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Category: Diamond Insight
Mining Space for First Nations (April 27, 2012)
Nathan Elliott, Insightwest President and David E. Smith, Senior Policy Fellow, Johnson-Shoyama Graduate School of Public Policy
From diamonds to gold, coal to potash, nickel to zinc, and copper to uranium, mining is one of Canada's greatest industries, and a major force propelling regional and national prosperity. Internationally recognized as a leader in engineering, Canada remains an innovator in mining. It is a reputation that continues to grow. Of the world’s top ten most favorable mining jurisdictions, five are located in Canada. Of these five, New Brunswick has been recognized by the international mining industry as the most attractive jurisdiction for mineral exploration and development.
Mining stimulates economic growth, job creation and spin-off activity in urban centres, rural areas and Aboriginal communities across the country. In 2009, mining contributed $32 billion in GDP (3.2 per cent of overall GDP) and employed 306,000 workers in mineral extraction, processing and manufacturing.i That same year, mining accounted for 19 per cent of Canadian goods exports and $5.5 billion in taxes and royalties paid to levels of government. Further, there are more than 3,200 companies that provide the industry with services ranging from engineering consulting to drilling equipment.ii
The Mining Association of Canada (MAC) indicates that as of 2006 over 4,500 Aboriginal people were working in the mining industry – an increase of 43 per cent in a decade.iii These proportions are roughly two times the Aboriginal representation elsewhere in the Canadian workforce. Conditions are favorable to an increased Aboriginal workforce in the future: “1,200 Aboriginal communities [in Canada] are located within 200 km of a producing mine or exploration property.”iv Ernest & Young estimates that 40 per cent of the industry’s workforce will retire by 2014. The number of Canadian mining workers over the age of 50 is two to five times greater than the number below age 30. The MAC reports that “some of the industry’s anticipated worker shortages could be filled through the training and skills enhancement of Aboriginal Canadians.”v
Nowhere in the country is this demographic transition having more effect on resource industries than in the North (both provincial and territorial), where mining and opportunity predominate. Today the magnetic North is more than a direction on a compass; it is an economic pole attracting national and international business to traditional First Nations and Inuit lands. The development of economic space annihilates geographic distance and creates opportunity for First Nations. The uranium export deal concluded by the prime minister, Stephen Harper, on his February 2012 visit to China makes the point. Much of Canadian uranium is mined in northern Saskatchewan. As a result, no group stands to benefit more from this deal than the La Ronge Indian Band who has been engaged in providing services to the uranium sector for decades.vi
Similarly, Aboriginal employment in mining in the Northwest Territories is on the rise – almost six fold in the decade between 1996 and 2006. A major investor in diamonds in the north is Harry Winston’s Diavik Mine. The Harry Winston corporate website indicates that participation agreements were reached with a handful of Aboriginal groups. The specified commitments were:
- 40 per cent northern workforce during construction.
- 38 per cent northern purchasing during construction. (At its conclusion, of $900 million in contracts with northern companies, $600 million was with Aboriginal companies)
- 70 per cent of its annual requirements for goods and services from northern companies.
- 66 per cent northern employment and 40 per cent Aboriginal employment for its operations. (In 2010, Diavik's workforce averaged 907 people with 561 people (62 per cent) northern, of which 269 people (30 per cent) were Aboriginal)
The website reports that Diavik is one of only a few companies in Canada to have surpassed $1 billion in spending with Aboriginal business. By the end of 2010, Diavik's spending with Aboriginal business was nearly $2 billion. Although all industries are different, this participation agreement and the performance achieved under it, demonstrate the size of the stakes in this industry.vii
In 2009, 86 per cent of Canada’s diamonds were produced in the NWT. Diamond production occurs in Nunavut and northern Ontario as well; Canadian diamond exports exploded from zero in 1998 to $2.8 billion in 2008.viii Intense mining activity in the North is not limited to diamonds. Although uranium in northern Saskatchewan has been mined for more than half a century, over the past decade the industry has undergone unparalleled growth. In mining, Aboriginal Canadians are increasing as a proportion of the workforce. In potash, First Nations not only participate in the work force, but have begun to assume an equity stake. For this reason alone, potash deserves a closer look.
