NRGO Committee Meeting

STANDING COMMITTEE ON NATURAL RESOURCES AND GOVERNMENT OPERATIONS

COMITÉ PERMANENT DES RESSOURCES NATURELLES ET DES OPÉRATIONS GOUVERNEMENTALES

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, March 19, 1998

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[English]

The Chairman (Mr. Brent St. Denis (Algoma—Manitoulin, Lib.)): Colleagues, witnesses, good morning. I'm pleased to call to order this March 19 meeting of the Standing Committee on Natural Resources and Government Operations as we continue our study of the knowledge- and technology-based industries that have evolved from the natural resources sector.

Just for the record, I will repeat what members of this committee have discussed before. Many members of the public still have the impression that our natural resources are simply the drawing of water and the hewing of wood, but there are many, many good news stories about what is happening as we build on the knowledge Canadians have developed over the years and how that knowledge is being used to make Canadian industry more competitive and how it itself becomes an export commodity in goods and services.

We have with us today, under the umbrella of the Mining Association of Canada, the new president, Gord Peeling; from the Canadian Association of Mining Equipment and Services for Export, John Baird; from Queen's University, Dr. Laeke Daneshmend; and from Noranda Inc., Dr. Irwin Itzkovitch, who I understand made a special trip back from Tucson and may be a little beleaguered this morning.

You look in fine shape there, Irwin.

Dr. Irwin Itzkovitch (Senior Vice-President, Technology, Noranda Inc.): Thank you, Mr. Chairman.

The Chairman: We want to thank you for being here. We look forward to your testimony.

I understand you will take about a half hour to make the presentations, split among the four of you, roughly. That will give us ample opportunity to have a discussion.

Mr. Peeling, we invite you to make the opening remarks.

Mr. Gordon Peeling (President, Mining Association of Canada): Thank you, Mr. Chairman and members of the standing committee. I thought the order in which we might best proceed this morning, starting with me, would be to move to Dr. Irwin Itzkovitch, who can provide some very specific details of research being undertaken by Noranda as a member of the mining association. Then we would look at the service and equipment side through John Baird and CAMESE, and then we would turn to Dr. Laeke Daneshmend of Queen's for an academic perspective.

[Translation]

My name is Gordon Peeling and I am the president of The Mining Association of Canada. I am pleased to have the opportunity this morning to say a few words on behalf of our industry.

[English]

First I want to note that our member companies account for the bulk of Canada's output of metals, and they do produce major quantities of other industrial materials. I'm not going to go into the history of the industry today—you have it in the written submission—but I do want to touch on the value-added contribution of mining to the Canadian economy, the role of science and technology in mining, and the role of government.

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As a quick note, ever since the time of Martin Frobisher, in 1576, we've been exploring this country. The first value-added activity occurred in the Forges du Saint-Maurice, dating back to 1729 in Quebec, based on iron ore deposits in the area. So we've had a long, long history of value-added activities in this country.

The industry certainly flourished in the post-World War II period, based on a lot of technology that was developed during the war and then was turned into applications for the search for minerals in Canada, and particularly in the airborne geophysics field. Statistics do indicate that from that period of the post-war era to the present there has been a clear relationship between the discovery of world-class deposits in Canada and the development of new geophysical or geological techniques, models, and instrumentation.

Exploration and development remain the essential form of research and development for the mining industry. Exploration and development are the only means to sustain the industry's production capabilities.

Today Canada is a world leader, with a long tradition of technical excellence. The mining industry is increasingly knowledge based and technology intensive, utilizing the most sophisticated and innovative technology to reduce inherent risks in exploration, to improve the productivity and competitiveness of mining and processing, and to enhance environmental protection.

To take a quick look at some of the statistics, the mining and metals industry is a fundamental cornerstone of our economy. The mining and mineral processing sector employs 350,000 Canadians. It contributes $23.7 billion to the Canadian economy.

We remain one of the world's largest mineral exporters, contributing on a net basis roughly $10 billion to our trade surplus. The minerals and metals industry represents 55% of all rail freight revenue and 60% of port volume, so large parts of the Canadian infrastructure are very dependent on the activities of this industry.

Canada has also become the world centre for mine financing, raising $6.3 billion on capital markets for domestic and global mine financing in 1996. Moreover, in 1997 the shares of more than 300 mining companies traded in the Toronto Stock Exchange accounted for 27% of trading volume, second only to the financial services sector.

Given Canada's international mining stature, other multinational mining companies are establishing a presence in Canada. In 1997 Boliden, from Sweden, relocated its world mining headquarters to Toronto, with an $800 million initial public offering on the Toronto Stock Exchange. Canada, in Toronto in particular, is becoming a global mining centre.

I want to use a quote from John Carson, vice-president of market regulation for the Toronto Stock Exchange, in a recent address to the prospectors and developers conference in Toronto:

Toronto has developed the largest and most sophisticated mining investment community in the world, boasting more mining company head offices than any other city and an unrivalled concentration of industry analysts, engineers, consultants, lawyers, and investment bankers. As a result, the TSE functions as a lead market to which investors around the world look for the best available valuation of mining stocks.

This industry is truly at the forefront of the industry worldwide, and we are a global leader. There are roughly 1,600 mining company head offices in Canada, compared with about 740—it's just under that figure—in the United States and 56 in the United Kingdom.

At the beginning of 1997 Canadian mining companies held a portfolio of some 3,400 foreign mineral projects, in more than 90 countries. The global nature of the industry has stimulated significant demand for Canadian knowledge-based mining expertise. In this regard the Canadian mining industry is what we like to refer to as a flagship model for value-added activities. By that I mean when Canadian companies invest in foreign jurisdictions, they generate new opportunities for domestic equipment and technology manufacturers as well as engineering, geological, and environmental service industries.

There is often a failure to recognize the role of knowledge and technology in economic growth. For example, these mining head offices in Canada stimulate an indirect but significant multiplier effect, contributing to materials and services consumed, job creation, R and D, and taxes paid to all levels of government. Of similar importance is the contribution of associated equipment and service industries. Conditions that place Canada in a competitive position to attract and foster this type of investment activity are important and bring significant benefits to all Canadians.

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I want to reflect the comment of a colleague in the environmental services area, one who does a lot of work with the Canadian mining industry. It was that without this solid base of mining in Canada we wouldn't have the service industry in the environmental area, we wouldn't have the developments on the technology side, the environmental area, etc. It has to have that solid base to feed. That then provides it with a base from which to export internationally.

