The State of the Economies
Nunavut: Growing, Growing, Growin. On the surface, 2014 was another good year for Nunavut’s economy. Agnico Eagle’s Meadowbank mine chugged along despite a finicky gold price, while Baffinland became the territory’s second producing mine when iron ore extraction started at Mary River in September. The steel structure is up and construction continues at the $142 million Canadian High Arctic Research Station in Cambridge Bay, as it does on the $300 million Iqaluit airport expansion.
Add to that the territory’s population growth, which continued to outpace its territorial neighbours (and the rest of Canada), and the picture is rosy. And this follows 2013, when Nunavut’s real GDP increased by 11.2 per cent.
But dig a little deeper and there are some troubling signs. Though the final tally for 2014 hadn’t been released at print time, early indications pointed to another drop in mineral exploration and deposit appraisal spending. Sure, this follows the national trend, but the fall’s been far more dramatic in Nunavut: after topping out at $535.7 million in 2011, spending has decreased for three consecutive years, and from $270.2 million in 2013 to $166.5 million in 2014.
When you discover a deposit in a place where there’s already infrastructure, it’s usually around seven years from discovery to production. Up here, it’s anywhere from 30 to 50 years.
“It’s been very difficult for exploration companies to attract the investment to do more work up here,” says Nunavut Premier Peter Taptuna, alluding to the oft-cited $6 billion infrastructure deficit the territory is saddled with. “We don’t have the roads and railways and the marine infrastructure to decrease the costs of doing work in Nunavut. As I’ve said in the past, when you discover a deposit in a place where there’s already infrastructure, it’s usually around seven years from discovery to production. Up here, it’s anywhere from 30 to 50 years.”
With resource development the current linchpin of Nunavut’s economy, infrastructure investment may seem the obvious area to focus spending. But at what expense? Consider the cost of delivering health services alone in the territory: a 2012 report found the GN had spent $53.2 million on medical travel and another $53.8 million to provide residents with treatment outside of territorial facilities. While this is a welcome infusion of cash for northern airlines and hotels, it highlights the high costs of providing fundamental services to Nunavummiut. (And that’s without even mentioning the territory’s endemic housing shortages.)
The government did put aside $149 million in its budget last year (and will devote more than $200 million in 2015) for capital projects, along with tens of millions in federal transfers from dedicated infrastructure funds. But the types of nation-building projects required to lower the cost of business in the territory—like highways, rail-lines, transmission lines, hydro power plants, deep water ports, broadband internet connectivity for all communities—range from many tens of millions to billions of dollars. Such projects are contingent on big private investments or support from the federal government. (Taptuna says his government has made applications to Ottawa on two—or more?—projects, but he would not say what they were.)
But while the pieces fall into place, Taptuna believes the government can dedicate resources to another area needing attention. When he took over the job in 2013, he cited education as his top priority. Based on the territory’s population demographics—49.2 per cent of Nunavummiut are 24 years old or younger and 30.8 per cent are 14 or younger—the timing seems appropriate.
Numbers from Nunavut’s Bureau of Statistics show a graduation rate of just 32.5 per cent in 2013 and a 2010 OECD study estimated that only 37 per cent of Nunavut’s residents, at that time, were expected to graduate from high school during their lifetime. Agnico Eagle has experienced challenges hiring locally at its Meadowbank operation, pointing to low education levels and graduation rates as an impediment to getting Inuit into skilled positions.
In a fall interview with Up Here Business, Tom Peregoodoff, CEO of Peregrine Diamonds, warned of a labour crunch as his company develops its Chidliak diamond project north of Iqaluit, while at the same time Mary River is up and running and Agnico-Eagle looks to develop a second operation. “I saw Ekati develop. I saw Diavik develop. I’ve seen them working very hard to meet their employment obligations as per their Impact and Benefits Agreements,” he said. “There are going to be some big workforce issues coming up here and we’re all going to be scrambling over a limited pool of Inuit employees.” While Peregoodoff says mine training programs are great, “the best training that they could do right now is to just lift the whole K-to-12 program.”
Taptuna says the government has focused on just that in the last year. “We’ve adapted and standardized the math and science curriculums throughout Nunavut. We’ve adopted the English Arts curriculum from the NWT. We’ve done a lot of purchasing of support material. We’ve gone out to every school in Nunavut and we’ve given teachers the resources to help our students achieve the learning outcomes at the expected grade levels.”
There are—and will continue to be—mining jobs for those who want them. Agnico Eagle’s Meadowbank gold mine was on track for record production after nine months this year, and the company continues to drill and expand its deposit at Amaruq, which could extend the life of Meadowbank by using its mill. (It spent $10 million on drilling in 2014 and an initial mineral resource estimate is expected early this year.) The company also spent $25 million to continue exploring and start ramping construction at its Meliadine gold project this year. And as Baffinland stockpiles ore for shipment to Europe this summer, it’s submitted a proposal to triple its iron ore exports, which would see a ramp up in production and more jobs. (It might take the better part of a year for the expansion to work its way through the review process, though.) Areva’s Kiggavik uranium project has also entered the environmental review process, while a number of companies continue to advance projects in the Kitikmeot. (The government will develop and release an oil and gas development strategy this year, too.)
