 million ounces of gold between 1983 and 1999. The time between its closing in 1999, and when Detour Gold moved in eight years later, only one junior company did some drilling in the area of the former mine. Wanting to sell the property, they showed it to Gerald Panneton, CEO and founder of Detour Gold, who saw the potential for Detour Lake to be a high tonnage/low-grade deposit, and now the

Reviewing work completed on the fish habitat.

16 | Canadian Mining Journal â&#x20AC;˘ February/March 2013

dream is reality - Detour Lake mine is back in production as a large open-pit operation. The former operation closed as a result of a low gold price environment and the site was fully reclaimed by the original owners. After reviewing the project in the spring of 2006, Panneton was convinced that there was a multi-million ounce gold deposit within this large gold mineralized system that extended 300m wide and 2 km long. With strong financial sup-

Crushed ore is conveyed to the ore storage dome. www.canadianminingjournal.com

port and a will to make it happen, work began to bring the once-unproductive mine back to life. And today, that’s happened and the once-quiet site up near James Bay is bustling with activities as nearly 800 miners, contractors and other Detour Gold personnel change the landscape, both in terms of adding to the infrastructure of Ontario’s northwestern region, as well as providing jobs and other economic opportunities for local communities. As already mentioned, the company avoided nothing when it came to getting its Detour Lake Mine up and running and company President and CEO Gerald Panneton says that thanks to a “very talented and dedicated group of individuals,” he estimates that over the first three years of operation, excluding 2013, the mine will generate over $1 billion in free cash flow. And, with its average annual gold production projected at the 657,000 ounces mentioned above, the Detour Lake Mine will not only be Canada’s largest gold mine, but will also be among the largest gold operations in North America and one of the larger employers in Northern Ontario. To make all of this happen, the company focussed on starting the open pit less than two kilometres west of the former open pit. Pre-stripping activities started in spring 2012, followed by the start of mining activities in a 50 to 150-m-wide mineralized zone, with a lower grade (0.8 to 0.9 g/t) than the average grade (1.03 g/t) of the mineral reserves.

Primary gyratory crusher at Detour Lake has an average crushing capacity of 100,000 tonnes of ore per day.

This was done because it is wider and easier to provide ore production now (in 2013, the ramp up year) in order to sustain mine throughput. The company has stockpiled approximately 2.2 million tonnes of ore at an average grade of 0.7 g/t and 1.1 million tonnes of low-grade material (0.3-0.5 g/t). By the end of December 2012, Detour Gold had mined more than 26 million tonnes of material.

Feeder parts, now buried under the stock pile dome. The primary crusher facility can be seen in the background.

February/March 2013 • Canadian Mining Journal |

| Mining in Ontario

The pit itself will be approximately 3.3 km long and 1.2 km wide and 650 m deep. Berm widths range from 9.5 m to 12 m wide and the pit slope is 45 to 50 deg. The ramp at surface is 35 m wide to handle two-way uninterrupted haulage cycles and complies with industry standards for the running width of a haul road to approximately three times the width of the largest equipment, not including additional room for a drainage ditch and safety berms. At the bottom of the ramp near the pit’s bottom, the haul road is narrowed to single-lane traffic of 20 m and there’s a ramp gradient of 10% for the straight runs and 6-8% for curves sections. There’s also a 2% cross slope to help with drainage. Equipment in the pit includes an initial mining fleet of 20 haul trucks (CAT 795F – 320 tonnes), two hydraulic shovels (CAT6060 – 28/34m3, two electric rope shovels (CAT7495 – 48m3, nine drills, and a variety of ancillary equipment to support the mining operation. As the mine expands, so too will the fleet. It’s estimated that the open pit operation will require a fleet of 41 haulage trucks at the peak of its operation. Naturally, mining the pit is a priority as work continues to make it deeper and wider but on the surface, the company has also been busy building a large processing plant that will eventually handle from up to 55,000 to 61,000 tpd by 2015. It’s a conventional gravity, cyanidation and carbon-in-pulp facility initially operating at 55,000 tpd with an assumed availability of 92% for the first two years and increasing to 94% in year three. 18 | Canadian Mining Journal • February/March 2013

www.canadianminingjournal.com

Detour Goldâ&#x20AC;&#x2122;s geodesic dome is the biggest in Canada, standing 300 ft wide and 150 ft high.

February/March 2013 â&#x20AC;˘ Canadian Mining Journal |

| Mining in Ontario The grinding circuit consists of two parallel lines, each having one twin-pinion, 36 ft x 20 ft SAG mill and one twin-pinion 36 ft x 40.5 ft ball mill. The four mills are all equipped with a pair of 7,500 kW variable speed drive motors. Crushing capacity at the plant is enhanced by the inclusion of a large 60 in. x 113 in. 1,000 kW gyratory crusher coupled with two secondary crushers (XL-1100) and two pebble crushers (XL1100) completes the plantâ&#x20AC;&#x2122;s crushing package. A gravity feed circuit is fed by overflow from the ball mill that works in harmony with a cyclone sizing process as part of the

overall gravity recovery circuit. Based on recent tests, the recovery of gold from the circuit is estimated to be between 30 - 40% for an average feed blend. A cyanidation system designed at 99% is being used to process the gravity concentrate. After gravity recovery, gold leaching takes place in two parallel circuits composed of 10 large conventional leaching tanks each and when the plant gets up to 55,000 tpd, the retention time will be 29 hours, after which the slurry will then be pumped to two parallel carousel circuits for gold absorption onto activated carbon.

20 | Canadian Mining Journal â&#x20AC;˘ February/March 2013 www.canadianminingjournal.com

A stripping system uses a modified high-pressure process to recover the gold from the loaded carbon. The system is considered “modified” because Detour Gold’s engineers say the electrowinning is done “in line” with no retention tanks between stripping and electrowinning. The flow of solution is split between six electrowinning cells and the refining equipment is designed to handle both the gold from the stripping circuit and from the gravity recovery system. Detour Gold engineers say the electrowinning sludge is then filtered, dried, and mixed with fluxes before being smelted in induction furnaces.

And the end result is why the company came to Detour Lake in the first place. “Gold,” and that’s another word used is the company’s name. In just six years, Detour Gold has transformed an abandoned mine site in a remote and environmentally hostile part of Ontario into one of the most promising mining operations in the entire country and while it still faces challenges and growing pains, the Detour Lake Mine holds great promise for its owners and the province, but moreover, for the mining industry in Canada as a whole because it once again proves to the world that Canadian miners take no detours when it comes to getting the job done. CMJ Gerry Barstad, Chief Metallurgist; Jean Francois Dupont, Process Plant Superintendent; Sebastien Belanger, Process Plant Trainer.

February/March 2013 • Canadian Mining Journal |

| Mining in Ontario Two miners standing on top of salt cut are shown between the deposit and the bottom of Lake Huron. There’s between 100 and 150 feet of water above.

DEEP & DRY

Salt mine stays dry 1,800 feet under lake By Eastern Correspondent D’Arcy Jenish

22 | Canadian Mining Journal • February/March 2013

www.canadianminingjournal.com

ocal legend has it that in the late 19th century, a relative of Queen Victoria visited the Town of Goderich, Ont., on the shores of Lake Huron, and returned to tell the British monarch what a beautiful place it was: to which she replied, “Surely it must be the prettiest town in Canada.” The story may be more legend than fact but nevertheless, to this day, Goderich still calls itself “The Prettiest Town in Canada,” but it could, however, go one step further by also boasting that it is also the home to the largest salt mine in the world and no one would dispute that assertion either because it’s a fact. The Sifto salt mine, owned and operated by Compass Minerals of Overland Park, Kansas, produces nine million tonnes annually. Ninety per cent of that output is scattered on road surfaces in Ontario, Quebec and a number of northern U.S. states every winter to keep them ice-free and safe for the driving public. The balance is used in water softening and as chemical feed stocks. The mine, which opened in 1959, currently employs 550 people. As the largest employer in town, it has a huge presence on the local economy but its also one of the more ‘invisible’ companies in the community because its main operations are located 1,800 feet underground, almost entirely beneath Lake Huron. The company’s crews are now working just over three kilometres beyond the shoreline, according to Rowland Howe, Compass’ country executive for Canada. The salt bed is about 100 feet thick and it is virtually impermeable. Therefore, says Howe, it is remarkably dry in the mine, despite having between 100 and 150 feet of water overhead. For most of the life of the operation, the salt has been extracted using the drill and blast approach. Miners cut into the floor of the deposit, drill holes, insert dynamite and then detonate. “It basically turns the whole thing into a quarrying operation,” says Howe, “We use front loaders and trucks to move the rock back to the crushers and screeners.” However, the company is now converting to a continuous mining operation employing massive, tracked

A miner and equipment put the scale of the underground salt mine into perspective.

