Mining and society are intricately connected. We are so dependent upon mining that it is far more realistic to question how, when, and where we will mine than to question if we will mine.
But this brings forth some serious challenges. The resources we depend upon are finite, and we are consuming an ever-increasing amount of them. At the current rate of growth in consumption, it will not be long before we will need more resources than our planet can provide. What will we do then?
More significantly, what can and will we do to prevent this scenario from unfolding?
‘Rethink’ is an exploration into how society can become sustainable and what roles all of us play in achieving this goal. It is a call to action to begin the change now, with the recognition of the factors that can drive or inhibit such change. Most importantly, it is a dialogue on how we get from ‘here’ to ‘there’.
And who should benefit from their extraction?
The first question may seem a little odd to be asking. After all, the usual answer here in Canada, as well as several other countries, is they belong to whoever holds the mineral claims. Where it gets interesting however is in answering the second question.
Here in Canada, as well as several other countries, it is believed that lands held by the government are for the benefit of citizens, and as such, the wealth of resources within these lands should benefit all citizens. Stating this position is important, as either holding this position or its antithesis creates two very different views on how we approach mineral rights.
Given that the fundamentals of our country are not going to change, it is worth first identifying one possible mineral rights approach if we did not assume everyone should benefit from the wealth held in government held lands before delving into the challenges faced because of how we view the land.
Imagine Canada (or any nation state) where government held lands were not deemed to be for the benefit of all citizens. In this scenario, one potential position would be that the government, acting in a market economy, could sell or lease its lands as it saw fit to generate revenues to support its myriad of public services. But governments do this now, so how is this scenario different? The difference would be in the agreements between government and purchaser. The exchange would be similar to a private party exchange within the markets today. There would be no thought of how the government (and hence its citizens) would or could directly benefit from the wealth potentially created by the purchaser. The benefit, in the market system, would come in the form of economic stimulus and taxes collected on profits.
But what happens when we add in the belief that the wealth of the land should benefit everyone? It can be argued that the above scenario meets that need through the collection of taxes. The only sticking point is the structure of the taxes. This is where things get interesting, for it is through the belief that it is government’s role to ensure everyone benefits from the wealth of the land that we see governments take more active roles in the natural resources industries. This can be everything from introducing royalty systems to nationalizing the industry.
Of course, mining companies, in general, do not look favorably on either of these topics. No industry would. In one case you face an extra tax. In the other you face losing operations and hence future potential profits.
While resource nationalization is a significant issue for the global mining industry, it has not been an issue within Canada. What has and continues to be discussed in Canada however is the topic of royalties.
What role does or should mineral royalties play in Canada?
The answer to this begins with a look at the past. In particular, a look at the royalty system put forth in British Columbia in the 1970s.
First, some background – In 1972, the NDP was elected in British Columbia with a platform that called for increased taxation on resource corporations, diversification of the economy, and more regulation of resource industries to control for the environmental impacts of resource development. These policy objectives were driven by the increasingly large role of multinational mining companies in the province as well as the belief that British Columbia was not getting its ‘fair share’ of the wealth extracted from the land.
To address the power of mining corporations, the government introduced changes to the Mineral Act which included giving it the power to revoke mineral leases.
To address the issue of the province not getting its ‘fair share’, a royalty program was introduced in the legislature as the Mineral Royalties Act that included a 5% royalty on the net value of extracted resources as well as an incremental royalty that would ensure the province benefited from any climb in mineral values.
The Mineral Royalties Act was not received well by industry or the opposition parties. The battle led first to proposed concessions on royalties and eventually a willingness to re-evaluate the changes to the Mineral Act itself. Before this happened however, the NDP faced another election – an election which it lost.
The newly elected Social Credit government moved to change the Mineral Act as well as introduce a new tax structure on mining companies with the Mineral Resources Tax Act. This new act put a 17.5% tax on the net income of a mine.
The NDP failed to introduce a royalty system, but that in and of itself does not mean there should not be one. Other provinces charge mineral royalties, and here in BC the government charges royalties on natural gas.
To that question, we can easily turn once again to the question of if the mineral resources belong to all the people or not.
To me, royalties do not make sense in our current environment. If we are to consider the risk involved in resource discovery and extraction, I believe it is fair to say that those that take the risk should benefit from the reward. Our taxation system should not make it more difficult than it needs to be for miners to mine.
That said, every company should be obligated to supporting our social structure through fair and reasonable taxes, on the assumption the current system is functional. To that end, taxation on profits is fully justified. The muddy water is what the tax rates are. Another area of difficulty is tax credits. Should exploration expenses be 100% deductable, for example? Some will say yes, some will say no. At the end of the day, the government uses taxes and tax credits to shape behavior. So long as the government sees mining as a primary industry, I can imagine it providing such preferential tax treatments. The tax systems used are a reflection of our positions and our priorities.
Interestingly enough, while the NDP government of the 1970s wanted to have more control over the industry, it did not want to enter into the industry. What if a different approach was taken to achieve this?
What if the approach would have been to pay mining companies a set rate for the extraction of resources and remediation of crown lands? Would such an approach work? It seems like a reasonable approach if we hold to the idea of public lands being for the benefit of all. It also places the risk back into the hands of all – we the taxpayer – as if the market for a mined material declines, the government is left holding the economic shortfall.
It would be an interesting approach which would tap into the ingenuity of private enterprise to maximize efficiency in extraction and remediation while placing the value of the land clearly into the government’s and thus the public’s hands. Could mining work under public-private partnerships?
Does this sound far-fetched? It isn't too different from what has been happening with equity partnerships between First Nations and mining companies here in Canada where all parties share in the risk and the rewards. The question is do we want a system that places all the risk and all the reward with private companies, or do we want a system that shares the risk as well as the reward?
While what I am suggesting is beyond the scope of the recently announced BC Mining Code Review, it is not beyond the possible. In a world where we depend upon mining - it could be considered the backbone of our society - isn't it about time we were all vested in it?