So we have a lot of things that are related and dependent on the mining industry.

The Canadian tax system also plays an important role in our ability to create jobs and foster economic growth. The international nature of mining means Canada faces heavy competition for mineral investment; and Canada is not considered a low-tax jurisdiction. A competitive minerals and metals industry requires a corporate income tax system that is fair, stable, and balanced and encourages simplicity of compliance. The forthcoming recommendations from the government's review of business taxation, the Mintz Technical Committee on Business Taxation, provides a unique opportunity to send a strong signal to the world business community, and to the Canadian mining industry in particular, that Canada is a good place in which to invest. This must always be at the forefront of our thinking.

The Canadian mining industry has provided a platform for a cluster of knowledge-based industries, many of which are small and medium-sized businesses, in both rural and urban Canada. A competitive tax system will play a critical role in ensuring that Canada maintains its mining expertise, stimulates private sector innovation, promotes environmental efficiency and effectiveness, supports small business, and continues to create jobs for our youth.

The mining industry in Canada is committed to excellence in all our activities. Many of Canada's large mining companies undertake significant research and development. I would encourage the committee to tour one or more of these research facilities to see at first hand what is being done.

Value-added processing or knowledge-based industries are associated with wealth, growth, high skills, training, and a well-educated workforce, as well as market opportunities. These characteristics are not intrinsic to mining but require entrepreneurship, opportunism, and favourable market conditions.

Through private research, partnerships with government, universities, and other private sector companies, the mining industry has been actively involved in a wide range of research programs. Let me list just a few: automated drilling and heavy equipment, rechargeable batteries, specialty mineral powders and coatings, galvanized metals for automotive and construction applications, diesel emissions in the health and safety area underground, reduced air emissions, aquatic systems enhancement.

Although the private sector has undertaken significant strategic and competitive research projects, partnerships have been very productive and very important for this industry. For example, the Canadian mining industry spends approximately $100 million annually to control acid mine drainage. Participation and cooperation in the mine environmental drainage program, MEND, among industry, Natural Resources Canada, and various levels of governments, including the provincial governments, have resulted in new exportable technology and significant savings to both industry and government. This is truly a success story.

MAC is also involved in the metals in the environment initiative, what we call MITE. We have developed a partnership with Environment Canada, Natural Resources Canada, and the Geological Survey in particular, NSERC, Ontario Hydro, and Agriculture Canada. Health Canada is also involved, in a smaller way, but also the Canadian Network on Toxicology, and an additional network of universities and university researchers beyond that. MITE will work to identify the fate and transport of metals in the environment, the speciation of those metals, and their environmental impacts. It is designed to allow the development of a policy and regulatory structure based on sound, agreed science, thereby avoiding the difficulties a number of other sectors have had to overcome.

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While science and technology partnerships have proven successful, their ability to inspire research, knowledge-based industries, and jobs and economic growth is to a large extent geared towards an international recognition of the safe-use principle for metals, a principle we are committed to. This principle recognizes that minerals and metals can be produced, used, reused, recycled, and returned to the environment in a sustainable fashion.

In conclusion, let me cover a number of points. The globalization of the mining industry, the removal of tariffs and barriers to trade, and a growing market for environmental technology all offer new opportunities for knowledge-based job creation and economic growth. To take advantage of these changing, competitive opportunities, MAC recommends to the federal government that it address its commitment in the red book, Securing Our Future Together, to undertake a review of the constraints facing value-added production in Canada.

MAC recommends that the federal government continue to support science and technology identified in the 1996 mineral and metals policy for the Government of Canada to provide for a comprehensive geoscience knowledge base, support for sustainable development challenges, enhanced health and safety for Canadians, the promotion of S and T in support of industry competitiveness, and the development of value-added mineral and metal products.

MAC recommends that the federal government continue to promote scientific research and partnership with industry to develop more competitive processes and products.

MAC recommends that the federal government continue to work with industry through the Canadian Biotechnology Strategy to determine how best to realize potential benefits.

MAC recommends that the federal government improve public dissemination of information to encourage industry entrepreneurship.

MAC recommends that the federal government continue to pursue regulatory reform in mining. Smart regulations promote progress, compliance, research, and technological innovation. Less-than-smart regulations are costly and adversarial. They are command-and-control approaches, which do not benefit jobs, growth, competitiveness, nor necessarily even the environment.

MAC recommends that the federal government adhere to the 1996 federal minerals and metals policy commitment to:

...provide, to the extent possible, fiscal treatment to the Canadian mining industry that is competitive with the type of treatment afforded by other governments to mineral developers and producers operating in their jurisdiction.

Finally, MAC recommends that the federal government review the impact of high levels of personal taxation vis-à-vis the United States and its potential consequence for fuelling a brain drain, reducing the industry's ability to attract and retain highly skilled people and potentially undermining efforts to build a knowledge-based industry, in which human capital is a vital ingredient. I should note that human capital is very mobile, as are other aspects of capital.

I would like now to turn to Dr. Irwin Itzkovitch, who will perhaps take a more detailed and specific approach to the issue.

Dr. Irwin Itzkovitch: Members of the committee, I'm senior vice-president of technology for Noranda, an international leader in mining and minerals and, until this year, a leader in forest products and oil and gas, although we've decided it's best to divest ourselves of those interests and focus on mining and minerals.

This morning I would like to describe Noranda's vision and the importance technology plays in achieving profitable growth. Like Gordon, I will present my views on the importance of the core national resource sectors to the building and maintaining of a cluster of knowledge-based industries.

Noranda's vision is the responsible and profitable development of mineral resources around the world for the benefit of our shareholders. In doing so, we strive to improve the quality of life for our employees, the communities we operate in, and the users of our products. To achieve these goals, we recognize the need to exploit not only our strong financial position but also our strength in technological innovation, development, and commercialization. Partnerships in exploration and development are an important component of our business and we seek to be recognized as preferred partners by demonstrating our leadership in the application of technology.

Unique in the mineral resources business, Noranda has two technology centres, our wholly owned facility Centre de technologie Noranda at Montreal, employing some 220 people—and consistently, I'm very proud to say, we employ 20-plus summer and co-op students—as well as our Falconbridge centre in Sudbury, which employs about 85 people.

Noranda's 1996 corporate R and D investment was $63 million, which placed us eighteenth in Canada. I think the only thing above us and relating to natural resources was Alcan.

