Everything about the proposed new Casino megamine is big: a billion tonnes of proven and probable reserves, 600 long-term jobs, 144 megawatts of power generation (double what the whole Yukon used this week), a tailings pond dam almost as tall as the Eiffel Tower, a 36-inch water pipeline from the Yukon River, a price tag of $2.5 billion and total estimated Yukon tax and royalties of $1.8 billion over the 26 year life of the project.
Even the newly published feasibility study is big at 248 pages. Western Copper and Gold, the owners of the project, say they have spent six years and $18 million getting this far. Our friends at the Yukon Environmental and Socio-Economic Assessment Board will now get to wade through the details and recommend whether the project should go ahead.
I will leave it to environmental experts to opine on the ecological impact of the project, but it is clear to this economist that the economic impact of Casino would be very large. After a four-year construction phase involving a thousand workers, the project is expected to generate around $80 million a year in Yukon tax revenue. Over $50 million of this would be from royalties, with the rest from personal and corporate income tax. The mine would have 600 to 700 permanent employees plus up to 200 contractors, with an annual budget of about $450 million.
The project’s economists estimate that two-thirds of the mine’s operational spending will happen in the Yukon, and that the total impact on gross domestic product will work out to a boost of $274 million a year. That would be about a 10 per cent boost based on the size of our economy today.
While Casino would have a big impact on the Yukon private sector, it is not big enough to counterbalance the size of the Yukon government. Over 600 workers may sound like a lot, but remember that the Yukon government hired a net 300 new people last year. And while $80 million in taxes and royalties is an impressive sum, it would take a dozen Casinos to equal our federal transfer payment.
The relative impact will be much bigger in the central Yukon. The project is located 16 kilometres from the Yukon River, downstream of Fort Selkirk. There will be a road from the project to Carmacks. It is hard to imagine what will happen to Carmacks traffic when the supplies for a $2.5-billion project drive through town.
YESAB and the Yukon government face some big decisions.
The first is how to assess a project that is so big it may have Yukon-wide impacts on all kinds of things, from highway traffic to emergency room queues to Whitehorse house prices.
Another issue is energy. The Faro megamine left us with some lovely hydro-electric assets that have generated a lot of cheap power over the years. What is the legacy that Casino would leave, especially if it builds its own liquefied natural gas power plant and doesn’t connect to the Yukon grid? Should the Yukon government demand that Casino contribute to the development of long-term Yukon power infrastructure?
Then there is the contentious issue of fly-out workers. Casino miners living in B.C. or Alberta will pay income tax in those provinces, not the Yukon. The N.W.T. and Nunavut both have payroll taxes to capture revenue from such workers. Will the Yukon do the same?
First Nations governments also face some big decisions as they negotiate partnership agreements with the mine on job opportunities, business contracts and community investment.
All these governments will face a classic problem: how can they maximize the yield for their citizens, without asking for so much that the project never happens? Furthermore, they have to keep in mind that the way they treat Casino will be watched by other mining companies. If they take a “salami slicing” strategy to Casino, always asking for new benefits, will that deter other companies from exploring in the Yukon?
These questions will be high on the minds of investors, too. Western Copper and Gold is a relatively small company. Last September they had $26 million in cash, a tiny fraction of the $2.5-billion construction price tag. It is clear that they will have to either raise billions in new investment or sell the project to a major mining company.
For Western Copper and Gold, despite having spent six years and $18 million so far, the work is just beginning. Expect to see a lot more on Casino in the papers in 2014, especially as the parties start to jockey for position ahead of the next territorial election.
Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. You can follow him on Twitter @hallidaykeith