February/March 2013 • Canadian Mining Journal |

| Mining in Ontario machines armed with a moveable cutterhead, which is essentially a rotating drum with protruding teeth that scrape and gouge the salt from the deposit. Similar in nature to a potash-mining operation, the salt falls onto a tray at the front of the machine and a conveyor moves it to the rear and straight into awaiting trucks.

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Howe says there are several advantages over the drill-and-blast approach, which requires periodical breaks while a fresh section of the deposit is cut, drilled and blasted. The equipment will allow non-stop extraction other than downtime for repairs and maintenance. “You’re using one machine to do the work of four,” says Howe. “You’re elimi-

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24 | Canadian Mining Journal • February/March 2013

nating the use of explosives so it is safer. The potash guys use the same machines, but they’re much larger and less manoeuverable. We use a model that cuts about 15 feet wide and 15 feet high. They’re monsters, really.” A fleet of trucks are used to haul the rock to crushers and screeners that are located within the mine. “Everything is crushed and screened to size underground and then hoisted to surface storage facilities for distribution to customers,” says Howe. “Salt is hydroscopic, meaning it absorbs atmospheric moisture so in humid weather, especially in the summer, crushing and screening would be more difficult if we were doing it on the surface. As well, because it’s very dry underground, it reduces the corrosion to the machinery.” Road salt is crushed and screened to a diameter of about five-eighths of an inch and it is moved by ship to distribution centres from Montreal to Duluth, Minn. From there it is hauled by truck to storage facilities owned by municipalities and other customers. Compass also operates a solution mine and evaporator plant that employ an additional 100 people. These operations produce Sifto table salt from the same mineral deposit, but both are located several kilometres inland and a good distance from the underground mine. From the underground operation, Howe says, “We flood bore holes with water to dissolve the salt in a controlled manner to create a cavity in the deposit and there are techniques to control the shape and dimensions. The cavities can last a long time, several years.” The salt-laden solution, known as brine, is drawn to the surface and processed in a closed-circuit evaporation plant. In essence, heat is applied to the solution and most of the water evaporates, but the steam is captured within the plant and allowed to condense and re-injected into the bore holes. Meantime, the slurry is dried and the salt crushed and screened to remove any impurities. It is then packaged and shipped to grocers and food processors across the country. The Sifto underground mine and the nearby solution mine have provided several decades of stable employment in the small, www.canadianminingjournal.com

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| Mining in Ontario

A network of clean and highly polished equipment is used during the processing of salt for both industrial and consumer purposes.

pretty lakeside community of Goderich and there is no reason to expect that that will change in the foreseeable future. Compass is working a vast deposit that is far from exhausted and there’s little reason to anticipate a drop in demand for salt, either for safe roads or human consumption. Furthermore, the company has compiled an enviable safety record over the years at both the solution mine and the underground operation. Howe points out that the company employs conservative practices beneath the surface. The salt bed is a stable, nearly horizontal formation and the company leaves the top 30 feet of the deposit intact. It forms a stable roof over the mined out chambers, but Howe says the company also bolts it as an added precaution. As well, the miner leaves massive pillars of salt in place to further reduce any possible risk of a collapse. “We’re very proud of our safety record,” says Howe. CMJ

26 | Canadian Mining Journal • February/March 2013

www.canadianminingjournal.com

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| Mining in Ontario

ROADS TO

RICHES Detailed Report Bolsters Confidence in Ontario Mining

Special Report*

or the past two decades, the Ontario Mining Association has published several reports on the contribution of the mining industry to the provincial economy and in keeping with this practice, the OMA is once again proud to have been instrumental in the preparation of an in-depth report that extends and expands upon its past studies. Canadian Mining Journal is equally proud to present some of the highlights of that Report, entitled: “Mining: Dynamic and Dependable for Ontario’s Future,” an 80-page document by Peter Dungan* and

Steve Murphy* that examines many different aspects of the Ontario mining industry, including its importance to the provincial economy now and in the future, and the industry’s efforts to make this contribution in an increasingly safe and sustainable way. As mentioned, the Report is an extensive document based on a wide variety of published data, a survey of OMA members, and input-output calculations conducted by the authors. By the nature of such a detailed report, it contains far more information (including numerous charts

28 | Canadian Mining Journal • February/March 2013

and graphs) that it cannot be published in its entirety but again, CMJ is pleased to provide some of the highlights of the Report in our “Mining in Ontario” issue. Without question, mining in Ontario is very diverse, covering a wide range of mineral commodities, including gold (this month’s Cover Story), nickel, copper, salt (also a feature article this month), diamonds and a number of structural building materials. There are more than 35 active mining operations in Ontario. Output from metal mines continues to account for the majorwww.canadianminingjournal.com

Photo by Russell Noble ity of the value of production in the province. Over the last 10 years, the value of total mineral production in the province climbed to a peak of almost $10.9 billion in 2007, before falling to its lowest level since 2003 in 2009, due to the effects of world economic weakness, exacerbated by a sustained labour dispute in Sudbury. By 2011, with non-metal mining at new highs and metal mining output climbing strongly, the total value of mineral production hit $10.7 billion. The contributions of the different types of mineral commodities to the total value

of mineral production in the province have changed considerably over the last 10 years. With the impacts of the opening of new mines, expanding or closing of

existing ones, commodity price swings, as well as labour disputes in certain years, the importance of individual commodities has changed dramatically. While the shares of the value of production of both gold and nickel in 2011 at over 20% are roughly where they were in 2002, their contribution in the intervening years has swung wildly. In 2007, the value of nickel production accounted for 42% of all mineral production in Ontario. By 2009, however, this share had fallen to only 11% as the share of gold producContinued on page 31

February/March 2013 â&#x20AC;˘ Canadian Mining Journal |

| Mining in Ontario

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Vale is the world’s second largest mining company, with a presence in 37 countries across five continents worldwide. It’s also the world’s second largest producer of nickel, with its Base Metals business headquartered in Toronto. Canadian operations also produce copper, cobalt, platinum group metals, gold and silver, with offices and operations in Ontario (Sudbury and Port Colborne), Manitoba (Thompson) and Newfoundland and Labrador (St. John’s, Voisey’s Bay and Long Harbour). Vale’s operations in Ontario are home to one of the larger integrated mining complexes in the world. Employing approximately 4000 people, the operations in Sudbury include five operating underground mines (Stobie, Garson, Coleman, Creighton and Copper Cliff Mines) as well as Totten Mine, which is currently in the final stages of development and represents the first new Vale mine in Sudbury in approximately 40 years. The ore bodies consist of copper, nickel and cobalt sulfides, which contain precious metals including platinum group metals, gold and silver. Underground mining is at typical depths of 3,000-6,000 feet but can extend to more than 7,810 feet in the case of Creighton mine. The Sudbury operations also include Clarabelle Mill, the Copper Cliff Smelter Complex and the Copper Cliff Nickel Refinery. There is also a refinery in Port Colborne, Ontario, which focuses on the production of electrocobalt, the processing of precious metals and the packaging and distribution of finished nickel products to market.

Taking A

Closer Look 30 | Canadian Mining Journal • February/March 2013

www.canadianminingjournal.com

VALE

Continued from page 29

tion soared to almost 30%. Over the 10 year period, the share of the value of copper production climbed almost 10 percentage points. Over the last 10 years, the share of value of metal mines production climbed from 62% in 2002 to more than 70% in 2011, with its greatest share coming in 2007 at more than 76%. With the start of the provinceâ&#x20AC;&#x2122;s first diamond mine in 2008, the value of diamond production has climbed to over 4% of total mineral production, closing in on the level of the value of salt production. Overall, the share of non-metal mines production has climbed over the last 10 years, sitting at over 11% in 2011. The value of the production of structural materials such as clay, cement, lime, stone, sand and gravel has been quite steady over the last 10 years. Therefore, as the value of the output of many metal minerals has swung up and down, the share of structural materials has moved in the opposite direction. Over the last 10 years, the share of all of the struc

tural materials components have fallen, such that by 2011 the total share of the value of this production was down to just over 18% from over 30% in 2002. Ontario, at $7.5 billion, is the largest producer of metal mineral commodities in the country in 2011, accounting for 30% of the countryâ&#x20AC;&#x2122;s production, well ahead of Quebec at 24%. Ontario mining companies produced the most gold (52%), nickel (43%), copper (38%), platinum group metals (84%) and silver (28%) in the country, as well as the second most cobalt (36%). Ontario is also the biggest producer of

salt in the country, and second in the country (behind the Northwest Territories) in diamond production. Overall, Ontario non-metal mines produced $1.2 billion of output in 2011 or almost 10% of national output, placing it behind only Saskatchewan (potash) and the Northwest Territories (diamonds) in its output ranking in the country. Once again, Ontario is also the most important producer of structural materials in the country. The province mines the most stone (41%), lime & clay (53%), sand & gravel (31%), and produces the most

