Background        
Looking back at Canada’s mineral resource situation this year, let’s review a brief overview of its mineral resource development activities (development activities include preliminary exploration but exclude production). These data are largely consistent with the survey results as of the end of 2007 and, to some extent, have led to adjustments in the 2008 budget expenditures.
Unless otherwise specified, the term “mineral resource development investment” (or “total investment”) mentioned in this article refers to expenditures incurred during the stages of exploration, deposit evaluation, and comprehensive mineral development—including costs associated with the procurement, repair, and maintenance of infrastructure, machinery, and equipment. During the exploration and deposit evaluation phases, the investments encompass activities related to both undeveloped and already developed mines. However, this chapter primarily focuses on activities involving undeveloped mines—also referred to as the combined exploration and deposit evaluation phase—because such activities account for 93% of total investment, whereas investments in already developed mines represent only about 7%, despite the fact that investments in these developed mines have been steadily increasing.
This article refers repeatedly to projects involving substantial investments; however, given the confidentiality of project details, only publicly available information is mentioned. Furthermore, during this period, significant projects have undergone mergers—including mergers and acquisitions—due to sharp changes in market conditions. It should be noted that ownership of some of these projects has already changed.
    Methodology        
The statistical figures presented in this article are based on a survey of annual federal-provincial/territorial expenditures on mineral exploration, deposit evaluation, and integrated mineral development. The definitions used in the survey are drawn from a broad conceptual model of mineral resource development. The data were collected between March and June 2008, with the most recent data covering up to December 2008. Based on estimates derived from previous survey reports for 2007 and 2008 as well as publicly available information, the expenditures not covered by this survey account for approximately 15% of exploration and deposit evaluation expenditures and about 7% of total investment.
    Overview        
    Total investment        
In 2007, total investment increased by 32% compared to the CAD 8 billion invested in 2006, marking the first time since 1997 that total investment exceeded CAD 10 billion (Figure 1a). According to our survey, total investment in 2008 surpassed CAD 12 billion (including estimated repair and maintenance costs) (Figure 1b). In 2007, the provinces and territories ranked by investment amount—from highest to lowest—were Ontario, British Columbia (up one position), Quebec, Saskatchewan (down two positions), and the Northwest Territories. All of these provinces and territories spent more than CAD 1 billion, with Ontario accounting for over CAD 2 billion.

In 2007, the increase in total investment was primarily driven by higher capital costs and increased expenditures on exploration and deposit evaluation. Specifically, capital costs rose by CAD 1.2 billion to CAD 4.5 billion, representing a year-on-year growth of 35%; expenditures on exploration and deposit evaluation (excluding the aforementioned capital expenditures and repair costs) climbed by CAD 919 million to CAD 2.8 billion, reflecting a year-on-year increase of 48%. For 2008, capital costs and expenditures on exploration and deposit evaluation are projected to rise by 32% and 11%, respectively. The detailed breakdown of these two factors will be discussed in the next two sections.
As for Canada’s economy, strong demand for mineral products and services, coupled with rising energy costs in recent years, are the primary factors driving the continuous increase in mining capital and operating costs. Consequently, compared to previous years, more funds are now required to accomplish the same volume of work.
By mineral type, diamond investments—amounting to approximately CAD 1.8 billion, or 18% of total investment—ranked third, down one spot from 2006. The top two positions were occupied by base metals (CAD 2.6 billion, or 25% of total investment, up two places) and precious metals (approximately CAD 2.5 billion, or 24% of total investment, down one place) (Figure 1c). As in 2006, non-metallic minerals—including diamonds but primarily potash—ranked fourth in 2007, reaching a record high of CAD 990 million, accounting for 9% of total investment. This new record level was largely driven by the tax incentive program introduced in Saskatchewan in April 2005 to boost potash mining capacity, which enabled major potash projects in the province to launch expansion initiatives.
  