Our 1997 investment was increased by $10 million. This does not include the close to $100 million we spend annually on mining exploration, or in excess of $10 million invested in R and D at our operations.

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You will notice I spoke of R and D “investment”, not “expenditures”. Over the last 75 years technology for Noranda has been a good investment. We've looked over the last 5 years and have estimated that our technology investments have generated a benefit-to-cost ratio in excess of 3:1.

We have not done this alone. Through partnerships with Canadian universities, government laboratories such as CANMET, the Geological Survey of Canada, Fisheries and Oceans, Environment Canada, and other companies we have built a leadership position in the development and integration of technologies related to the environment, advanced process control, automated and robotic mining equipment, and underground communications. We are also recognized as leaders in advanced product and process development.

A few examples of recent Noranda-developed technologies that have led to major investments, jobs, returns to shareholders, and spin-outs to knowledge-based companies include our Magnola project, where we are going to take waste asbestos tailings and convert them to magnesium in a $720 million facility to be built in Asbestos, Quebec.... Falconbridge's $570 million Raglan nickel-copper mine in northern Quebec is another one of these investments we're making based on technology. The new continuous converter at our Horne and Gaspé copper smelters...and for those of you who don't know, our smelters are now major recycling facilities. We are probably, on a dollar value, the leading recyclers in North America, because we recycle precious metals.

These improvements don't only improve operational efficiencies but reduce SO₂ emissions.

Another thing we're proud of is the technology transfer we've made to a small company, STAS Mining Automation Division, which we've licensed to commercialize mine automation technology. This company now employs some 20 people. We've made many other technology transfers and have thus created knowledge-based industries.

But we're not the only ones exploiting technology to create wealth and jobs. The core natural resource sector's needs and its high-tech nature generate many cluster satellite companies and jobs. A study in 1995 showed that some 17,000 people were employed in minerals- and metals-related environmental consulting companies in Canada and generated some $2 billion in annual revenues.

Also, Canadian mining and metallurgical consultants and engineering companies, building, as Gordon said, on expertise developed by working for and with Canadian mining companies, are working around the world and are internationally acclaimed. We are leaders in the development and sale of exploration hardware and software. The same, as Gordon said, can be said about our financial services sector.

This leadership position in knowledge-based industries and technologies cannot—and I emphasize cannot—be sustained without a strong core natural resource sector and ongoing support for technology. We hear a lot about the importance of the information highway, but this highway, without users such as natural resources to provide on- and off-ramps, is a highway leading to nowhere.

Our universities and government laboratories are in financial, infrastructure, and personnel crises. The government is beginning to address this, but we need to shore up these important contributors to our competitive advantage.

We also should redress the issue of exploration not treated in the same manner as research for tax purposes. In exploration we carry out preliminary assessments, develop hypotheses about mineralization location. We test those hypotheses through expensive and risky drilling programs and after revisions retest our hypotheses. This is as much R and D as is process or product development, and it should be treated as such.

Last, let me invite the committee to visit our technology centre just down the road in Pointe-Claire, Quebec, where our 220 dedicated researchers and support staff strive to create Noranda's high-tech future today.

The Chairman: Thank you for the invitation, Dr. Itzkovitch. We'll see if we can do that some day.

Mr. Baird.

[Translation]

Mr. John Baird (Managing Director, Canadian Association of Mining Equipment & Services for Export): Thank you, Mr. Chairman. It is quite a pleasure and a great honour for me to be here representing our association, CAMESE, as well as the mining equipment and service suppliers.

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[English]

Indeed, it's a pleasure. I think my two colleagues have done a great job so far in telling you about the mining industry in Canada and many aspects you may not have thought about. Let me try to put what Dave said into my own words in just a minute. My experience in mining is a very global one. It's not centred in Canada as much as it's centred in the world. My career has taken me to 71 countries, where I've had a great deal of experience, always in the mining sector.

If you look at the industrial sectors of Canada, I don't believe another is as dominant in the world as the Canadian mining industry. This comes about because we have a totally vertically integrated industry. If you will, the industry is led by the junior mining companies you've heard so much about, which go out and take these big risks. It's followed by the major companies, such as Noranda, which can develop these deposits profitably. Both of these groups are followed by the mining suppliers I'm here to talk to you about today. They are surrounded by financial, legal, accounting, and other specialists who support their activities on a worldwide basis, as well as the academic and research institutes here in Canada.

It really is like a fifth column in the mining industry. We're developing it not only in Canada but also around the world.

I would like to throw out the idea that Canada is indeed the best mining knowledge base in the world. I don't think there's another country.... There are some debates on this. It's all very qualitative and not very quantitative. But my suggestion to you would be that we are the best mining knowledge base in the world. If the U.S. is the world's policeman, we're the world's miner. I don't know that many Canadians, or perhaps you as members of Parliament, are really aware of that. There is no question that if we're not number one, as in my claim, as the mining knowledge base of the world, we're certainly not second.

The reason we have all of this, of course, is that we have a mining industry in this country that has thrived essentially since the end of World War II and that we have had a reasonable political, economic...taxation and all the other things that go together, including, of course, nature's bountiful gifts of the mineral resources we have in this country.

Perhaps that sets the stage a little for what I think my principal role in this is, which is to give you some information about the mining equipment and service sector in this country and how it sees itself in the world situation.

This sector, the mining supply sector, provides a high percentage of well-paid, high-technology jobs. It is indeed the real value-added part of the mining industry. If you look at the downstream effects of the mining industry, turning metals into products, the Japanese do that very well, and they don't have much of a mining industry. They get the metals wherever they can get them. The really important, special part of the mining industry is the upstream part of it. It is those people who have developed technology and provide it to a mining industry so that mining industry can be competitive. This industry, of course, was created in Canada to serve Canadian mines, but as I hope to show you, it is a sector that lives through creating and supplying the high technology absolutely essential to the world's mining industry.

In my thinking—and there isn't an awful lot of economic research behind all this—there are three tiers of mining suppliers. The first tier is those companies that really are very, very closely related to the mining industry. They would range anywhere from a third of their sales to mining to maybe 100%. This sector is made up of about 600 firms across Canada, which provide the exploration and the mining companies with a broad range of products and services, some of which you've heard about before, so I won't repeat. In its size, diversity, effect on world markets, this group of 600 companies is second to no other national group in the world.