Taptuna, a former miner who also worked in the oil industry for 13 years, knows first-hand the benefits of a career in the resource sector. But he wants to give Nunavummiut more options than strictly mining work. That requires a diversified economy providing tangible opportunities in remote communities. “In the smaller communities, when these young students see that there’s no real employment, it’s very difficult to get the initiative to stay in school. But if there are opportunities out there that they can see, I believe that we’ll get better results in our graduation rates.”
And they'll be meaningful opportunities, like those available in the trades at the Iqaluit airport expansion and the Cambridge Bay research station project. Or construction jobs associated with the $134 million the territory’s spending to build housing. Taptuna says the territory’s fisheries generated $87 million in revenues last year, triple what they did three years ago. And cruise ships made 51 stops in Nunavut communities this summer, including 18 in High Arctic communities. “I want families to be self-sustaining and contributing to their communities through employment,” says Taptuna.
Northwest Territories: The exodus continues
Try as it may, the Northwest Territories just hasn’t been able to attract new residents.
“The Northwest Territories for the last four or five years has been the only province or territory in Canada whose population has been declining,” says Premier Bob McLeod, explaining this not only constrains the government’s ability to generate own-source revenues, but it plays a big part in the equation that determines how much money it gets from Canada each year. Says McLeod: “Every person that leaves represents about a $30,000 loss in our territorial formula financing grant.”
That’s a compelling incentive to grow. The GNWT has set a goal of attracting 2,000 new residents in the next five years. (2,000 residents at $30,000 each gives you $60 million—roughly the amount the territory expects to bring in from resource revenues, post-devolution.)
About 15 years ago, when we had two regional air carriers, it was about $1,200 return from Yellowknife to Edmonton. Now it’s $500. You can get seat sales for $150 to $200 return. Even if we offer very generous Northern allowances, it doesn’t seem to be doing the trick.
It’s putting together a recruitment strategy following discussions with the business community and different sectors of industry, which McLeod says should be released in the next six months.
“We’re trying to understand the problem,” he says. What McLeod already knows is the NWT attracts young workers, who come North to find jobs and gain skills. Eventually, these workers have kids and then they leave due to the relatively higher costs of living compared with the south—namely Alberta. Some will even move south and commute back and forth for work.
In this case, the territory might be a victim of its own success: with five regional carriers now flying out of Yellowknife, the cost has decreased significantly. “About 15 years ago, when we had two regional air carriers, it was about $1,200 return from Yellowknife to Edmonton,” says McLeod. “Now it’s $500. You can get seat sales for $150 to $200 return. Even if we offer very generous Northern allowances, it doesn’t seem to be doing the trick.”
The net migration numbers highlight this problem. In the first three months of 2014, 347 more people moved away from the territory than moved there. From April to July 2014, the NWT posted another net loss of 216.
“We’ve worked with the diamond mines ever since they’ve been up here, for the past 15 years, and we know there’s a lot of competition for skilled workers,” says McLeod. “We know that when we’ve offered jobs with the requirement that they live in the Northwest Territories, they would turn [them] down unless we offered to pay their way back and forth to the work site.” He says rotational non-residents at the territory’s mines range from 48 per cent to 72 per cent of their workforces.
The mine is slated to create 690 jobs during construction and nearly 400 once it’s in operation in late-2016.
The government was looking at immigration as a quick way to increase its population, but changes to the federal temporary foreign worker program means it will have to put more emphasis on the territorial employee nominee program.
Jobs, as always, will be the lure for any strategy. And there’s been some good news there. The territory’s soon-to-be fourth diamond mine, Gahcho Kué, is under construction after it received regulatory approval this summer. (This was the first project approved post-devolution and McLeod says the GNWT is working hard to improve its brand with miners, to show that the regulatory process is “effective and efficient, but also helps protect the environment.”) With diamond demand increasing in China and India, joint venture partners De Beers and Mountain Province Diamonds were able to quickly raise the $650 million required to build the project. The mine is slated to create 690 jobs during construction and nearly 400 once it’s in operation in late-2016.
Meanwhile Rio Tinto approved the development of a fourth kimberlite pipe (A21) at Diavik, at a cost of $350 million. This should create 115 construction jobs in 2015 and up to 235 the following year. “Rio [Tinto’s] decision as the operator to approve the A21 project is really prefaced on some compelling industry fundamentals,” says Marc Cameron, Diavik president. All this as Dominion Diamond Corp. moves its Jay pipe expansion at Ekati through the regulatory review process, hoping to have it approved and developed (to potentially add 10 or more years to its operation) before its mine life ends in 2019.
It’s a mixed bag with the other NWT mining projects, which continue to search for cash. Count Canadian Zinc’s fully permitted Prairie Creek and Avalon’s Nechalacho Rare Earths project among them. Fortune Minerals, developing the NICO project north of Behchoko, has taken a novel approach to financing, purchasing a silver mine in Colorado on the cheap (that’s $25 million) with hopes that revenue from that project will provide it with funds to advance NICO. Seabridge Gold, owner of the Courageous Lake gold project, is taking a relatively similar path, by trying to sell its large KSM copper-gold project in B.C. to devote the profits to growing its Courageous resource.
