Lawrence Solomon
National Post
February 22, 2000

Rogue industry seeks more public largesse as investors choose newer games of chance

Much of the worldwide mining industry is in financial difficulty, with many of its members scratching out a living and staring bankruptcy in the face. “A lot of drilling companies are facing Chapter 11,” warns the Prospectors and Developers Association of Canada.

Nothing much new here.

As Adam Smith noted more than 200 years ago in The Wealth of Nations: “When any person undertakes to work a new mine in Peru, he is universally looked upon as a man destined to bankruptcy and ruin, and is upon that account shunned and avoided by everybody. Mining, it seems, is considered there as in the same light as here, as a lottery, in which the prizes do not compensate the blanks, though the greatness of some tempts many adventurers to throw away their fortunes in such unprosperous projects.”

Mining required lottery-grade investment acumen, and more. For mining to thrive — as Europe’s leaders deemed necessary at all costs — the rights of individual landowners were crushed. “Any person who discovers a tin mine may mark out its limits to a certain extent, which is called bounding a mine,” Mr. Smith went on. “The bounder becomes the real proprietor of the mine, and may either work it himself, or give it in lease to another, without the consent of the owner of the land … the sacred rights of private property are sacrificed to the supposed interests of public revenue.”

Adam Smith wasn’t reporting on new developments. For centuries, miners in England had been exempt from ordinary taxes and ordinary rules. Miners could take timber from neighbours’ woods for use in mines, and even prevent the neighbours from cutting their own woods, if the miners might need it. Miners could freely divert streams needed by farming communities so that “nothing will remain of all that good land except great stones and gravel,” said one report that survives from mediaeval times of the effect of tin miners on Cornwall’s rich soil.

In the centuries since The Wealth of Nations was published, little changed. In 1921, after the Canadian Copper Co. (one of the companies that merged to form Inco) tired of paying compensation to Sudbury-area farmers for damage caused by the sulphur dioxide fumes from its roaster yards, the Ontario government prohibited courts from hearing future cases, a law that would soon destroy trees and other vegetation and turn that once-fertile region into a moonscape. In 1991, the Ontario government, in sympathy with mining firms that resented sharing profits with private land owners possessing mineral rights, proclaimed a law designed to expropriate their land — some 90,000 properties — without compensation. “The only way for mines to be developed and for Ontario to prosper is to take the property,” said Gilles Pouliot, Ontario’s former minister of mines.

And the mining industry’s still at it. Next month, the mining world’s elite will converge on Toronto for Mining Millennium 2000, a conference unabashedly structured to lobby governments for financial aid and access to public lands. The conference will also, for the first time, bring together the world’s mining ministers in a high-powered World Mines Ministries Forum.

The topics? How to involuntarily resettle aboriginal people, how to manage public concern over contaminated mine sites, how to subsidize the mining industry. The chair of the organizing committee? A member from the World Bank, an organization whose projects have forcibly resettled millions of people around the world, and which recently restructured Romania’s mining sector, now in the news for the cyanide spill that poisoned 60 kilometres of a Danube tributary. The speakers? They include a member of the Fraser Institute, who charges that “policy-makers are rarely accountable for the effect of increasingly onerous regulations, uncertainty about land use, and high levels of taxation.” Another is general manager of a company that’s mining big-time in Romania, who asks, “Why, at a time when economic growth is so vital to so much of the world, are we miners often so unwelcome?”

The mining industry is unwelcome for an unimpeachable reason: It is a rogue industry, which for two millennia has been in bed with despots and other unaccountable leaders, violating the property rights of small holders whose livelihoods are lost through environmental ruin, or whose lands are expropriated outright. It is also a rogue industry that doesn’t pay its share of taxes: Canada’s few profitable mining companies, for example, face effective tax rates one-sixth of those paid by the retail trades or the construction and transportation industries, while the many unprofitable companies cost the country far more in grants, tax holidays and environmental liabilities than they contribute.

In the past, that government largesse, coupled with the mining industry’s brilliance at enticing small investors into long-odds mining plays, has let it thrive. But the small investors have found a lottery that draws fewer “blanks,” to use Adam Smith’s term — the Internet and dot-com stocks. Despite a recent hot streak for some mining sectors, major brokerages such as Merrill Lynch, Lehman Brothers Holdings and CIBC Oppenheimer have cut or eliminated their metals and other commodity businesses. Some mining companies, too, recognizing that their real business is separating investors from money, not ore from rock, are following their investors to the Internet. Goldstake Explorations Inc., a TSE-listed company which recently formed Goldstake Information Technologies Inc., is raising $500-million for an Internet venture through a private placement.

With its own soul mates abandoning the cause, Canada’s vanishingly small mining industry — even with all its subsidies, it now accounts for less than 1% of GDP — has its back to the wall. But don’t count this ingenious little industry out, even if the mining ministers refuse to deliver a richer vein of subsidies for them. Revenue Canada recently came through for the industry, by deeming its salvation a charitable act, rewarded with a charitable tax receipt. If you agree, do help. Contributions to the Prospectors and Developers Association of Canada’s education wing are now fully tax deductible. Cheques can be sent directly to the association’s offices at 34 King Street E., Suite 900, Toronto, Ont. M5C 2X8.