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We estimate that currently Canadian mining equipment and service suppliers contribute $2 billion—certainly between $1 billion and $2 billion—to the Canadian GNP. About half of this is exported—half. I don't think you will find very many industrial subsectors, if we can call ourselves a subsector of the mining industry, that make that kind of contribution to exports as a percentage of their total production, other than the automotive industry, I suppose.

Most of these companies are small and medium sized: 90% of them are under $10 million a year. The median employment per company might be only 25. This adds up to perhaps 15,000 jobs nationally.

Many of these employees are knowledge workers. This industry requires high technology not only for the products it produces, because the mining companies need high-tech products, but in order to produce the products.

With Industry Canada we did a survey of our membership about a year ago. One-third of them were considered to be advanced manufacturing technology companies—one-third. What that means is they produce products in this highfalutin high-tech category.

The other two-thirds absolutely require high technology in order to produce competitively. To give you an example, percussion drills were invented perhaps a hundred years ago. You might say there's not very much new in a percussion drill. To produce a percussion drill in Canada for the world mining market you have to have very high technology in your machines, in the machines that produce that and in your whole processes, the design and so on.

My point is that however you want to draw lines, this idea of knowledge base goes all the way down to the manufacturing processes that firms use. If you're not a high-tech firm in the mining industry today, you're not in the mining industry.

Canadian mining suppliers are very competitive in the world market because in Canada our companies have always had open access to world technologies. The companies that have developed goods and services in Canada have always been effectively competing on a world scene. We have excellent technology here. The NAFTA manufacturing base is very important and the low Canadian dollar now is a great asset to us in our exporting activities.

Many firms in the Canadian mining equipment and service sector have developed export markets for their products and services. We think 25% of such firms are now more than 50% export, some going as high as 80% to 90%. Many firms in Canada absolutely rely on export markets. They have perhaps reached, like the firm of which I was vice-president of for many years....

You soon reach a saturation point in the Canadian market when you're talking about a little niche that's required in the mining industry. For example, geophysical instruments were mentioned. The company I worked with absolutely saturated the Canadian market in 1964. We then had to go out and create a much larger base for our products or we would die. We couldn't maintain 10% of revenue spent on R and D, we couldn't maintain the manufacturing processes we needed to satisfy the Canadian industry, without a world base. So from 1964 over a 20-year period we went from zero exports up to about 60%, 70%, 80% export every year.

That's the way the mining supply industry is in Canada. But you can't do it without knowledge; and as I said before, Canada has the best mining knowledge base in the world.

I've been speaking about what I call the first-tier mining suppliers. There are second and third tiers, which indeed may represent even more than the first tier in economic contributions.

The second tier is the manufacturers of general goods used in all kinds of industries, some percentage of which are sold to the mining industry. They include the legal, accounting and financial industries.

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Take a firm such as Coopers & Lybrand or Price Waterhouse. You all know those names. These kinds of firms have mining groups. The purpose of that is to serve the mining industry. Where? Worldwide. Where are these groups located? In Canada. That's because we have the expertise that goes into those kinds of things.

So this is my second tier, if you will. I think it's enormous. It's totally unstudied. We hope something MAC and we are working on with Natural Resources Canada is going to start to get us some numbers on the level of contribution by that sector.

The third tier I put down as the firms that import equipment and service it for the Canadian mining industry, a very important part of keeping mining efficient in Canada.

About the world market, Canada has been number one in the world in attracting mining investment, exploration, and development since the world war because we've had an excellent situation here. However, things are changing. Jurisdictions around the world are changing the risk-reward ratio. The rewards have been well known—great mineral deposits—but the risks have been very high. They range from terrorism to high taxation and political risk. I think you're all aware this is changing. Chile is the best example. They started more than 10 years ago.

The latest summary of mining projects announced and under way totalled $48.5 billion U.S. Only 8% of that is in Canada. It's a wonderful industry for us, having that 8%. That represents about the right amount for Canada in terms of our history. That amount does not include Voisey's Bay, which this particular study put on hold because other people have put it on hold for the moment. That will be $1.5 billion or so. So it's substantial.

My point is that only 8% of this is happening in Canada. But if you look at the influence of Canadian companies in the other 92%, companies such as Noranda, it's very high. If you look at what Canadian mining suppliers can get out of that because of this great knowledge base we have, it's enormous as well. Perhaps that puts the world mining situation into perspective for you.

I would be wrong if I left you without saying a few words about what our association does. We are actually an export trade association. We have over 225 member companies.

I've brought with me, and I have one for each of you, what we call our “compendium”. You will find all kinds of profiles of companies in here—including STAS, I may say—that represent high technology and that sell it all over the world. They wouldn't be in the book if they weren't bona fide first-tier Canadian mining suppliers and exporting. I'll leave that with you.

As far as our activities are concerned, we're very pleased to be bridging successfully that gap between small and medium-sized companies, trying to sell to a very large, diverse market and government.

I very much appreciate the opportunity to be appearing here today. It's just one of many contacts we have established over the last few years with the Government of Canada. I thank you very much for this opportunity.

[Translation]

Thank you very much. I will be pleased to answer your questions in French.

[English]

The Chairman: Thank you, Mr. Baird.

We'll conclude the opening round with Dr. Daneshmend. Then it looks as if we'll have some good fodder for questions.

Dr. Laeke Daneshmend (Professor, Department of Mining Engineering, Queen's University): Thank you.

I'm going to restrict my remarks this morning to a particular sector within the mining industry. That has to do with the actual equipment and operations that occur to extract the minerals. I'm not going to talk about things having to do with exploration or mineral extraction or processing.

About mining equipment and mining operations, there is indeed historically in Canada a track record of outstanding success in the application of the latest technologies in equipment design, equipment mechanization, equipment automation, and putting together information systems for management of mining operations. Largely this is as a result of what John Baird referred to as this astonishing knowledge base that has been built up in the country over the years. I would like to compare a couple of competing views of how such advances in technology can occur within the mining industry and then perhaps relate some anecdotal experience.

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One view of applying high technologies to mining has to do with the comprehensive, system-wide application of technology right across the mining process. There have been some successes in this system-wide application of technology, particularly at larger mining companies. These have been the result of significant research efforts, in-house and externally, at these mining companies. The mining companies include Noranda and Inco, essentially companies that had significant R and D resources internally.