    Cost of capital        
In 2007, capital costs rose in all provinces and territories except Newfoundland and Labrador. By contrast, in 2008, capital costs declined in Newfoundland and Labrador, Ontario, the Yukon, and the Northwest Territories. In 2007, most of the increased investment was directed toward the integrated development phase of mineral projects (an increase of $797 million) and the supporting work phase for the evaluation of undeveloped deposits (an increase of $323 million). In 2007, the ranking of major provinces and territories in terms of investment changed: Ontario ranked first, followed by the Northwest Territories (which had been first in 2006), British Columbia in third place, and Quebec in fifth.
For two consecutive years, diamonds have been the mineral commodity accounting for the largest share of total capital expenditures. In fact, Canada’s two largest diamond mining regions—Ekati and Diavik—have already begun transitioning to underground mining operations, making them prime targets for investment. Currently, investments in these two diamond mines have reached a record high of 1.2 billion Canadian dollars, the highest level since 1997. Next in terms of expenditure are base metals, precious metals, and nonmetals, with costs declining in that order: base metals at 1.1 billion Canadian dollars (up two places since 2006), precious metals at 815 million Canadian dollars, and nonmetals at 602 million Canadian dollars (down two places). These three categories are set to become the primary focus of future investment.
    Comprehensive Development of Mineral Resources
Although the capital costs for integrated mineral development in several projects have decreased, other projects not only offset the reduction but also show an upward trend in total investment.
This decline was primarily due to the phasing out in 2007 of several major capital projects: the Perry Creek coal field at the Wolverine mine operated by Western Canadian Coal Corp. in British Columbia, the Snap Lake diamond mine operated by Beers Canada Inc. in the Northwest Territories, and two potash mines located in Saskatchewan—one being the Allan potash mine operated by PCS (Canadian Athabasca Potash Co.), and the other the Vanscoy potash mine operated by Agrium Canada Potash Co. (currently under expansion).
However, other major projects have led to a broad-based increase in capital costs—particularly the projects mentioned below, whose capital cost increases have exceeded CAD 65 million. The Galore Creek gold mine project in British Columbia, Canada, is the largest of these projects; it was temporarily brought into production in 2007 but suspended operations in November. Next is the expansion project for the Sudbury nickel mine, operated by Vale Inco. Also contributing to the rise in capital costs are the infrastructure projects at the Victor diamond mine operated by De Beers Canada Inc. in Ontario, as well as the preliminary work for underground mining at the Diavik diamond mine operated by Diavik Diamond Mines in the Northwest Territories. Expansion of potash mining projects is also ongoing, notably the Lanigan potash project of Potash Corporation of Saskatchewan (PCS) in Canada. Xstrata Canada’s Raglan nickel mine project in Quebec continues to invest heavily in foundational infrastructure in preparation for future production increases. Additionally, Transalta Utilities’ Highvale coal mine project in Alberta, Taseko Mines’ Gibraltar copper-molybdenum project in British Columbia, and Blue Note-Caribou’s Caribou-Restigouche zinc mine project in New Brunswick have all significantly contributed to the rise in capital costs.
    Unmined Deposit Assessment        
Although not yet in production, in 2007 several major projects—each exceeding CAD 30 million—had already entered the infrastructure construction phase (such as mine-site development). These include Agnico-Eagle’s Meadowbank gold project in Nunavut (scheduled to begin production in 2008), First Nickel Corporation’s Podolsky nickel project in Ontario (also scheduled to begin production in 2008), the Doris North gold project in Nunavut’s Hope Bay (whose approval has been delayed), and Crowflight’s Bucko nickel project in Manitoba (whose start-up date has been postponed from 2008 to 2009).
    Exploration and Deposit Evaluation        
In 2007, expenditures on exploration and deposit evaluation—excluding capital costs and maintenance expenses—reached CAD 2.8 billion, surpassing the previous record of CAD 2 billion set in 1987 (adjusted for constant prices) (Figure 2). This represented a 48% increase over the CAD 1.9 billion spent in 2006, marking the upper limit of corporate spending. For example, in 2006, there were 91 companies with expenditures exceeding CAD 5 million; by 2007, this number had risen to 141 (Table 1).