February/March 2013 â&#x20AC;˘ Canadian Mining Journal |

| Mining in Ontario VALE

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cement (35%) of any province. At $1.9 billion, the value of structural materials production in Ontario accounted for 37% of the Canadian total. Ontario mined $10.7 billion, or almost 25% of all Canadian non-fuel mineral production in 2011, accounting for more than 1.6% of the total value of GDP in Ontario. Mining Industry Employment and Wages As the world economy slowly recovered from the recent “great recession,” employment in the mining sector began to rebound in 2011. The number of workers directly employed by Ontario’s mining industry, at over 19,400, climbed to a 15-year high in 2008. By 2010, employment in the industry had fallen by over 25%, as the impacts of the recession and

labour issues continued to be felt, before recovering to more than 16,000 in 2011. Metal mining remains the most important mining sector in Ontario with over 63% of all mining employees involved in metal ore mining in the province in 2011, although this is a much lower share than seen in the 1990s. Support activities to mining (which includes contract drilling, exploration, and other mine services) have become increasingly important in the province over the last several years. In 2011, for example, almost 8,000 workers were employed in this sector, the highest level ever recorded for the province by Statistics Canada and more than double the number employed a decade ago. Other than the recent peak in 2008, overall, employment in 2011 in the Ontario mining industry directly, together with services to the mining industry, is at its highest level in 20 years. Ontario accounts for a large share of Canada’s mining employment, particularly in metal ore mining. Of the total number of people employed in metals mining in Canada in 2011, Ontario accounted for almost 38%, somewhat below the average share seen over the last 10 years. For all types of mineral production, Ontario accounts for over 28% of the country’s employment, somewhat higher than 2010 but still at a level below that seen in recent years. The recovery in employment is not reducing the output per worker in the industry. The value of output per worker employed at metal mines in the province hit a peak of almost $900,000 in 2007 before

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February/March 2013 • Canadian Mining Journal |

| Mining in Ontario dropping in the downturn. This measure has recovered in 2011 to almost $740,000. Output per worker in all mining in 2011 is a still impressive $680,000, roughly six times the provincial industrial average. Using data collected from Ontario Mining Association members, one can look at the numbers of different types of jobs in the mining industry, as well as in

what parts of the province this employment takes place and the nature of the mining labour force. In 2011, more than 83% of employment took place at the mine site, with 71% of total mining employment devoted to mine-site production and engineering activities and a further 12% providing administration support at the mine.

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According to the survey results, just under two per cent of mining employees were involved in scientific/R&D activities, more than seven per cent were involved in exploration, and eight per cent were employed at mining head offices. Employment was spread all over the province. In 2011, results from the OMA survey indicate that roughly 36% of mining employment in the province took place in Sudbury, down from over 37% in 2010, and from the 50% share reported in a previous OMA survey for the average of years 2006 and 2007. Employment in Northeastern Ontario accounted for over 30% of the total in 2011, up from 28% in 2010, and 23% in 2006/2007. This reflects the opening of Ontarioâ&#x20AC;&#x2122;s only diamond mine in 2008, as well as renewed interest in developing new, or reopening old gold mines as the price of the commodity has climbed. The share of employment in Northwestern Ontario stood at 19.2% in 2011, down slightly from the 19.6% seen in 2010, but up from the 15% level of 2006/2007. Finally, the share of employment in the southern part of the province, which is home to salt, gypsum, talc, nepheline syenite and calcium carbonate mines, as well as mining head offices in Toronto, fell somewhat to 14.5% in 2011 from 15.3% in 2010, similar to the 14% seen in 2006/2007. A number of interesting features of the nature of employment in the mining industry show that for the years 2004, 2007, 2010 and 2011, the percentage share of employees over 55 years of age has remained fairly stable, ranging only from 14% in 2004 and 2010, to 17% in 2007 and 15% in 2011. The shares of the other two age profiles have changed quite dramatically, however, over this period. Employees aged 35 and younger accounted for only 18% of employment in 2004 but reached 27% in 2011. Conversely, those aged 36-55 in 2004 accounted for 68% of employment, dropping to 58% in 2011. Ensuring that Aboriginals participate in the mining industry has become an increasing focus in recent years. As new mineral resources are discovered in farther north and remote environments, agreements have been undertaken to make sure that, wherever possible, Aboriginal employment is encouraged. www.canadianminingjournal.com

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Comparing Employment While employment in Ontario’s mining and supporting industries has increased over the last 10 years, the same cannot be said about the broader mineral-based industries. Employment in industries downstream from the mining industry itself, the industries that use the mined materials, has dropped quite dramatically over the period.

With the strength of the Canadian dollar impacting these industries’ competitiveness, as well as the rise in a number of low-cost manufacturing countries, Ontario’s primary metals and fabricated metal products industry employment has fallen by more than one-third over the last 10 years. Employment in non-metallic minerals manufacturing has fallen about

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10%, compared to the 42% increase in mining and support activity employment. Employment in mining has also been solid when compared to other resourcebased industries in Ontario. The productivity of workers in the Ontario mining sector is also impressive. Workers in all industries in Ontario are roughly 62% as productive as those in the mining industry, with workers in goods producing industries 85% as productive, and workers in service industries 58% as productive. Workers in the manufacturing sector in Ontario produce 82% as much real output as a mining industry worker. In other resource-based industries, forestry and logging workers are 89% as productive, while wood product manufacturing workers are 70% as productive. In other industries that rely on the mining industry, primary and fabricated metal manufacturing, workers were 71% as productive in 2011 as workers employed in mining, while non-metallic manufacwww.canadianminingjournal.com

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turing workers are 82% as productive. Clearly, workers in the mining sector are not only producing a high value product, but as employment has increased, are remaining very productive relative to other Ontario industries. Not only is employment growing in the

mining sector in Ontario but the jobs are very well paying. The average weekly wage paid in the mining industry was almost 60% more than the Ontario’s average industrial wage, while wages paid in the mining support sector were almost 95% higher. Wages in the mining resource sector

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St. Andrew Goldfieldsâ&#x20AC;&#x2122; Holt Mine with Holloway Mine in the background and its Hislop Mine below.

ST. ANDREW GOLDFIELDS

St. Andrew Goldfields Ltd. (SAS), operates the Holt, Holloway and Hislop mines located in the Timmins Mining District, northeastern Ontario. The Holt-Holloway underground mines are past producers, originally operated by two senior mining companies. The Holt Mine is an underground mine and was built and operated by Barrick until the mid-2000s. The Holloway Mine is also underground, and was built by Noranda Mines, and through a number of mergers and acquisitions, landed with Newmont from the 90s up to 2006 when Newmont sold both assets to SAS. The Hislop mine is a small open pit which the Company is currently using to keep the 3,000tpd rated mill at full capacity. SAS maximizes feed from the two underground mines (which have an average head grade of 4.5 g/t Au) and completes the mill feed with ore from the open pit (1.9 g/t Au reserve). SAS brought the Holloway Mine back into production in 2009, the Hilsop Mine online in 2010, and the Holt Mine into production in 2011. Last year the Company produced 95,604 ounces of gold from these three operations and is anticipating approximately 100,000 ounces of gold production this year. There is great exploration potential at all three operations, which is the focus of the exploration programs over the past few years.

exceed those in other resource based industries in the province. As well, wages in the mining sector exceed those in a number of other industries that are considered vital to the Ontario economy, including manufacturing of transportation equipment and construction. The wages paid in the Ontario mining industry and its mining support sector also far outstrip those in industries that utilize mining output.

Distribution of Employment In 2011, almost 65% of total wages and salaries paid in the industry went to workers in mine-site engineering and production, up from 61.5% in 2010 (which was impacted by a nearly 12-month strike in Sudbury that lasted until the middle of that year). Mine-site administration workers accounted for almost 14% of wages and salaries paid in 2011, down from 16.2% in February/March 2013 â&#x20AC;˘ Canadian Mining Journal |

| Mining in Ontario Kirkland Lake Gold’s Macassa Mine.

KIRKLAND LAKE GOLD

Kirkland Lake Gold Inc. is an operating and exploration gold company located in Kirkland Lake, in the Southern Abitibi gold belt. In 2001, the Company acquired 13,000 acres of five contiguous formerly producing gold mines, which had historically produced 21 million ounces of gold grading 15.1 gpt primarily from the Main/’04 Break system. The current focus is on expanding gold production from the Main/’04 Break, and a new discovery area, the South Mine Complex (SMC). Gold production recommenced in 2005 from the Main/’04 Break via the existing #3 shaft at the Macassa Mine. The Company also launched a major exploration program that discovered additional gold structures to the south, the SMC which is also currently in production. Discovered with a hole that intersected 90 feet of 2.3 ounces of gold, the SMC has remained a focus for ongoing exploration programs, as it remains open in all directions and at depth. In January 2009, the Company initiated a series of three projects aimed at increasing the production capacity to 2,200 tons per day (tpd) by January, 2014. The current production capacity is at 700-800 tpd on a sustainable basis, with daily ore tonnages of 900 – 1,000 tpd achieved some months. The next milestone is a capacity of 1,4001,600 tpd, expected to be achieved in the first half of FY 2014. The 2,200 tpd capacity milestone is currently targeted for completion January 2014.