An alternative view to applying high-tech technologies to mining equipment and operations is to pick targets of opportunity; to go out into the open pit or underground, look at the way things are done, and focus on how they can be done better. This has been the traditional evolutionary way of integrating new technology. In this context as well Canada has led the way. For example, within a decade of the commercial availability of global positioning systems for navigation we have, at many Canadian open-pit mines, much of the mobile equipment operating under GPS navigation, or at least GPS navigational aids. We also have communication networks in place in underground mines and open-pit mines that let mine managers do resource allocation and optimization at a level undreamt of even a decade ago.

Those are the positives in all of this. The problems have to do with the complexity of the mining operations, the complexity of the mining equipment, the harshness of the environment in which these new technologies must survive; and they have to do with the acceptance of new technologies by the workforce. About integrating computer-based technologies into equipment, this has got to the stage where the level of education of operating personnel now presents a significant constraint on the further advancement of these technologies and their acceptance.

There also seems to be a certain gap in the management of technological change within mining operations. Buying the technology is typically viewed as the solution. Typically, buying the technology is just the start of the problem.

Significant issues having to do with information systems are as yet unresolved, and in many cases these end up leading to information overload. These are not dissimilar to problems faced by the manufacturing industry one, two, or three decades ago, but they are rearing their heads now in the mining industry.

About how successful this nation has been at fostering the development of such technology and its commercialization, I'll offer just some anecdotal experience. Six years ago I was a founding partner in a small company in Montreal. It consisted of three of us in a 200-square-foot office. Five years later we had grown to several million dollars a year in sales and we employed thirty people on three continents. We had to sell out to an American multinational.

The responsiveness of government departments and of Canadian mining companies to the potential for economic growth offered by such small spin-off companies is, I think, rather minimal.

The Chairman: I'm sure there will be some questions on that.

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I'm assuming, Dave, that you'll want to start. Do you want to take two minutes and just grab a coffee and a sandwich? Or do you want to start, Dave?

Mr. David Chatters (Athabasca, Ref.): I'll wait until later in the round.

The Chairman: Then we'll start with Roy. Antoine, do you have a...? Do you want to just take two minutes and we'll—

Mr. Roy Cullen (Etobicoke North, Lib.): I have a luncheon commitment, unfortunately.

The Chairman: Okay. We'll start with Roy and after that we'll take a moment and grab a sandwich and a cup of coffee.

Mr. Roy Cullen: Thank you.

Thank you, gentlemen. I got my wires crossed a bit today, so I have to leave earlier than I would like. Thank you very much for your presentations.

Mr. Baird, if you look at the mining equipment sector in contrast to the forestry equipment sector, you may not be that familiar with the forest industry equipment sector, but as I understand it, it developed and had a very high global positioning and then it sort of withered on the vine. So the forest industry now imports a lot of their technology, a lot of their equipment. It sounds like in the mining industry, in a sense to keep the industry alive here in Canada, you went global and that gave you a broader base.

I wonder if you could expand on that a bit. It's probably too late for the forest industry; I don't know what we can do there. What kind of market share do your member companies have in terms of equipment? Let's leave it with equipment for now. What kind of domestic market share do you have?

Mr. John Baird: The last study that was done on this is about five years old. It indicated market penetration into Canada of about 70% imported.

Mr. Roy Cullen: Imported.

Mr. John Baird: Imported.

Now, statistics have to be examined, as always. That so-called mining equipment number relates to heavy equipment—trucks and loaders and so on and so forth. When you start to expand that into things like geophysical instruments, software—if that's a product—and then when you add services on top of it, which there are no statistics for, import or export really, you get a totally different picture.

I have no qualms in telling you that Canadians are net exporters of all of the services and equipment required for the mining industry—net exporters.

Mr. Roy Cullen: In the economy as a whole we have become more service-oriented to manufacturing. So that's happened—

Mr. John Baird: That's true, but for reasons that Laeke was just giving, we lost out on the mining equipment industry. In the 1970s, when everything was going hydraulic, we didn't have the hydraulic.... The Europeans had it, the Americans had it in that kind of equipment.

If you flip through an international mining magazine, the full-colour one-page ads are never Canadian. They're all—

Mr. Roy Cullen: Why didn't we have that technology here in Canada? Was it just a lack of commitment to basic research?

Mr. John Baird: I wouldn't want to be the one to really answer that question. I've been told that many times, and it makes sense.

We now have it. We now use it. We service the equipment now that's manufactured elsewhere. There's only really one stunning example of a Canadian big equipment manufacturer: it's Euclid. They're not Canadian-owned, but they do make these huge trucks in Canada.

Obviously when you look at the numbers, every truck you sell is worth millions of dollars. Every time you sell a highly sophisticated underground mining communications system that's the spine and the backbone of all the high technology now that goes into an underground mine, that's only worth half a million dollars or less. So we always lose on the numbers, but we gain in the volume. We gain by all those niches that are so hard to explain because it's not like a great big truck.

Mr. Roy Cullen: I've had the good fortune to work abroad a bit. For example, in South Africa—I was there for four years; you know, it's sort of the hotbed of some gold mining and other.... There are a lot of Canadian mining geologists and mining engineers there who are hugely respected. I'm wondering if we could be doing more—it sounds like you're doing a lot—in terms of the services component, that expertise. Presumably, for example, companies are on Team Canada missions. Is there anything more as a government that we can do to help you market these services abroad?

Mr. John Baird: Firstly, listen to MAC. I mean, we have to have a strong mining industry here at home. That's number one, period. The minute that equation changes, my constituents move to Chile and Canada becomes the branch office. That is my main message to government.

• 1155

Other than that, there are things we're doing as an export trade association for which we get a great deal of help from the Department of Foreign Affairs and International Trade. We have a good partnership there.

Mr. Roy Cullen: A lot of those issues are provincial in terms of ensuring we have a healthy mining industry in Canada, in terms of taxes and royalties and regulation.

Mr. John Baird: Sure. I'm on a ministerial committee for export in Ontario.

Mr. Roy Cullen: Environmental regulations are something the Canadian government can use to create a healthy environment or an environment that detracts from competition.

Mr. Itzkovitch, we've talked on the phone, and I appreciated your help when we looked at technology transfer last year. Certainly I can attest, although I'm somewhat biased, being sort of a former colleague in a sense.... Although Noranda's now divesting of the forestry assets, the Noranda technology centre is a good example of the private sector committing to R and D, and I encourage all members to visit it.

The Chairman: Is that in Montreal?