Planned expenditures for 2008 will further increase to CAD 3.1 billion. If this plan is indeed realized, current spending on exploration and ore-body evaluation will continue to rise over the next eight years. Strong demand from some emerging economies, such as China and India, represents a potential factor behind the sustained high prices.
We are well aware that around June 2007, the U.S. subprime mortgage crisis erupted, triggering a global credit crunch that eventually escalated into the international financial crisis of 2008. The mining industry was significantly affected, and in the second half of 2008, mineral prices plummeted sharply. By this time, we already had a clear understanding of what these events meant for mineral exploration and deposit evaluation in 2009 and beyond. By the end of 2008, twelve major projects had already been put on hold, yet the overall annual budget remained largely unaffected. It remains uncertain whether 2007 or 2008 marked the peak of Canada’s spending on mineral exploration and deposit evaluation since 2001.
Vibrant mineral exploration and deposit evaluation activities have consistently positioned Canada at the forefront of global mining investment. According to statistics from the Metal Economics Group (MEG), 2007 marked the sixth consecutive year in which Canada has led the world in mineral exploration. Global spending on mineral exploration totaled US$11 billion, with US$2.3 billion invested in Canada—accounting for 21% of the global total. MEG also forecasts that global spending on mineral exploration will reach a peak of US$14.4 billion in 2008, with Canada remaining in first place.
    Description of Exploration Expenditures
In 2007, nearly half (47%) of mineral exploration expenditures were related to drilling. The total length of drilling reached 6.6 million meters (including underground, surface, diamond, and other types of drilling). The length of surface diamond drilling was 5.6 million meters, matching the record level of 5.5 million meters set in 1987 (Figure 3a). The approved scope of mineral exploration continued to expand, increasing from 24.2 million hectares in 2006 to 26.9 million hectares (Figure 3b).
The current mechanism for using purchased exploration shares to offset taxes has enabled several small mining companies to raise the funds needed for mineral exploration. In 2007, total funding surged to CAD 1.07 billion, up from CAD 599 million in 2006. However, in the first ten months of 2008, funds raised fell by 36% year-on-year. Despite this decline, companies were still able to continue operations by leveraging the funds obtained through the share-purchase tax credit mechanism. The investment period for this additional funding can last up to 24 months, starting from either the contract’s expiration date or the end of the year following the date on which the share-purchase tax credit agreement was signed.

 
    Investment Changes
In 2007, investment in mineral exploration and deposit evaluation continued to grow, primarily driven by increased expenditures on exploration of undeveloped mines (Table 4). Expenditures on preliminary work for mineral exploration and deposit evaluation rose by CAD 740 million, accounting for 81% of the total increase of CAD 919 million. Of this amount, expenditures on the evaluation of undeveloped deposits totaled CAD 128 million, representing 14% of the overall increase. In 2007, exploration expenditures for undeveloped mines surged to CAD 2.1 billion (compared to CAD 1.4 billion in 2006; a figure projected to reach CAD 2.3 billion in 2008), accounting for 75% of total expenditures. By contrast, expenditures on the evaluation of undeveloped deposits in 2007 amounted to CAD 500 million, or 18% of total expenditures—a level not seen since 1997—and represented a substantial increase over the record-high CAD 369 million spent in 2006. It is projected that expenditures on the evaluation of undeveloped deposits will reach CAD 600 million in 2008.
  
In recent years, the sustained strong demand for major mineral commodities and the increasingly lower barriers to entry into financial markets have led to shorter re-evaluation cycles—also known as late-stage exploration—for already-known mineral deposits, accelerating the transition to the deposit evaluation phase. This phase of work requires significantly greater investment than earlier exploration efforts—including the confirmation of discovered mines. All 14 projects with investments exceeding CAD 5 million are either new projects or projects that have re-entered the evaluation stage for previously undeveloped deposits. By contrast, another seven projects have only a limited impact on the overall evaluation of undeveloped deposits; they merely advance the evaluation stage of these deposits toward the comprehensive development phase of the mine.
In 2007, with the exception of Alberta, expenditures on mineral exploration and deposit evaluation generally increased in all other provinces and territories. Among these, Ontario, Quebec, Nunavut, and British Columbia saw the largest increases, each experiencing an increase of over CAD 100 million. However, for 2008, expenditures on mineral exploration and deposit evaluation are expected to decline in the following provinces and territories, in order: British Columbia, the Northwest Territories, Nunavut, and Nova Scotia. In 2007, expenditures on mineral exploration and deposit evaluation, from highest to lowest, were as follows: Ontario, Quebec, British Columbia, Nunavut, and Saskatchewan (Figure 5). Since 2005, British Columbia has consistently ranked second only to Ontario in terms of expenditure; however, in 2007, Quebec surged into second place due to rapid growth in investment—a position it had held continuously from 2000 to 2005.