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| Mining in Ontario North America Palladium’s Lac des Iles Mine.

A103017 AEL 2012 COAL MJ 124x178 fa.pdf

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NORTH AMERICAN PALLADIUM

North American Palladium Ltd. is an established precious metals producer that has been operating its flagship Lac des Iles mine since 1993. The Company operates with the vision of becoming a low cost mid-tier precious metals producer, with a target to grow production to over 250,000 ounces of palladium in the next few years. Lac des Iles is one of only two primary palladium producers in the world, and is currently undergoing a major underground expansion to increase production and reduce cash costs per ounce. The mine is located approximately 85 km northwest of Thunder Bay and consists of an open pit, an underground mine, and a 15,000-tonne per day mill with significant excess capacity available for future production growth. The positive results from the Company’s drill campaigns underpin the significant exploration potential of its substantial land package, and supports management’s belief that mining operations at Lac des Iles will continue for many years to come. The exploration upside is further complemented by Lac des Iles’ existing infrastructure and permits. As an established PGM producer with a clearly defined strategy for growth, North American Palladium says it is well positioned to convert exploration success into production and cash flow on an accelerated timeline.

2010. The share of head office wages and salaries is the next highest hitting almost 11% in 2011 (down from 12.7% in 2010), followed by wages and salaries in exploration, at 7.8% in 2011 (up from 7.1% in 2010) and finally employees involved in R&D accounting for under 3% of wages and salaries (roughly the same as 2010). The total wage bill for the industry in

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the province is estimated to be over $1.7 billion in 2011, up sharply from $1.4 billion in 2010. Sudbury accounts for more than 37% of the industry’s wage bill in 2011, greater than its 35.8% share of employment. This wage share is greater than that seen in 2010 (33.4%, which, noted earlier was impacted by a major strike) but far below

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| Mining in Ontario Prophecy Platinum’s Shakespeare project.

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workers in the industry, companies also provide taxable benefits (which could include automobile benefits, meals, board and lodging, tool reimbursement or allowance among many others) and non-taxable benefits (which could include certain health plan premiums, remote worksite allowances, and private pension plan contributions).

Mine Safety Ontario’s mining industry is moving toward its goal of “zero harm in the workplace by 2015.” Over the past 30 years, the industry’s overall safety performance has improved dramatically and it continues to move in that positive direction. According to statistics provided by Workplace Safety North, a provincial safety

PROPHECY PLATINUM

Prophecy Platinum’s 100%-owned Shakespeare project is a fully permitted open pit platinum group metals and nickel mine located just 70 km west of Sudbury, Ontario. During the 12 months of operation ending January 31, 2012, a total of 151,910 tonnes of ore was delivered to Xstrata’s Strathcona Mill and gross revenue of $11,162,363 on the sale of metals from Shakespeare was recorded. In total, over 300,000 tonnes of ore from the project has been produced and trucked to the Mill. While currently on care and maintenance, according to the 2008 Feasibility Study Update by Micon International Ltd., Shakespeare has a potential annual average production profile of 23,000 oz. PGM+Au, 8Mlb Ni and 10Mlb Cu. The study defined a diluted Probable Reserve of 11,828,000 tonnes grading 0.33% nickel, 0.35% copper, 0.02% cobalt, 0.33 g/t platinum, 0.36 g/t palladium and 0.18 g/t gold. Having acquired the project in June 2012, Prophecy is undertaking a comprehensive review of the property, historical operations and agreements with the goal of bringing the mine back into production when nickel metal prices are higher and the mine can generate meaningful positive cash flow.

the share of 60% for 2006/2007 reported in an earlier OMA survey. The Northeast’s share of wage compensation, (at 28.6%) is somewhat lower than its employment share in the province (30.5%) but higher than the wage share of 2010 (27.7%) even with the recovery in Sudbury, and dramatically higher than the wage share seen in 2006/2007 (16%). Workers in the Northwest part of the province accounted for 17.3% of wages and salaries in 2011, less than its 19.2% employment share, but higher than the 14% wage share seen in 2006/2007. Finally, the wage share of the southern part of the province in 2011, at 16.9%, is greater than its employment share (14.5%), but lower than its share both in 2010 (20.5%) and 2006/2007 (22%). On top of wages and salaries paid to

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| Mining in Ontario and accident prevention organization, the lost-time injury rate for mining in the first nine months of 2012 was 0.4 per 200,000 hours. This has come down from rates of six per 200,000 hours in 1981, to three in 1991, to 1.3 in 2001 and to 0.6 in 2011. Similarly, total medical injury rates have come down to 5.4 per 200,000 hours for the first nine months of 2012. The

total medical injury rate for mining was 20 per 200,000 hours in the early 1980s, 17.7 in 1991, 9.5 in 2001 and six in 2011. To maintain high standards of safety, mining companies continue to emphasize training. As technology and equipment become more sophisticated, fewer people operate equipment and more people design, develop and maintain equipment. According

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to the results from the latest OMA industry survey, an average of $711 per employee was spent on training in 2011, up from $651 in 2010. A further $1,072 per employee was spent on health and safety initiatives in 2011, compared to $1,056 in 2010. Commodity Prices Clearly, a crucial factor in the value of mineral production and the interest in exploring for new sources of possible mineral production in the province is the value that is placed upon this production. International markets dictate prices for mineral commodities. Gold and silver prices have strengthened considerably over the last 10 years, while base metal and platinum group metal prices have fluctuated dramatically. Because commodities are priced in U.S. dollars, monetary exchange rates have historically had a significant impact on the Canadian dollar revenues generated by Ontario mining companies, which was particularly noticeable during the 2008-09 economic downturn when the exchange rate plummeted. Recently, however, with the Canadian dollar vis-a-vis its U.S. counterpart roughly at par, the impact is less obvious. Since the beginning of 2006, the prices of gold and silver in $C have increased by a factor of roughly three. Through the first nine months of 2012, the $C price of gold averaged more than $1,650 per ounce, over $100 an ounce more than the 2011 average, and $400 an ounce greater than the 2010 annual average. Nickel and zinc prices, meanwhile, soared throughout 2006 and early 2007 before slumping over the next two years, then recovering somewhat in the subsequent period. After averaging $10.25 a pound in 2010, the $C price of nickel in the first nine months of 2012 has averaged just over $8 a pound, the same as that seen in 2004 and 2005. The price of copper has increased dramatically over the last 10 years, but there have been a number of peaks and valleys along the way. After a period of relative price stability in 2002 and most of 2003, the value of copper quadrupled by the beginning of 2006 to $C4 per pound. The price bounced between $C3 and $C4 per pound over the next two years before falling to $C1.75 by the end of 2008 as the world www.canadianminingjournal.com

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economic crisis took hold. Since then, the price for copper peaked at roughly $C4.50 per pound in early 2011, averaging $C3.95 for calendar year 2011 and $3.62 through the first nine months of 2012. Taxes Paid Employers in the Ontario mining industry paid $170 million in payroll taxes in 2011, up from nearly $140 million in 2010. The provincial government was the recipient of the bulk of these taxes, with revenues from the Employer Health Tax and WSIB premiums totaling over $111 million in 2011, up from $87 million in 2010. Corporate income tax data by industry at the provincial level are difficult to estimate, but using information from the ENTRANS Policy Research Group report, “Revenues to Governments from the Canadian Mineral Sector 2002-2011” prepared for the Mining Association of Canada, we can estimate a range of the tax take by level of government. In 2011 in Canada, ENTRANS estimates that the mining industry paid $992 million in federal corporate income tax and $811 in total provincial corporate income tax. If we assume that Ontario accounted for 25% of this value in 2011, the federal income tax paid in the province would amount to almost $250 million, while the provincial tax take is estimated to be $203 million. If the share were 35%, the federal corporate tax take in the province is almost $350 million, with the province taking in another $284 million. Local taxes by mining companies are particularly important to the northern regions of the province. According to responses to the OMA industry survey, almost $19 million in local property taxes were paid in the Sudbury region in 2011, down somewhat from the $20 million paid in 2010. Clearly, this is a significant part of the local tax base in this region. Local taxes in the Northeast part of the province totaled over $6 million in 2011, up from $5.7 million the previous year. In the Northwest, property taxes totaled $4.4 million in 2011, while in the south the number stood at $2.5 million. Overall, roughly $32 million were paid in property taxes across the province, providing important support for local services. And finally, Ontario’s miners take corporate social

responsibility very seriously as mining companies in the province continue to strive to be responsible partners in improving the community in which they operate. In fact, charitable donations have approached $10 million in each of 2010 and 2011, and that’s just one more of the benefits that Ontario’s mining companies contribute to the province. CMJ

*Information for this article comes from an 80-page Report prepared by Peter Dungan* and Steve Murphy*, entitled: “Mining: Dynamic and Dependable for Ontario’s Future. The Report, with assistance from the Ontario Ministry of Northern Development and Mines, was prepared for the Ontario Mining Association. *Peter Dungan, Director, Policy and Economic Analysis Program, University of Toronto. Steve Murphy, Research Associate, Policy and Economic Analysis Program, University of Toronto.