Mr. Roy Cullen: Yes, in Pointe-Claire.

I had a question on that point, and another one to follow and then I'm done. This may be a corporate issue that you may not want to discuss, but if you're divesting of forestry and there is a strong forestry research presence in Pointe-Claire, will that be sold as part of a package? You may not be willing to discuss that.

Dr. Irwin Itzkovitch: Oh yes, I am.

A very interesting situation obtains with respect to the very heavy involvement of Noranda scientists and engineers in forest and forest products research. When we decided to divest of Noranda Forest, a discussion was held with Linn Macdonald, who is president of NFI, and we came to the conclusion that there is an advantage to both Noranda shareholders and “newco”, whatever they end up being called, to continue doing technology development for them out of the Noranda technology centre.

As a matter of fact, I think it's this week—this week has been somewhat hectic for me—we finally resolved one sticky point with regard to intellectual property and now we have an agreement whereby “newco” will continue to invest in technology development at the technology centre.

We're very happy about it, because technology flows across sectors: technology developed in the forest sector flows through the mining sector, and vice versa. That flow of technology across sectors I think provided Noranda with one hell of a competitive advantage. So we have done everything possible to maintain that. Noranda Forest will continue to invest between $6 million and $7 million a year at the technology centre.

Mr. Roy Cullen: One of the things I meant to bring up at the last session when we were dealing with the forest industry was that MacMillan Bloedel, with their very strong presence.... Of course Noranda Forest had an interest in MacMillan Bloedel some years ago and divested of that, a very strong research capability in Vancouver, which they've said they're going to be cutting out.

Mr. Itzkovitch, Noranda as a company has clearly made a large commitment to R and D. You probably have set some benchmarks and you probably want to do better. In Canada we have a very progressive tax regime for R and D, yet the private sector investment in R and D seems to be low by comparison to other jurisdictions. Would you expand on that, talk about that, maybe give some idea of what, as a federal government, we should be doing differently or better?

Dr. Irwin Itzkovitch: It's a very interesting question. I've been asked that question on many occasions, both at the provincial level and the federal level.

If one takes a look at the difference between Noranda and other companies in what I would call the base industries—not just the natural resource sector, but the base industries—frankly that can either make or buy technology, because the technology is a small part of the overall investment.

I talked about $720 million investment in Magnola. The technology from the initial idea through to the end of the pilot plant cost us about $62 million. So that was 10% of the capital investment, which isn't really that large as compared to a software firm that basically spends between 10% and 15% of its annual revenue.

• 1200

The difference between Noranda and others is what I tried to say in my remarks. Noranda views technology purely and simply as an investment, and we will assess that investment based on its ability to create returns to the shareholder, returns to our employees in terms of health and safety. By viewing it that way, as opposed to the way other companies view it, as an expenditure, and demonstrating that the investment does pay a fantastic return, we have absolutely no problems continuing with that investment. I just mentioned Noranda Forest and its willingness to continue with that investment.

I think what the federal government could do—and this is from a tired individual, so take it where it comes—is somehow we have to get through to those leaders in technology management a different view of technology and the importance of technology. Within Canada, I think we lack the educational facilities to teach technology management. We do a superb job in teaching technology, but we sure don't do a very good job in teaching technology management. What we end up doing is promoting excellent technocrats to management positions at which they fail.

Just off the top of my head, I think that's something that needs to be addressed in Canada. It is addressed in the U.S. You don't rise to a significant position in technology management without going to technology management schools as well as having an MBA or an executive development program.

I know when I take a look at the way my colleagues in research management manage their R and D, they manage it as an expense, as opposed to an investment, and that may be contributing to the demise of a number of research establishments.

Mr. Roy Cullen: Thank you.

The Chairman: I might say I think that's a very important point, the concept of technology management.

Did you want to comment, Mr. Peeling?

Mr. Gordon Peeling: If I could, Mr. Chairman, I would like to go back to the earlier question that Mr. Cullen directed at John Baird on some of the historical studies in the late sixties and early and middle seventies, some of which were done by Industry Canada—or Industry, Trade and Commerce, as it was at that time—and some within the academic community on this question of the manufacture of machinery and equipment for the mining industry in Canada and why we didn't have this industry.

In some way it's like asking the farmer why he doesn't design and manufacture the tractor. The industry is a user. One of the common problems cited with the Canadian attempts of local entrepreneurs to enter into this business was that they could not meet the maintenance and follow-up to sales requirements the industry had. The industry of course always approaches this issue from a user point of view.

That was the late sixties and early seventies, and today is today and is quite different. We do have an example of a major truck manufacturer, a Canadian company, operating out of B.C. and Alberta now that services worldwide in mining trucks. We also have a much larger industry that has grown up and spun off companies, like Continuous Mining Systems of Inco. We've had significant investment in robotics. So we are there. We may not be at the level along here in certain areas within the Canadian context, but we have taken other approaches and seen these industries spin off.

What commonly happens, of course, is that the mining industry, which may develop something like Continuous Mining Systems at Inco and set up a company to market that technology, finds then that really it should spin it off. If the industry is to grow, if it's to really realize its potential worldwide, the mining company makes the decision that I'm in the business of mining, and if I'm going to let the supplier really grow, it's got to be off doing its own thing and not really under the direction of the mining company. So that commonly happens. I don't say it always happens, but that's commonly a decision that is taken.

There are these issues there, but we are operating from a much larger base and I think we are seeing the successes now that we had great difficulty with in the sixties and seventies.

• 1205

Mr. Roy Cullen: That's good. So the answer might be in certain areas where we have certain competencies to.... I know there's a danger of pushing the equipment sector on our domestic industries, and when we got involved in the forest industry competitiveness issues, there was a big push to ask how can we rejuvenate the Canadian equipment industry to serve our own sector? Why are we importing all of this equipment? The answer came from every CEO: “Look, we will gladly do it if they're competitive. We have to have price and service.”

So I think we should be sensitive around that point. There's no point in pushing something if it doesn't make any economic sense. But maybe we can provide an environment where it can grow naturally.

Mr. John Baird: The environment is there. We're doing this. Take an example from the 1970s, where we lost a slice of a much broader industry. Today over the whole thing, from grassroots exploration right through to mine closure, Canadian mining suppliers are world competitive.

Mr. Roy Cullen: I guess I was using more of the forest industry example, where the equipment industry has largely withered on the vine.