Responses to: Help support the mining lottery

Barry Posner
Letter to the editor
Financial Post, March 7, 2000

Re: Help Support the Mining Lottery, Feb. 22.

Lawrence Solomon’s disingenuousness is broad as it is deep, as evinced by his opening salvo: “much of the worldwide mining industry is in financial difficulty …” What he paints as the seemingly monolithic “mining industry” is composed of two separate and rather disparate factions: prospectors and operators, otherwise known as juniors and seniors. It is currently (and, it seems, eternally) true that many prospecting and exploration companies are barely scratching out an existence, but the seniors are, by and large, as profitable and stable as any industry that is slave to commodity prices can be. Speaking of prospectors in the same breath as mine operators is akin to lumping small cattle farmers and MacDonald’s in the same industry; both have something to do with beef, but little else in common.

Mr. Solomon is correct when he observes that some (although far from all) juniors are established by shysters for the singular purpose of separating fools and their money. However, this phenomenon has no connection whatsoever to the seniors, whose primary goal is, in fact, to make a profit by separating ore from rock.

The primary theme of the lament, it appears, is the privileged position of miners at the public teat. The author cites no comparative statistics to show that the mining industry is a greater beneficiary of governmental largesse than any other, but even if one were to accept his ramblings prima facie, it is apparent that the blame lies at the foot of the governors. Surely Mr. Solomon cannot blame miners for simply being successful at wheedling concessions and favours out of our politicians? That is an activity every interest group, either social or commercial, partakes in. Mining firms only strive to do what every firm, in every line of business, is obliged by law to do: maximize shareholder value. It’s the ministers’ (and inevitably, the public’s) responsibility to keep the keys to the treasury out of reach, and maintain the goals of society en masse as their primary focus.

Mankind has long found itself in need of coal, oil, iron ore, copper, gold etc., and as long as it does, firms and individuals will provide those commodities via the only method available: mining. Simply put, as long as mankind exists, so will mining.

(Please note: the aforementioned views are my own, and are in no way reflective of my employer.)

Barry Posner, slurry pipeline engineer, Rescan Environmental Services, Vancouver.
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Douglas Hume
Letter to the editor
Financial Post, March 7, 2000

The main problem with Mr. Solomon’s tirade is that he has been somewhat cavalier with his facts and missed the entire point of Adam Smith’s book, The Wealth of Nations. For instance, while he suggests mining properties could be occupied without leave or compensation for mining purposes in Peru, he deliberately omits Smith’s comment that “a very small acknowledgement must be paid [to owner] upon working it.”

Most of Mr. Solomon’s quotations are highly selectively used and are from the earlier parts of the book which deal substantially with the various economic components that describe the diverse workings of a nation’s productive resources. If he had fast-forwarded to page 459, he may have realized where Smith was heading.

In his Chapter Five, Smith defines the four different means of wealth creation and capital investment as follows: “In the first way are employed the capitals of all those who undertake the improvement or cultivation of lands, mines or fisheries; in the second, those of all master manufacturers; in the third, those of all wholesale merchants; and in the fourth, those of all retailers.”

Smith goes on to say, “Each of those four methods of employing a capital is essentially necessary either in the existence or extension of the other three, or to the general convenience of the society. Unless a capital was employed in furnishing rude produce [raw materials] to a certain degree of abundance, neither manufacturers nor trade of any kind could exist.”

In the succeeding 224 years, classic economists have reconfirmed Adam Smith’s assertion that society can progress only through employment of its capital resources in productive and profit-making enterprises.

With this second display of “irrational exuberance,” Mr. Solomon has dispensed some limited advice. Explorers and miners welcome and need the support they receive from society and its legislators, who understand and appreciate the benefits to our affluent society.

H. Douglas Hume, past president,
the Prospectors and Developers Association of Canada.
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Tony Andrews
Letter to the editor
Financial Post, March 7, 2000

In your great wisdom you have made the ridiculous assertion that we are “a rogue industry that doesn’t pay its share of taxes.” The Canadian tax system is highly complex and defies debate by neophytes like you and me in these few lines. But a simple example will suffice to make my point. Diavik Resources, a soon-to-be diamond producer in the Northwest Territories, recently calculated what its resource income will be and how it will be distributed. Guess who gets the biggest chunk? A whopping 44% will be paid in taxes to government agencies at the federal, territorial and municipal levels, not only in the form of corporate taxes, but also as a plethora of non-profit-based taxes, levies and fees. No doubt about it — we are definitely paying our tax freight and then some!

As “Canada’s vanishingly small mining industry,” we produce no less than 58 commodities worth $50-billion annually, contribute 15% of the country’s export revenues and 26% of its trade surplus, directly employ 370,000 Canadians, many of whom live in our northern and rural regions, and our products constitute 56% of all rail freight revenue and 69% of all port volume. On top of all this, Canada’s mining industry is considered a global leader! Now there is a fact worth remembering: Canada actually has a world-leading industry!

Tony Andrews, executive director,
Prospectors and Developers Association of Canada.