February/March 2013 • Canadian Mining Journal |

| North of 60

WHERE HAVE ALL THE MINERS GONE? Strand

Thomas

Gallagher

Aboriginals Are Now Masters of Canada’s Resource Agenda, says new book By CMJ Northern Correspondent Bill Braden

eteran Arctic mine finder Gren Thomas surveyed the trade show floor at last year’s NWT Yellowknife Geoscience Forum (its fortieth) and said with a shrug, “There’s no miners here anymore - it’s all suppliers and support guys. We’ve lost the momentum.” Indeed, of the 109 exhibit booths packed into a high school gym, only six were true miners or explorers. They were somewhat outnumbered by eight regulatory boards, First Nations, or governments, while the rest ranged from airlines to expeditors, hotels and artists. Thomas, with the Diavik diamond discovery to his credit, has watched the NWT’s enviable place as one of the world’s promising prospecting destinations slide into a state of “disaster.” His observation is just one gauge of the sobering decline in recent years in mineral exploration in the NWT. Five advanced proposed mines are slogging through protracted regulatory and permitting processes while Ottawa, which controls resource development in the NWT, continues to tinker with the system; it recently added yet another board, this one to adjudicate land access disputes,

to the NWT’s labyrinth of regulators. None of this is news, really, but a seasoned negotiator and former resource regulator has brought to light what he believes is at the heart of a nationwide issue of regulatory control. “The rise of native empowerment and its remarkable legal winning streak” is what has shocked governments and the resource sector with its growing potency, says Bill Gallagher, in his new self-published book Resource Rulers: Fortune and Folly on Canada’s Road to Resources. Gallagher says with 150 courtroom wins garnered in recent years, Canadian natives have transformed their decades-old sideline status in resource development into “the critical balance of power in deciding the fate of Canada’s resource projects.” Strategic Legal Mastery He says they have earned the “Resource Rulers” mantle by strategically mastering the nuances of the Canadian Constitution’s provisions for native status and rights, and by persuading judges across the country that their interests have to be resolved before a given project can go ahead. Gallagher asserts that aboriginals understand the process of resource project review

50 | Canadian Mining Journal • February/March 2013

much better than the developers do. That’s how they’ve taken command of the regulatory tables, the courtrooms, and in many cases public opinion in the dynamics of debating new mines, drilling for more energy and laying new pipelines. Likewise, governments are hidebound by their own intricate regulatory and legal frameworks, enabling aboriginal stakeholders to almost turn the tables on governments wanting to promote development and create jobs and wealth. “Still, the losing side (government and industry) fails to recognize the true cause of stock drops and lost opportunity costs,” writes Gallagher in the 341-page paperback. “It’s almost as if these project risk factors are doomed to remain as perverse and hidden impediments to realizing the economic benefits of future projects,” he writes. Gallagher trolls through almost 50 years of public and project history, dusting off Pierre Trudeau’s “Just Society” platform and Jean Chretien’s reformative but flawed White Paper as the awakening of aboriginal discontent late in the 1960s. They actually spurred Harold Cardinal’s “Unjust Society” manifesto and the National Indian Brotherhood’s “Red Paper” in angry response. Virtually every province of Canada gets profiled with major projects that have been www.canadianminingjournal.com

A resource regulatory panel hearing in Yellowknife.

shaped by the emerging native influence, from the Mackenzie Valley Gas Pipeline (stalled for 35 years), the Great Whale River hydro plan (dashed by James Bay Cree who felt betrayed by the impacts of the James Bay Project) and the very recent blockade of the proposed Northern Gateway bitumen pipeline from Alberta to the BC coast. The global law firm Baker & McKenzie LLP recently surveyed 300 international mining professionals on where they prefer to invest. Canada did very well, rating first in eight of 12 criteria, but was flagged by 38 per cent of the respondents for regulatory duplication and clumsiness, and the uncertainty of how to accommodate aboriginal interests. A minority, but a sizable one, says Drew Hasselback in a commentary in Up Here Business in November. “Most of the industry is careful to make sure it properly consults and works with aboriginal communities. Yet it’s the high-profile failures, and not the lesserknown success stories, that make it into the media. While the survey clearly shows that the majority appreciates Canada’s balanced approach to development, the size of that minority view is alarming,” he writes. Crown Fails in Duty to Consult Resource consultant and commentator Doug Matthews of Calgary agrees with Gallagher’s assessment. “There is a shift, and some would argue an appropriate one, back to some equality between the developers and the aboriginals,” he says. “The facility with which the aboriginal groups have used the courts should teach us quite a bit. They’ve been clear: they can’t always get what they want through negotiations, or land claims. The courts are a forum in which they think they can be equal.” Matthews is blunt on one key point that the federal government is failing badly in its duty to consult with native groups on behalf of industry. The fiduciary duty rests with the Crown (federal and provincial governments). It does not rest with a mining or oil company. Why you guys (industry) have allowed yourselves to be screwed around by the Crown, that you have to go in and do the consultation, continues to confound me.”

Gren Thomas echoes this change, and doesn’t see a ready or rapid way around it. “The thin edge of the wedge started about 30 years ago when the government said, well, you better go talk with the natives. We said, hang on a sec, that’s not our job, that’s yours. So they managed to foist it on the mining companies, and there was no set of rules (to guide how consultation should be conducted.)” The Department of Aboriginal Affairs and Northern Development Canada (formerly DIAND, now AANDC) is mandated to act for the Crown with natives, and clearly states that third parties, such as developers, do not have a legal duty to consult with Aboriginal peoples. But in its Plain Talk newsletter of spring 2011, it said certain parts of the consultation process may be “delegated” to third parties. “For example, there are normal due diligence, regulatory and other business practices that are carried out by industry in the course of their dealings with the public, including Aboriginal groups. Engagement and consultation by developers or other third parties may be taken into account when the Crown is assessing consultation obligations... ” The newsletter further prescribes that is it “essential that Aboriginal groups actively participate in and contribute to the consultation process by communicating their concerns and providing information in a timely way—particularly as part of regulatory processes that have been specifically created to deal with Aboriginal concerns and interests. AANDC has set up three different desks to manage this wide scope, and in October of 2012, the federally appointed National Aboriginal Economic Development Board released 10 recommendations on how to

increase aboriginal participation in major projects in Canada. It calls for tax incentives for industry to support proactive work with natives, loan guarantees and core funding for natives groups, and training for all parties on the contentious “duty to consult” issues. A Culture of Consultation Pamela Strand, until recently the President of diamond miner Shear Minerals, and past president of the NWT and Nunavut Chamber of Commerce, says terms and conditions and rules have to be in place but cannot entirely replace corporate bosses and aboriginal leaders investing in earnest, face-to-face relation-building. “Consultation is not a one-way dialogue. It is engaging discussion on issues that are of concern to create an outcome that is agreeable to both. You can’t have consultation without being willing to find a solution.” Strand says the North is further ahead than many parts of Canada, because the notion of consultation has become “part of the culture” over 20 years. Ever the optimist, Strand points to the success of Alaska’s well established aboriginal business corporations as a model that works in the North. “Why are the settled land corporations in Alaska more successful than they are here? They’re businesses - and that’s what we have to do - try and figure out how to make our corporations successful.” If the system is flawed, it hasn’t stopped industry and aboriginal leaders from making deals. One successful model, pioneered in the late 1990s between NWT diamond miner BHP Billiton and several affected communities in the region, is the IBA - Impact Benefit Agreement. It’s a set of environmental values, business and hiring targets and even quasi-royalty payments between a

February/March 2013 • Canadian Mining Journal |

| North of 60 The federally appointed Mackenzie Valley Environmental Impact Review Board conducts a public hearing in Yellowknife in September 2012. Billbradenphoto

developer and First Nation that are a crucial (but not legally required) foundation of getting permit approval. In his Resource Rulers, Gallagher heaps praise on this approach, crediting it with rescuing the Little Narrows Gypsum program in Cape Breton. “Success was the outcome where the natives were viewed as allies; failure, where they were taken for granted,” he writes. But Gallagher reproaches the federal government, specifically former DIAND Minister Ron Irwin, with imposing IBAs on industry outside of what was required in the government’s own laws.

