Mining set to surge in coming decade

Yukon's mining industry is expected to more than double in size over the next two years, according to a forecast released by the Conference Board of Canada last month.

Yukon’s mining industry is expected to more than double in size over the next two years, according to a forecast released by the Conference Board of Canada last month.

But don’t expect this to mean the Yukon government will become any less dependent on handouts from Ottawa.

As things stand, it won’t, says the board.

That’s worth keeping in mind when the Yukon Party government implies vast sums of cash will flow from mines into government coffers, thanks to a better devolution deal on the way.

Not so, according to the forecast. It doesn’t see the next round of mines generating much in the way of royalties, and the territory’s corporate taxes are “extremely low,” in the board’s view.

And, as the territory’s population grows, so will transfers from Ottawa.

But, with three hardrock mines now open and more on the way, the industry’s role in the territory is about to become much more important.

“About 1,000 new jobs are expected to be created this year alone,” the board states.

That’s good news for anyone willing to work for a mine or exploration outfit. And spinoffs will be enjoyed by restaurants, hotels, airlines, and other businesses that support mining operations.

Yukon’s unemployment rate hit double-digit levels early last year. It’s since fallen, where it’s expected to remain, with the forecasted unemployment rate averaging at five per cent from 2011 to 2015.

Mining’s share of the territory’s total economic output, or gross domestic product, is set to surge.

“Metal mining accounted for slightly more than two per cent of total GDP in Yukon over 2000-10,” the report states. “From 2011 to 2020, metal mining will account, on average, for more than 10 per cent of the economy.”

Most new money that flows into the territory’s coffers from this activity will be collected from personal income taxes, set to grow to $87.7 million by 2020-21 from $58.2 million this year.

Corporate taxes, which were lowered again this year, are set to rise from just $13.3 million this year to $18.3 million by 2020.

And mining royalties are only expected to generate a trickle of money, fluctuating between $1 million to $1.6 million annually over the coming decade.

By comparison, last year the Selkirk First Nation received $5.9 million in royalties from Capstone, which operates its Minto mine on the First Nation’s land.

The territory currently isn’t earning any hardrock royalties. That’s because mines have only recently opened on Crown land.

Much has been made of how the territory’s placer royalties collect mere pennies per ounce of gold. But the Yukon’s hardrock royalty regime is middle-of-the-road compared to other Canadian jurisdictions, according to a review conducted by the federal government.

Some assumptions made by the board are questionable. To start, it expects that Western Copper Corporation’s proposed mine near Carmacks will go ahead, but it’s far from clear that will happen.

The Yukon Water Board denied the company’s application last year, after hearing concerns from conservationists and First Nations that the project may pollute the nearby Yukon River.

Western Copper is now fighting that decision in the courts.

The conference board also predicts Victoria Gold Corporation’s Eagle mine will go ahead. That project hasn’t faced any big controversies, but its proposal is still being vetted by the Yukon Environmental and Socio-economic Assessment Board. It hopes to begin production by 2014.

It’s possible the Yukon will rake in plenty of royalties if mines bigger than the ones the board predicts are built. One of the biggest would be Western Copper’s massive Casino project.

If that project goes ahead, it could generate $250 million in annual royalties.

But that project is far from certain. It will cost more than $2 billion to build the mine.

And, if it is, the company could defer paying royalties until its capital costs are paid off.

One may also question the board’s decision to take at face value the government’s plans to cut capital spending by 3.4 per cent this coming year.

That may be news to territorial politicians of all stripes, who are making all manner of new spending commitments during the election that’s underway.

The territory will continue to be buoyed by federal transfers, the board predicts. This fiscal year, cash from Ottawa is expected to make up 67 per cent of the territory’s revenues.

The board doesn’t expect that ratio to change through the coming decade, with money from Ottawa rising to $1.04 billion in 2020-21 from $704.7 million this year.

Government jobs will continue to stabilize the economy. Currently, the public sector makes up one-third of the territory’s economy.

Mining helped prevent Yukoners from feeling much pain during the recent economic downturn. From 2008 to 2010, while the Canadian economy as a whole grew by just one per cent, the Yukon’s economy surged ahead by 8.3 per cent.

That growth was due “almost entirely” to the mining sector, says the conference board’s report.

Exploration is currently booming, with expenditures expected to exceed $256.3 million in 2011. That’s a 71 per cent increase over last year.

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