With the exception of Nova Scotia, Alberta, Yukon, and Nunavut, expenditures in other provinces/territories were primarily directed toward exploration of undeveloped mines rather than assessment of undeveloped mineral deposits (Tables 2 and 3). Quebec had the highest expenditure on exploration of undeveloped mines, followed by British Columbia, Ontario, and Saskatchewan—Saskatchewan ranked first in 2006. As for expenditures on the assessment of undeveloped mineral deposits, Ontario ranked first (third in 2006), closely followed by British Columbia and Nunavut.
    Target mineral species
Since 2006, investments in all mineral types—except diamonds and coal—have been on the rise (Figure 6). In 2007, total expenditures on precious metals reached CAD 1 billion, remaining the highest among all categories; base metals ranked second with CAD 710 million, followed by uranium at CAD 413 million and diamonds at CAD 322 million. In 2008, it is expected that the ranking of targeted minerals for investment will remain unchanged, though expenditures on uranium (slightly down), diamonds, and ferrous metals are projected to decline. In 2007, expenditures on base metals hit an all-time high, surpassing the previous record of CAD 582 million set in 1981 (adjusted for constant prices and based on the most recent statistical data). If the planned CAD 883 million is actually spent, 2008 could once again break this record. Interestingly, in 2008, non-metallic expenditures are forecast to become the largest expenditure category after base metals. Potash has emerged as the primary target for non-metallic exploration, followed by uranium deposits in Saskatchewan. Among these, the Jansen and Saturn potash mines—owned by BHP Billiton’s Diamond Corporation—and the Burr potash mine, owned by Athabasca Potash, are expected to be hotspots for investment.

In 2007, investment in uranium mining surpassed that in diamonds, accounting for 15% of total investment, while diamond investments—which had long held a prominent position—made up 11% of the total (compared to 18% in 2006). In 2007, uranium mining investment reached a new high, rising from CAD 44 million in 2004 to CAD 413 million, once again becoming the “mineral star.”
In 2007, it was reported that Canada had 500 mining areas engaged in uranium exploration activities. The largest of these areas was the Athabasca Basin in Saskatchewan, followed by the Otish Mountains in Quebec, the Central Mineral Belt in Newfoundland and Labrador, and the Thelon and Hornby Bay Basin in Nunavut. The order was expected to remain unchanged in 2008.
    Company investment
Looking at investments by large and small companies in recent years, small companies have been increasingly contributing a larger share of the total investment in mineral exploration in Canada. In 1999, the total investment by small companies was CAD 175 million (in constant 2007 prices), rising to CAD 1.9 billion by 2007 (Figure 7). It is projected that this figure will also reach CAD 1.9 billion in 2008. Since 2006, annual investments by small companies have consistently exceeded the previous record set in 1988. Starting from 2004, the level of investment by small companies has surpassed that of large companies, and since 2005, small companies have accounted for over 60% of total investment each year. Prior to that, only in 1987 did small companies’ investment exceed that of large companies, at a ratio of 51%. In 2007, small companies’ investments accounted for 68% of total investment in mineral exploration and deposit evaluation; it is expected that this proportion will decline slightly to 63% in 2008.