Changing the Confidence Climate Denendeh Investments Inc. CEO Darrel Beaulieu of Yellowknife is not optimistic the court-centred battles will go away soon. And Beaulieu, a former Chief and Councillor with the Yellowknives First Nation who, in his younger years, worked in Arctic exploration camps, is unequivocal on the issue of the federal role in consultation. “This whole consultation and accommodation issue is a federal responsibility. It’s not an industry responsibility.” Certainty, he says, it is the goal that everyone seeks. “Look at the core desires. Everyone in

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the North wants certainty... everybody’s been saying the same thing but in different ways and trying to get it through different ways (such land claims, policy, regulatory framework).” That the conflicts are ending up in court is no surprise, says Beaulieu, as First Nations capacity to deal with burgeoning resource development (let alone chronic housing and social problems) is steadily eroded. “ It’s opening the eyes of people to the power and influence that Aboriginal people are now having... and it comes out in the courts. You’ve got over 600 First Nations in Canada and as Bill Gallagher points out, they’ve got a huge influence.” “How we utilize that power and influence to the better benefit is going to be the key, instead of putting up those roadblocks,” he surmises. His remedy? Real business-to-business relationships between First Nations and industry are a productive way around the conflict. “We have to be able to participate effectively and collaboratively in the development of resources,” says Beaulieu. The NWT-wide company he leads started 30 years ago as a limited partnership between the 27 NWT Dene First Nations. It now has www.canadianminingjournal.com

investments and partnerships with major players such as Nabors Canada, ATCO, Yukon Indian Development Corporation, Nunasi and the Inuvialuit Development Corporation with interests in communication, exploration, construction, utilities, infrastructure maintenance and real estate. Citing advances made by NWT aboriginal-owned businesses (more than 60 now serve the three big diamond mines) as well as Kitikmeot Inuit and the Cree of Northern Quebec, he asks a key question: why is it that First Nations cannot participate in resource exploration and as a developer of Natural Resources, a real industry player? Why not, indeed. While he can’t release details, Beaulieu said Denendeh is actively pursuing its own venture as a resource developer in the NWT. Participation and being involved in the resource economy builds confidence, he says, and that confidence will find its way back into the investing market which in recent years has shunned the NWT’s risky and uncertain resource economy. “It’s a part of the economy that we have control in changing. We don’t control market demand, but we do have control in changing the climate of confidence.” CMJ

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February/March 2013 • Canadian Mining Journal |

| Products Track drill reduces cycle time Caterpillar is pleased to introduce its MD5150 Track Drill, a customer-inspired machine that delivers fast and efficient drilling of holes up to 152 mm in diameter. The drill incorporates a proven rock drill, patented carousel rod changer, new cab and many other features that boost productivity and reduce operating costs. The MD5150 reduces setup time thanks to a carousel rod changer that holds six rods and accommodates multiple lengths and diameters of drill steel. Dual-rod grippers and a unique gate design let the rod and gate move simultaneously, reducing cycle time. The rod changer is supported by a sturdy feed and heavy-duty 2.4-m boom that extends to 3.3 m for larger pattern coverage with fewer setups. Because the carousel rod changer weighs less and holds more rods than linear models, the boom extension can reach farther and drill deeper while maintaining stability. Holes can be drilled within 610 mm of the highwall, which is 50 per cent closer than with a linear rod changer.

Tool carrier

Brokk announces the availability of its Brokk 100 tool carrier, a machine designed for work in narrow vein mining applications. Featuring a more compact design, yet 35 per cent greater breaking power, the machine enhances the company’s line of remote controlled, zero-emissions, electric driven alltool carriers. Its compact design allows the machine to operate in restricted spaces. The low-profile configuration, featuring a three-piece boom design, is less than four-feet high, and permits access into smaller openings, while the lower centre of gravity provides greater stability. While the design is compact, power and reach have not been sacrificed. A new load-sensing hydraulic system with improved hydraulic capacity helps generate improved breaking power when paired with the included Atlas Copco SB152 breaker. Maximum horizontal reach is 12.1-feet, while vertical reach is 14.1-feet.

Heavy-duty ore bodies

Philippi-Hagenbuch is pleased to announce that it has taken hauling hard rock and ore to a new level with its heavy-duty HiVol® Hard Rock ore bodies. Designed with the hard rock and ore mining industry in mind, the company has engineered its units to handle highly abrasive material while minimizing carry back and maintenance requirements. To help ensure the body will fit a company’s application and specifications precisely, engineers work closely with mining customers in identifying key factors that will impact the design of the truck body. Those factors may include density and cohesive qualities of the material, height and width restrictions, loading equipment and climate conditions. In addition, the company applies its proprietary Load Profiling process in examining the natural angle of repose, or how the material lays once it is dumped into the body, to maximize its payload capacity and reduce potential for material to fall out of the body. 54 | Canadian Mining Journal • February/March 2013

www.canadianminingjournal.com

Screening plant

IROCK Crushers, introduces its TS-409 open style feeder track screening plant designed for small- to mid-size producers who need a more economical, more compact screening plant and do not require as much capacity.The TS-409 is suitable for materials such as sand and gravel, coal and limestone. It is powered by a 66.2 hp Deutz engine and is capable of processing materials at a rate of up to 300 tph. In terms of transportation, the equipment can be loaded onto a trailer to move from site to site, and has a set-up time of 10 minutes or less. The unit features an open-style hopper feeder with a 5.02 cubic yard capacity and a 42-inchwide belt feeder conveyor. Capable of sizing materials up to 12 inches in size, the machine has two 9-foot by 4-foot decks for a total of 72 square feet of screening area. This design allows users to produce and sort products in up to three different sizes, and the decks can be interchanged so customers have more control over end-product size. The unit features 400-mm-wide crawler tracks and an onboard 42-inch oversized Chevron belt conveyor with a stockpiling height of 11.5 feet. The entire working unit measures just over 41 feet long.

Air compressor

Atlas Copco introduces its XAS 1800 JD7, a high-volume compressor that is compliant with interim Tier 4 Environment Canada and EPA emission regulations. Benefits include easy-to-use electronic controls, optimized fuel consumption and a small footprint to reduce transportation cost. Along with an updated exterior, the unit offers a new electronic controller with a large display allowing simple, yet intuitive design to provide ease of use for the operator. With help from an optional fuel saving system, the engine speed and air inlet valve are electronically regulated to optimize fuel consumption. The air compressor produces 1800 CFM at 100 psi (7 bar) and 1600 CFM at 150 psi (10 bar). It also features a new filtration system to remove oil aerosol content to 0.01 mg per cubic meter and is able to break particles down to 0.01 micron at the industry’s lowest pressure drop. The aftercooler reduces the compressed air outlet temperature to approximately 15 degrees Celsius over ambient for higher quality air.

Fuel-efficient excavators

Doosan’s DX225LC-3 and the DX255LC-3 excavators combine with interim Tier 4 (iT4) emission compliance updates to help customers work more efficiently. Improvements to the machines include new selectable power modes and work modes that provide operators with the convenience of being able to customize their machine’s power delivery for specific tasks as well as adjusting the hydraulic flow to match attachment functions. A new electronic fan clutch reduces fuel consumption and noise levels, while providing cooling system efficiency improvements on the machines. The DX225LC-3 and DX255LC-3 are each powered by a 6-cylinder Doosan DL06K water-cooled diesel engine that has been designed for use with a cooled exhaust gas recirculation (CEGR) system, diesel oxidation catalyst (DOC) and diesel particulate filter (DPF). The engines in this configuration are optimized to reduce nitrogen oxides and articulate matter to comply with iT4 emission regulations. The turbocharged 167 horsepower engine on the DX225LC-3 and the 185 horsepower engine on the DX255LC-3 feature a high-pressure common-rail design with direct fuel injection and electronic control.