Demand and markets make the fertilizer industry, and particularly potash, difficult to ignore, and that is why it is given special attention here. In 2010, the Government of Canada went so far as to label potash as a strategic resource. The fertilizer industry (potash, phosphorous and nitrogen) contributes over $12 billion annually to Canada’s GDP and employs over 12,000 Canadians. The fertilizer industry shipped to over 50 countries in 2011. Potash, based in Saskatchewan and New Brunswick, is central to this industry, employing one third of the workforce.ix
Canada is the world’s largest potash producer and exporter, accounting for more than one third of total potash production and exports. As with many resource-based markets, the potash market can be volatile. In 2009, global production plunged by 39%, shipments dropped by 43%, and the trade volume decreased by 51%. Since then, the potash industry has been on a steady recovery.x
As of 2010, the annual value of potash production was over $3 billion. Saskatchewan accounts for more than 30 per cent of world potash production and 45 per cent of the world potash trade. The three major players in the province (PotashCorp., Mosaic and Agrium) have over $100 billion in market assets and almost $10 billion annually in revenue.xi
Predictions for the continued growth of the industry are bullish. The potential for First Nations economic involvement is equally bullish, as indicated by the partnership agreement reached by the Kawacatoose First Nation and Native American Resource Partners (NARP) in early 2012. (At the same time, the Muskowekwan First Nation in Saskatchewan decided to sign an historic deal with Encanto Potash).xii Recognizing that potash mining was going on all around them and following expression of foreign interest, Kawacatoose leadership decided to act. As Chief Darrin Poorman remarked upon signing, “We know we sit on the richest deposits of potash….We’re going to move forward as a collective, not just as Kawacatoose….I believe we can do things as one voice as First Nations people….We have to start doing things for ourselves.” Over a two year period they hired experts and researched each of the companies. NARP, a Canada-US private investment firm which only serves First Nations, was selected.xiii
There are key features of this industry that relate to economic space. The potential reward from the potash pie for First Nations cannot be underestimated. The scale of the industry, its proven returns to date, in both revenue and employment, and the possibility for agreement with well-established industry partners are attractive features for First Nations. Notwithstanding bullish prospects, there are risks; primarily the volatility of the market, not only as it affects the economy, but as it affects society and politics. Potash is one industry and Saskatchewan is one province; together they illustrate that big markets create big opportunities. The accompanying map illustrates that potash is abundant and literally under the feet of First Nations. Kawacatoose saw this and acted.
i P. Stothart, “Innovation and the Canadian Mining Sector,” CIM Magazine (May 2011) 6(3), http://www.cim.org/bulletin/bulletinlive/articles.cfm?Issue_ID=994&row=2&Type=1&Segment_ID=45
iii Mining Association of Canada, “A Report on the State of the Canadian Mining Industry: Facts and Figures 2010,” 49, http://www.mining.ca/www/media_lib/MAC_Documents/Publications/2010/Facts_and_Figures_2010_English.pdf
iv Natural Resources Canada, “Aboriginal Employment Opportunities,” (2007), http://www.nrcan.gc.ca/minerals-metals/aboriginal/bulletin/3222.
v Mining Association of Canada, “Facts and Figures 2010.” 50.
vi “Uranium Decision Equals Jobs in Saskatchewan's North,” Prince Albert Daily Herald (February 12, 2012).
vii Harry Winston, “Community Investment,” http://www.diavik.ca/ENG/ourapproach/community_investment.asp
viii Mining Association of Canada, “Facts and Figures 2010,” 50.
ix Canadian Fertilizer Institute, “2011 Annual Energy and Mines Ministers Conference,” Kananaskis, Alberta (July 2011), http://www.cfi.ca/_documents/MinesEnergyMinistersBrief2011-%20FINAL.pdf.
x Natural Resources Canada, “Canadian Minerals Yearbook – 2009,” http://www.nrcan.gc.ca/minerals-metals/business-market/canadian-minerals-yearbook/2009-review/4286.
xi Canadian Fertilizer Institute, “2011 Annual Energy and Mines Ministers Conference.”
xii Will Chabun, “Potash Exploration Get the Vote,” Leader Post (February 29, 2012), C1.
xiii Kerry Benjoe, “Kawacatoose First Nation Reaches Potash Exploration Agreement,” Leader-Post (January 18, 2012),