The increasing share of total investment allocated by small companies to mineral exploration and deposit evaluation once again underscores their growing influence in mineral exploration activities. In contrast, large companies adopt a different strategy: they entrust most of the early-stage exploration projects to small firms, while reserving for themselves those projects that demand higher levels of specialized expertise and substantial financial resources. Clearly, given the favorable economic conditions and improved financing environment, companies generally seek to seize opportunities to accelerate the development of known deposits—even if these projects have relatively poor feasibility. Whether further exploration efforts on known deposits will yield new breakthroughs remains to be seen.
In 2007, investment by small companies increased significantly, with a year-on-year growth rate of 54%. Investment by large companies reached CAD 926 million, up 38% from CAD 673 million in 2006. In 2008, investment by large companies is expected to rise to CAD 1.1 billion, representing a year-on-year increase of 24%.
Since 2005, the number of small companies investing more than CAD 1 million has increased sharply: from 179 in 2005 to 258 in 2006, 342 in 2007, and as many as 375 in 2008. In 2007, the growth in investment was largely driven by a substantial increase in exploration spending for undeveloped mines, with 82% of this growth coming from small companies. In 2008, small companies will continue to play a key role in both exploration of undeveloped mines and deposit evaluation.
    Conclusion
2007 was a year of robust growth for Canada’s mining industry. Throughout the year, investment in mineral resource development exceeded CAD 10 billion for the first time since records began in 1997—a 32% increase from the CAD 8 billion invested in 2006. Ontario, British Columbia, Quebec, Saskatchewan, and the Northwest Territories were the key provinces and territories receiving investment, each with investments surpassing CAD 1 billion; Ontario alone saw investments exceeding CAD 2 billion.
Total investment reached CAD 4.5 billion, an increase of 35% year-on-year. Of this total, investment in mineral exploration and deposit evaluation—excluding capital and maintenance expenses already included in the above-mentioned costs—amounted to CAD 2.8 billion, up 48% year-on-year. Among investments directed toward the exploration and evaluation of targeted mineral deposits, precious metals remained the top priority in 2007, reaching CAD 2.8 billion; base metals ranked second with CAD 711 million, followed by uranium at CAD 413 million (once again becoming one of the key target minerals) and diamonds at CAD 322 million, ranking third and fourth respectively. In 2007, small companies’ investment totaled CAD 1.9 billion, up 54% year-on-year, while large companies’ investment reached CAD 927 million, an increase of 37% year-on-year.
In the second half of 2007, the global credit crunch began to fully manifest its impact on the economy, mineral prices, and the levels of mineral exploration and development. However, unexpectedly, this situation escalated into a severe global financial crisis in 2008, which to a large extent negatively affected the healthy development of global mineral exploration and development activities. Around the world, we witnessed unprecedented sudden drops in mineral prices and a slowdown in mining activities. By the end of 2008, the losses suffered by mining and metals companies were staggering.
It remains unclear whether 2007 or 2008 marked the peak of the upward trend in exploration and deposit evaluation expenditures. By the time the global financial crisis erupted, most of the 2008 budget had already been spent. Surveys conducted by the Metals Economics Group and federal-provincial/territorial authorities had already indicated that expenditures in 2008 would be substantial. Total investment in Canadian mineral exploration and deposit evaluation reached CAD 3.1 billion, an 11% increase over 2007. However, 12 major projects—projects expected to enter the full-scale development phase by year-end—are set to be suspended shortly. Meanwhile, mining companies have begun shutting down mines and reducing production. The slow growth trend in exploration and deposit evaluation expenditures, which had been underway since 2001, has now come to an end, and a sharp decline is projected for 2009. There is no doubt that this will adversely affect Canada’s mineral resource development activities and pose new challenges to the growth of the mining industry.
Note: The reference data in this article are current as of December 31, 2008. Information on this article and related articles can be found at the following website: www.nrcan-rncan.gc.ca/mms-smm/busi-indu/cmy-amc/2007cmy-eng.htm

Data source: Department of Natural Resources Canada, based on statistics of expenditures for mineral exploration, deposit evaluation, and integrated mineral development. (1) Investments in mineral exploration and deposit evaluation include costs associated with fieldwork, management, engineering, economics, as well as feasibility studies for early-stage production and opportunity costs related to environmental considerations and land acquisition for both undeveloped and already-mined mines.
(2) Since the exploration group companies are included, the number of exploration companies could be greater than those listed above.
Note: The 2008 data have been revised based on investment amounts. Due to rounding, the figures may not add up to the totals.
 
Data source: Department of Natural Resources Canada, based on statistics of expenditures for mineral exploration, deposit evaluation, and integrated mineral development. (1) Investments in mineral exploration and deposit evaluation include costs associated with fieldwork, management, engineering, economics, as well as feasibility studies for early-stage production and opportunity costs related to environmental considerations and land acquisition for both undeveloped and already-mined mines.
Note: Due to rounding rules, the data may not have been included in the total.
??? Data source: Department of Natural Resources Canada, based on statistics of expenditures for mineral exploration, deposit evaluation, and integrated mineral development. (1) Investments in mineral exploration and deposit evaluation include costs associated with fieldwork, management, engineering, economics, as well as feasibility studies for early-stage production and opportunity costs related to environmental considerations and land acquisition for both undeveloped and already-mined mines.
Note: Due to rounding rules, the data may not have been included in the total.