February/March 2013 • Canadian Mining Journal |

| Risk Management

THE NEW GLOBAL ORDER OF RISK MANAGEMENT Michael Marino is Assistant Vicepresident, Energy, RSA Insurance, a property and casualty insurance company, Toronto.

he world is a hungry place and the need for minerals is growing worldwide. Canada, with its mining expertise, is capitalizing on this demand by exporting its talent around the globe. In fact, Canadian companies in the extractive sector have interests in more than 8,000 properties in 100 countries – representing approximately 12 per cent of Canada’s direct investment abroad. While this business is accustomed to going further afield – often to remote and technically challenging locales – there is no room for complacency. It is imperative that the miner, the insurance broker and the insurer all understand the high risks, the challenges and the nuances of operating in new territories. Solid risk management is key, but there are a host of areas that require a thoughtful strategy. There’s environmental and regulatory compliance, political realities, social responsibility, and workplace safety, just to name a few, whereby all stakeholders need to be on the same page. Geology is a major factor when assessing traditional risk. Once you dig underground, it’s unpredictable because you’re not certain what you will encounter. Will there be a collapsed shaft or flooding? The use of explosives also means that mining companies need to manage high levels of risk to ensure the viability of 56 | Canadian Mining Journal • February/March 2013

the mine and the surrounding community. Increasingly it is the risk above ground that must be understood. Eurasia Group, the world’s leading global political risk research and consulting firm states, “Above-ground risks are quickly gaining equal footing to traditional geological and engineering considerations for mining projects.” Some of the mines in these far-flung areas are not as ‘friendly’ as our domestic properties and many have physical hazards. All this needs to be carefully assessed. As insurers, we don’t like to say ‘no’ to any area, but prior to taking on an account, we expect the mining company to have strict protocols in place. This applies to both junior and senior mining companies. While we recognize that our Canadian miners have solid expertise, risk quality is still our number one consideration. Those mining companies that place a premium on good risk management and stringent procedures will get better terms and conditions, which helps contribute to their growth. So, it’s a winwin situation for them, for the broker and for us. Since 2011, overall capacity in mining has been reduced by 30% largely due to catastrophic losses from natural disasters. Massive flooding in Australia, New Zealand, Brazil and South Africa; earthquakes in Chile and New Zealand; the tsunami in Japan – all contributed to the $3.5 billion losses. Now, more than ever, insurers need to be very cognizant of risk selection. When we assess a traditional risk, we look at the level of expertise of the mining company and we expect the broker to have a strong, solid relationship with the client. Our broker partners also www.canadianminingjournal.com

have in-house risk management departments that offer Canadian mining companies the specialized knowledge they require. We also look at the number of claims and frequency versus the cost of the incidents. A company’s loss history can point to underlying issues, for example whether the risk management program has kept pace with the company’s growth. We look at how previous losses have been handled and what measures were put in place to mitigate future losses. These factors influence our decision in taking on the risk. We are purposeful in protecting the quality of our portfolio and the interests of our existing partners. Generally, mining has more frequent claims than the oil and gas sector. But unlike oil and gas where the cost of a vapour cloud explosion can be monumental, claims in mining are not as costly. This is why we encourage mining companies to take on higher retentions. By assuming a level of self-insurance, clients tell us they are confident in its protocols and are willing to be in it for the ‘first dollar’. That sends a clear message about risk management and its prominence in the company. Canadian companies recognize that going into foreign countries means being able to work cooperatively with the host government and its people. More than ever, the local people and government want to be integrated into the overall picture. They want to see value brought to their economies. They want a share of the profits; they want jobs, and infrastructure for the community – schools, hospitals and housing. And just as important, they want to see good environmental stewardship policies. The common refrain is: “you’re extracting something from us, so we want something back.” As insurers we want to know that clients are dealing fairly and ethically in the countries where they set up operations. We want them to support the local economy and have strong social responsibility policies in place. It’s not just the right thing to do; it’s good risk management for everyone involved. Allowing an adversarial relationship to develop with the local community could be very costly for a mining company’s operations. We’ve all seen or heard of instances of strikes and vandalism by disgruntled employees or members of the community when they feel they are not being treated fairly. As well, running afoul of a local government can result in a mining operation being shut down. In fact, Willis, a leading insurance broker, cites “resource

nationalism and punitive taxation” by host governments as major risks facing mining companies today. Good safety policies are also critical. We expect our clients to embed rigorous safety procedures in their company culture. Risk awareness has to become part of the day-to-day operations. We can extrapolate on how a mining company runs its business by looking at its safety record and policies. An example is the 400-ton trucks used in mining – each tire costs $60,000 and each truck has 10 tires. If an employee drives carelessly and it results in a claim, that could impact production Continued on page 58 unless there is spare trucking capacity.

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| Risk Management Mining machinery can be a huge exposure, as some of this equipment is worth millions of dollars. If the equipment goes down, it could take a long time to replace, halting a mining operation and jeopardizing future projects. That’s why equipment needs frequent inspection. Brokers typically conduct the inspections and write the reports, often in partnership with the insurer. For remote or potentially dangerous areas, inspectors are flown directly to the site to ensure safety and efficiency. Sometimes junior mining companies operating in remote areas contract out ore processing. We look for tight safety protocols on the part of these contractors. This is also an opportunity for the broker to play a more important role in the account by offering their technical expertise and engineering services. On the other hand, large mining companies have their own risk management teams and usually do their own processing,

so they have more control over the process. This gives insurers a higher comfort level. Effective risk management is entrenched in the culture of Canadian mining companies and that is one reason for their ability to export successfully. Brokers and insurers have proven that they can strengthen a miner’s risk management program. It is this collective approach that has made Canada a leader in resource development. At the April 2012 Summit of the Americas, Prime Minister Harper told Latin American business leaders that Canadians are “justly proud” of the mining industry and “its elevated sense of social responsibility.” As a partner serving this sector, we could not agree more. Growing this sector responsibly – for the benefit of our economy and the host nation’s economy – is the only viable option. CMJ

The Prospectors and Developers Association of Canada (PDAC) is the voice of Canada’s exploration community, with over 9,000 members who are involved in the exploration for and development of mineral resources. Nationally, the PDAC works to ensure the industry has in place the foundational elements required to sustain the viability of the sector, such as access to financial and human capital and access to land. Ensuring that exploration companies have access to as wide a land base as possible is critical in order to increase the probability of exploration success. Exploration success, in turn, is the first step in ensuring that minerals and metals continue to be made available for transformation into the products that make modern life possible. The PDAC also works to ensure the industry conducts itself according to the highest possible standards with respect to social responsibility, environmental stewardship and health and safety, and is committed to supporting the meaningful and effective participation of Aboriginal and indigenous peoples.

Program Director, Lands & Regulations The PDAC is now looking for a new Director for its Lands and Regulations Program. Reporting to the Senior Program Director, the successful candidate will collaboratively conduct research and advocacy related to: legislation and regulations (e.g. mineral tenure frameworks, environmental assessment processes, permitting); land-use issues (community engagement, land-use planning, integrated land-management, protected areas and other land withdrawals) as well as infrastructure issues (geoscience, transportation, energy). In particular, the successful candidate will be familiar with the management of lands and resources in Canada’s northern territories, and with Aboriginal engagement (including the Duty to Consult and FPIC). The Director will ensure that the PDAC is seen as an important, credible and effective advocate on these issues. As an ideal candidate for this role, you have significant exposure to regulatory and policy issues in relevant areas, and have worked extensively with the mining and regulatory approval process. You understand regional, national and international issues as they relate to mining and exploration, and have worked on initiatives to support responsible exploration and mining. A team player, you have managed staff in a fast-paced, knowledge-based organization. You are committed to policy excellence, and work well with a diverse range of stakeholders. For more information on this outstanding opportunity, please contact Nicole Poirier or Eric Slankis of Renaud Foster Executive Search at npoirier@renaudfoster.com or eslankis@renaudfoster.com, or by phone at 613-231-6666/1-800-513-8117.

58 | Canadian Mining Journal • February/March 2013

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CSR and Mining

Are Canadian miners “good players” in CSR? Marketa Evans is the Government of Canada’s Extractive Sector CSR Counsellor. The CSR Counsellor is a special advisor to the Minister of International Trade. The Counsellor has no policymaking role and does not represent Government of Canada policy positions.