The Chairman:

[Editor's Note: Inaudible]

Mr. Roy Cullen: Actually, there you will see some interesting technologies in harvesting equipment and logging, but in terms of processing in mills we've lost the battle.

The Chairman: Thank you, Mr. Cullen.

Dr. Irwin Itzkovitch: Just one point, Mr. Chairman.

The Chairman: Yes.

Dr. Irwin Itzkovitch: We learned a lesson that might be beneficial to you. The lesson we learned is that we found that certain equipment and technologies that we needed to become more efficient and more effective in our operations—be it forest, oil and gas or mining, it really didn't matter—were unavailable to us worldwide. In the past what we did was go out and develop those technologies, and having developed those technologies, then we had to search for a transfer partner to get those technologies implemented in our operation. In so doing, we also gave up competitive advantage. Having developed a competitive advantage in order to manufacture that technology into a usable product, we had to allow the transfer partner to license it to other companies.

That's created a bit of a problem for us. The lesson we learned is that partnerships are difficult to put into place and to nurture. Once you throw something over the fence as a finished technology to a transfer partner, there is that mating season that creates lots of friction.

So the lesson we learned, and something you may want to take under advisement, is that transfer partners need to be developed from day one in the development of the technology. If the government can come up with a way to encourage the users and the suppliers to get together from day one to meet a common need to develop that technology, then you gain a double benefit. Number one, you gain rapid commercialization of technology. Number two, you gain instant credibility for the supplier of that product worldwide because it is applied.

Having been in a licensing technology business for part of my career, I've found that the most difficult thing to do is to get somebody else to implement a technology that isn't applied somewhere else.

So I don't know what the answer is, but I can give you some hints as to what is needed. I think what's needed is an ability to create those partnerships from day one that generate the pull and also the potential markets around the world.

The Chairman: Thank you, Mr. Cullen.

Before we go to Antoine, let's just take two minutes to grab a coffee and a sandwich, and then we'll come back to the table and keep working.

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• 1218

The Chairman: Okay, we'll turn the questions over to Antoine Dubé and then over to Reg and then back to Dave.

Some very interesting points have been raised. I hope you don't mind that we're having a working lunch, eating and talking at the same time. If you're in the middle of a bite, well, we'll work around those things.

Antoine, please proceed.

[Translation]

Mr. Antoine Dubé (Lévis, BQ): First of all, going through Noranda's annual report, I learned on page 5 about projects that were either completed or underway. Of course, being from Québec, I have noted the Magnola pilot plant in Québec which I find very interesting.

I would like to make a comment followed by a more general question. Mr. Baird has made eight recommendations on behalf of CAMESE. These recommendations are on the last page and one of them, recommendation six, is about continuing to pursue regulatory reform in the mining industry. I don't necessarily want to drag you into the political sphere, but I can't help it, I am a politician...

Mr. John Baird: I think that your question is for my friend Gordon Peeling because you are looking at his brief, not mine.

Mr. Antoine Dubé: No, no. I simply wanted to note your good deeds in Québec and congratulate you on this.

Mr. John Baird: Okay.

Mr. Antoine Dubé: I want to thank you for it.

Your recommendation six is about regulatory reform and everyone has broached the subject. The provinces have some jurisdiction, in some cases, in mining matters. Do you think that because there are two coexisting levels of jurisdiction in Canada— the federal government and the provinces—with each one, maybe, having its own regulatory framework in the mining area, it is one more constraint that your industry has to deal with?

• 1220

[English]

Mr. Gordon Peeling: Not necessarily. I think the industry is quite pleased with the recent signing of the harmonization accord by the Canadian Council of Ministers of the Environment. What we hope to see achieved with that, of course, is that a single process of assessment and regulatory activity will satisfy both levels of government so that we have a streamlined, efficient, effective use of regulation that will do the job at both levels, so that we don't get into duplication and overlap.

But that accord is really the first step. You have to make it work. So we will be watching very closely and certainly doing our part as an industry to ensure that ministers have no regret with respect to the level of environmental protection that this industry applies in its activities.

The areas that I think also play into this.... Indeed, both levels of government are involved, but at the federal level...and of course the Mining Association of Canada does focus its activities at the federal level. We coordinate our activities with the provincial associations as well, including the Quebec Mining Association, and they take the primary responsibility and focus of dealing with regulatory activities at the provincial level.

An example, though, of an interesting partnership at the federal level, leading to what we hope will be appropriate regulatory development, is MITE, the metals in the environment initiative, which I mentioned. This includes a coalition of four federal departments and the mining industry, plus Ontario Hydro, plus centres of toxicology at the Canadian universities, plus other researchers working in the toxics area at the university level. With Environment Canada, Fisheries and Oceans, which I did forget to mention as a partner, Agriculture Canada, and Natural Resources—and Health is out there, but they're not one of the primary four—they are working collectively to answer some of the questions with respect to environmental impacts and health impacts of metals in the environment, so that an appropriate policy foundation and regulatory foundation can be laid for this industry on the basis of agreed science.

That is, I think, an example of a real plus, where all of us can work together for a positive outcome. And that will have an impact on the next generation of metal mining liquid effluent regulations.

We also have another program focusing on technology and what we call AQUAMIN as well, which also has an input into that, particularly in the CEPA process as well, on environmental effects monitoring that this industry will be required to do, and at what appropriate level, etc. Obviously that does also have an impact in terms of operations across Canada, and it will have an input into how the provinces view this activity with respect to the amendments to CEPA.

So there are issues there. One of the reasons we've talked a lot over the last couple of years about the harmonization process and have encouraged the harmonization process is because, indeed, if it gets off the rails between the two levels of government it can be an impediment. It can represent a barrier and less-than-positive outcomes with respect to both investment and job creation and growth, and in our view it wouldn't necessarily improve the effectiveness of environmental protection.

So that is an ongoing concern.

• 1225

[Translation]

Mr. Antoine Dubé: I am filling in for another member of the committee today and this means that I am not necessarily an expert on your industry. I listened carefully to what you were saying earlier about equipment. In mining, there is of course the whole issue of operations with heavy equipment and so on. I feel it is very important for any potential investor at the exploration phase to know exactly what the opportunities are for every project, which ones are still very much underground, etc. I find it obvious that all the technology used for exploration make it possible to appreciate whether the expected raw material will be of good quality and whether the operation will be more profitable compared to another project. It is always a matter of metal quality and density. The research being carried out to improve our knowledge base, is it focused on that aspect or does it have to do more with the heavy mining equipment?