But jobs, as the GNWT has learned, aren’t enough to keep people once they arrive. Residents pay some of the highest power rates in the country, and the cost of goods are rising too. (In Yellowknife, the price of groceries rose by 6.7 per cent from October 2013 to October 2014. The average in Canada over that time was 3.1 per cent.)
However, the outflow of residents means that apartment vacancies have, at least in Yellowknife, increased, easing rental prices. And the sliding oil price will lower heating costs this winter and the ever-stagnant price of gas at the pump. The GNWT will also release a report in January following a territorial Energy Charrette held to find ways of decreasing power rates. McLeod says the government could start ponying up cash for certain projects by May.
Though low oil prices are a relief to consumers, the business case becomes flimsier for companies exploring in the Beaufort Sea or the Canol oil field. “That’s a concern because we live in a very high-cost area, especially when it comes to drilling for oil and gas,” says McLeod, noting, idealistically, that the Sahtu Land and Water Board did approve 10 wells for drilling this fall. “We’re optimistic that the leading proponents will be back soon.”
And again, optimistically, if prices stays low—or keep falling—they could affect the profitability of oil sands operations, causing production and staff cuts, and the territory could benefit by attracting these workers North, says McLeod.
The territory did succeed in attracting tourists last year. Aurora viewers were up 38 per cent, to 21,700 visitors, for the fiscal year. The overall number of tourists grew to more than 90,000 and spending was up 24 per cent to $132.5 million. And business tourists increased by 47 per cent. “Consumptive tourism has been declining—areas of hunting and fishing—but business tourism and eco- and adventure-tourism have all been increasing,” says McLeod, adding the government will put together a trade mission to China and Japan early this year to develop the Chinese aurora tourism market, and promote NWT products and investment opportunities.
Around the territory, the government dedicated money to develop a plan for a Kakisa fishery, and work continues on the $299-million Inuvik-to-Tuktoyaktuk highway. The $82-million Mackenzie Valley Fibre line could also spur a burgeoning satellite data industry in Inuvik. “We’ll be going to Europe to start nailing down some of our customers and we fully expect over the next decade we’ll see about 30 to 35 of these satellite tracking devices being set up in Inuvik,” McLeod says.
As for the first year following devolution, there have been some surprises. McLeod says the government likely won’t hit its targeted $60 million in resource revenues this year: “I think it’s a little less than that.” And though the NWT maintains one of the highest employment rates (67 per cent) in Canada as of November 2014, that had fallen 2.3 per cent from November 2013, to its lowest level since June 2010. The labour pool decreased by 1,300 over that time, and the number of people employed dropped by 800.
Despite the snags, McLeod hopes to see the territory’s GDP growth return to six or seven per cent, up from the 3.5 per cent growth in 2013. “It will bring us back to where we were before, where we were number one in Canada,” he says. “I think we’ll be very close to that again.” If that happens, it might help McLeod accomplish his goal of becoming the territory’s first two-term premier.
Yukon: We don’t die, we diversify
Tell me if this sounds familiar? Sputtering or shuttered mines and advanced mining projects looking for investors, offset by a mine developer putting big-time money into a long-term project and a strong tourism boost.
If you feel like you’ve heard this story before, it’s because you probably have, in 2013. That year, the territory’s real GDP fell by 0.9 per cent, holding the dubious distinction of being the biggest loser by a Canadian province or territory. (New Brunswick was the only other province or territory to experience contraction, at 0.5 per cent.) It also marked Yukon’s first shrink in GDP in 10 years. Though the 2014 numbers aren’t in, it doesn’t look like they’ll blow anyone away. Last year didn’t see much improvement for the territory’s mines, and mineral extraction accounted for roughly 20 per cent of Yukon’s GDP in 2013. This caused the government to lower its 2014 GDP forecast twice: from an initial 8.8 per cent growth rate late in 2013, down to 3.3 per cent last February and finally 1.7 per cent last summer.
Still, Yukon’s premier is optimistic the territory saw some GDP growth in 2014. And that’s because his government added some new numbers into the equation: roughly $293 million. “One of the things we did is we’ve tabled this year the largest capital budget in history,” says Darrell Pasloski.
The spending, he says, was intended as a stimulus—in highways, construction projects, power plants—to put public dollars back into the territory. Some of the big-ticket items included the construction of F.H. Collins Secondary School (with $28 million of the full $51-million budgeted for 2014), roughly $40-million for a back-up LNG generator set and $12.7-million for a 34-unit seniors’ facility—all built, or being built, in Whitehorse. The construction industry will also be helped in 2015 by the City of Whitehorse, which unveiled an infrastructure-heavy budget in December, with $30 million devoted to capital projects, including $21 million in 2015 for its $55-million consolidated operations and services building.
Read the full article in January 2015 issue of Up Here...