By Marketa D. Evans

ime and again, I’m asked if Canadian mining companies are “good players” in corporate social responsibility (CSR), and the answer to that question is much more complex than a simple “yes” or “no.” It begins with the difficulty of even answering “What is CSR?” The Government of Canada defines CSR as the voluntary activities undertaken by organizations to operate in an economically, socially and environmentally sustainable manner. And that’s an excellent start, but to be operationalized, we need to go deeper. Some would say CSR is about codes of ethics or “doing the right thing;” others argue it’s about development projects, and spreading the economic benefits of mining to local economies. And we know many companies are already engaging in such activities. However, evidence suggests that many Canadian mining companies are missing a critical element of any CSR strategy – trust building through robust stakeholder dialogue and engagement. HERE IS MY ASSESSMENT: Today, if your business has environmental impacts, you are in the business of stakeholder engagement. What we see from the vantage point of the Office of the CSR Counsellor is rising community resistance and conflict around mining projects. Even at the exploration stage, companies are experiencing diffi-

culties securing community support, and when signs of trouble arise, they are all too often ignored. Companies may not perceive the longterm damage that can be done from a failure to have meaningful engagement with all stakeholders – even the critical voices – from the outset. Or they simply attribute complaints to misinformation or illegitimate stakeholders. So who are these “stakeholders” that should be thought about? Stakeholders of course are your shareholders, but today, the circle of those to include in discussions should be much wider. For example, the International Finance Corporation defines stakeholders as people who “may be affected by the project or have interest in it” or, who can affect its outcomes. So this clearly includes those who are now or may become critical voices. Even if the company feels they are not legitimate, they can affect critical corporate objectives. And what about the fear of validating unreasonable demands or activists? Won’t sitting down with them open the door to unreasonable expectations? While I’m certainly not advocating for companies to sit down with all players – and even less to give into demands that seem unreasonable, or unfair. I’ve also seen no evidence that ignoring projects affected people will make the issues go away. Indeed, often the opposite is true. Increasingly people have concerns about the impacts of mining and opening a conversation with project-affected communities is a good way to provide balancing information and show

60 | Canadian Mining Journal • February/March 2013

openness to hearing concerns. It builds trust. In the absence of an open dialogue, misinformation, rumour and fear are much more likely to spread. In 2002, Meridian Gold commissioned an external report about “what went wrong” in the Esquel project in Argentina. The findings were important: the number one reason the project did not move forward was the failure of the company to “engage effectively with the community” and communicate through a “meaningful dialogue” with the community. The report remains required reading for anyone in the industry interested in securing social license to operate. It is available on the PDAC website at http://www.pdac.ca/ pdac/advocacy/csr/bsr-esquel-report.pdf Has there been learning? In late 2012, a quarry planned for Southern Ontario was stopped due to community mobilization. In the aftermath, the company’s president conceded: “In hindsight, we did not do a real good job of engaging the local community and the public at large about our project and about the benefits and how we would move the project forward. As a result, there is a lot of misinformation out there.” So. If you are in mining, you are in the business of stakeholder engagement. And that too is CSR. CMJ We invite you to contact us and learn more. email: csr-counsellor@international.gc.ca www.canadianminingjournal.com

PROFESSIONAL DIRECTORY

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Mining and Mineral Processing News Since 1882 Canadian Mining Journal serves the operations segment of the Canadian mining industry. From updated CSR standards to new big-bucket loaders, CMJ keeps you up to date with developments in Canadian mining. To advertise in Canada’s only ABC Audited mining magazine, (10,094 circulation, ABC Audit June 2012), please contact the Publisher, Robert Seagraves, at 416-510-6891 or rseagraves@canadianminingjournal.com. or Bonnie Rondeau, Western Canada & U.S.A. at 1-416-510-5245 Toll Free Canada: 1-800-268-7742 ext. 6891 or 5245 Toll Free U.S.A.: 1-800-387-0273 ext. 6891 or 5245 You can visit us at our website: www.canadianminingjournal.com to read the Daily Mining News or browse past issues in pdf format.

Advertisers Index 3D-P...................................................... 47...........................................www.3D-P.com AEL Mining Services ........................ 44.................. www.aelminingservices.com Atlas Copco ........................................ 34.................................. www.atlascopco.ca B.I.D Canada Ltd................................ 61............................www.bidcanadaltd.com Banco Base Treasury Solutions ..... 41............................... www.bancobase.com BBA Inc............................................... 11................................................www.bba.ca Bestech............................................... 40.....................................www.bestech.com CG Industrial Specialists................. 43...............................................www.cgis.ca CITIC HIC Australia Pty Ltd.............. 59.................................... www.citic-hic.com Columbia Steel Casting Co. Inc........ 7...........................www.columbiasteel.com Control System CA............................. 57.............................www.controlsystem.ca DAC Marketing Ltd............................ 32.................................www.dacshows.com DMC Mining Services....................... 42............................... www.dmcmining.com Doosan Infracore CE......................... 38......................................www.doosan.com Dundee Capital Markets................... 64......................... www.dundeewealth.com Eco Waste Solutions......................... 61............................ www.ecosolutions.com ESPAR..............................................Outsert.................................... www.espar.com Galaxy Broadband............................. 37....................... www.galaxybroadband.ca Goldcorp Inc....................................... 27................................... www.goldcorp.com Industrial Equipment Mfg. Ltd. ........ 6.................................................www.iem.ca Infosat Communications Inc............ 39..........................www.infosat.com/mining

Metso Minerals................................... 4......................................... www.metso.com NRB...................................................... 25...................................... www.nrb-inc.com Nuna Logistics.................................... 26........................... www.nunalogistics.com Osler Hoskin and Harcourt............... 35.......................................... www.osler.com Petro Canada....................................... 2.....www.lubricants.petro-canada.ca/mining Redpath Mining.................................. 24......................... www.redpathmining.com Renaud Foster Management........... 58............................... www.renaudfoster.ca Safe Air Filtration Systems............... 52........................www.safeairfiltration.com SMS Equipment.................................. 49..................................www.smsequip.com Sommers Motor Generator Sales............................. 57............................www.sommersgen.com Spicer Solution Providers................. 46................................................ www.2sp.ca SpinTek Filtration............................... 40...................................... www.spintek.com Sprung Instant Structures Inc......... 33......................... www.sprung.com/mining SRK Consulting (Canada) Inc........... 53..............................................www.srk.com Strongco.............................................. 48................................... www.strongco.com Technosub........................................... 45.................................. www.technosub.net Tenova.................................................. 13............................ www.tenovagroup.com Tetra Tech ........................................... 38.................www.tetratechindustries.com Valard LP............................................. 36........................................www.valard.com Volvo Construction............................. 63................................... www.strongco.com February/March 2013 • Canadian Mining Journal |

Unearthing Trends

Navigating complicated transfer pricing issues Sean Kruger is a Partner in Ernst & Young’s ITS Transfer Pricing & Tax Effective Supply Chain Management practice. He is based in Toronto.

By Sean Kruger

or Canadian mining companies doing business around the world, dealing with transfer pricing issues has never been straightforward. But after the UN released its Transfer Pricing (TP) Guidelines in 2012, and with a number of developing countries introducing their own transfer pricing approaches, the environment has become increasingly complex. Prior to the introduction of the UN’s TP Guidelines, India, for example, expressed its disagreement with the OECD Transfer Pricing Guidelines as a foundation for transfer pricing applicable to developing countries. It argued that the guidelines tend to favour the interests of developed countries, specifically OECD members. It proposed that the UN develop its own guidelines — not with the intention to do away with the arm’s-length standard, but instead so that issues specific to developing countries might be more adequately considered. The UN describes its transfer pricing guidelines as “a response to the need, often expressed by developing countries, for clearer guidance on the policy and administrative aspects of applying transfer pricing analysis to some of the transactions of multinational enterprises (MNEs) in particular.” Meanwhile, countries like Brazil, Peru, Guatemala and Honduras all recently introduced amendments to or announced new transfer pricing rules and documentation requirements.

What do these developments mean? While the UN guidelines aim to reflect the realities for developing countries at their relevant stages of capacity development, they — combined with the various amendments in specific countries — are likely to generate far more disputes for companies headquartered in capital-exporting countries with exploration and mining operations in developing countries. The likelihood that a country where mining activity takes place will have transfer pricing rules is considerably higher today than even just a few years back. Mining companies with operations in developing countries should bear in mind that the application of transfer pricing approaches — such as the arm’s-length standard — can vary even among countries that claim to follow the OECD guidelines. Being aware of the transfer pricing rules and their unique application in a given country is key to managing transfer pricing risk exposure. It’s also critical to have a transfer pricing strategy that considers compliance, dispute resolution and planning. Here are some things to think about when it comes to managing those risks: Compliance Mining companies must pay attention to regulatory filing requirements and prepare robust transfer pricing documentation that will explain and support their approach to transfer pricing.

62 | Canadian Mining Journal • February/March 2013

Controversy risk With the introduction of the UN guidelines and the possible differences from OECD guidelines, companies need to take steps to minimize the risk of double taxation, penalties and interest. It may be possible to use a double tax agreement or a bilateral Advance Pricing Agreement (APA) to eliminate double taxation. Or, where those options aren’t possible, a unilateral APA to secure advance agreement for the transfer prices may be an alternative. Planning Mining companies should consider how they might be able to structure transactions to avoid negative tax consequences. For example, withholding taxes on management fees can be higher than the profit margin earned by the service provider. In those cases, it may be possible to restructure the transaction so there is no longer a provision of services, but rather a reimbursement of expenses. To help minimize the rising tax cost associated with operating in an increasingly controversial environment, companies should also consider tax-advantageous strategies related to supply chain planning, centralized risk assumption and management, and finding strategic funding alternatives. While there are certainly challenges, early evaluation of where and how activities and transactions can be tailored for operational — and tax — benefits will be the difference between headache and success. CMJ www.canadianminingjournal.com

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