Mr. John Baird: There is important research being done in every field, of course. Canadian and Québec scientists are leaders in the two fields you have mentioned, that is exploration and evaluation. There is no doubt that Canadians are at the leading edge in those two areas of the mining industry.

There are very good examples of companies in Québec that started out on a very small scale in Val-d'Or and that have started exporting. They are members of our association and they are leaders on geophysics markets in South America for instance. This is all happening because of the sound base they have established in Canada. Canadian knowledge is...

Mr. Antoine Dubé: But I assume that a company like yours...

Mr. John Baird: Ours is rather an association.

Mr. Antoine Dubé: Yes, you are an association but nevertheless, you are representing companies that are competing with one another. When one of them discovers a process or a technology, it might not necessarily feel like sharing it with others.

Mr. John Baird: Mr. Itzkovitch did mention this dilemma. But in the end, you have to share such a discovery because it is not really profitable for a big company such as Noranda to keep a new technology all to itself.

Let's say one small geophysics company from Québec or Ontario, where there are many of them, develops a technology to find underground mines. Although you could say that this technology is a gold mine, you still have to convince people to use it. If you are the only one in the whole world using this process, you won't get anybody else to use it and that is a problem. You have to attract partners and other people who want to use this technology. It applies to big companies like Noranda, so it does apply most certainly to smaller companies.

[English]

Dr. Irwin Itzkovitch: It's very interesting. We just got a letter from Teck Corporation, one of our competitors, thanking us profusely for making technology available to them that ended up resulting in the discovery of a major mine by Teck. I can tell you that didn't make us feel very good.

Mr. John Baird: But would you have found it?

Dr. Irwin Itzkovitch: Would we have found it? I don't know. But it sure didn't make us feel very good.

The other point to make is this. My concern on technology is that technology knows no borders, it knows no nations. Technology flows freely around this world, and it flows so quickly that in a blink of an eyelid you know what's happening anywhere in the world. You have the Internet and the intranets of the world and you can access technology very, very quickly.

The issue for Canada, as a small nation, is that we run the risk of creating pockets of technology development that are too small to sustain themselves. In technology you need a critical mass.

• 1230

When we talk about exploration technology and geomatics, the one thing the federal government has done that has been absolutely superb is to maintain that technology development in the Geological Survey of Canada and Geomatics Canada. That's been very important for this country, because if you took that and you put a small pocket in B.C. and another small pocket in Manitoba and a third small pocket in eastern Canada and a fourth in Quebec, I think you would have no benefit derived from those small pockets.

It is very, very important to have a critical mass. I'm afraid we run the risk in our university structure, in our government structure and in our industrial structure to, if I may use the word, Balkanize those researchers to the point where there isn't a critical mass, and then the benefit goes down and it becomes a cost.

The Chairman: Thank you. Thank you, Antoine.

Reg is next.

Mr. Réginald Bélair (Timmins—James Bay, Lib.): As you know, Mr. Chairman, four years ago I was a staunch supporter of Natural Resources Canada. I opposed very strongly the cuts that were made to the department and the agreements that were in place with the provinces. Obviously the Prime Minister got the best out of me.

Today I am asking our witnesses, how has this restructuring affected your relationship with the Government of Canada, especially Natural Resources? Is there anything we could do to improve that relationship? What was the impact of all the restructuring?

Dr. Irwin Itzkovitch: Unfortunately, you have two people who were involved in the restructuring sitting at the witness table.

Mr. Réginald Bélair: Oh yes, on the good side or on the bad side?

Mr. Gordon Peeling: I'll start off and then Irwin can respond.

In many ways, I think one has to agree with the sorting out of responsibilities and the disentanglement between the federal and provincial governments in certain activities. I was involved in mineral development agreements at one point and I thought much of the work those agreements did was excellent. But the decision is that you can no longer afford them.

I think what we've seen happen in actual fact is that there are some positive things. I think we've seen some of the cooperation and partnerships flow out of the changes. Some of those partnerships and the willingness to partner have been as a result of the changes. It's made government more sensitive to what its clients need. That's both a general statement and I think a specific statement with respect to Natural Resources Canada, and I think they deserve full marks for that.

As for partnerships, I will give you examples. I've cited them. MEND is a major example of where we've maintained a strong working relationship and a strong research partnership with the Department of Natural Resources. MITE, again, is a partner with us in that area. So our linkages are strong. Our linkages have extended beyond Natural Resources Canada to other government departments, but Natural Resources Canada is also involved in those partnerships.

I think there is a greater sensitivity to the reality that now that we have disentanglement or we've supposedly ended areas of overlap, what we have are clearer areas of responsibility and focus at both the federal and provincial levels, and we have to work in partnership to make sure it functions and delivers as well as it used to.

Mr. Réginald Bélair: Would it be that the major mining companies had to invest more in research and development?

• 1235

Mr. Gordon Peeling: No, I wouldn't say that, necessarily. I think because the federal government, in this particular area, is smaller than it used to be, the industry has had to pay more attention to what goes on in Ottawa at the federal level, in one sense. The information that was available at one time from Natural Resources Canada is not necessarily there in the full range that it used to be, so in some ways the industry has perhaps had to fill the gap.

But I couldn't tell you whether that's a significant investment or not, really, because it's mainly in the information area. I think in actual fact the partnerships that have arisen out of this have benefited all parties quite significantly as a result of the changes.

Maybe, Irwin, you want to talk about some other specifics.

Dr. Irwin Itzkovitch: Yes, I think we might confuse you, and I'm concerned. There are two parts to the reductions that occurred during program review. There is the issue of the policy side and there is the issue of the technology side, especially with respect to Natural Resources Canada.

First of all, let me say, having been part of that process, that the necessity of the government to get the debt under control, to create the economic environment so that Canada can prosper, was absolutely imperative. I was fully supportive, both inside government and outside government, of what was done.

There have been some tremendous spin-offs with regard to the need to rethink the way the bureaucracy and the technocracy within government have to operate, things such as a closer linkage between the policy side of departments and the science side of departments, and I think that has resulted in a better understanding of the need to have sound science in policy and regulations. I don't think, unless you're asked to tighten your belt, you take a look at new paradigms. I think that's one new paradigm that has come out of that review and reduction.

One concern I do have is the whole issue of renewal of government. Since we have moved the pendulum one way and need to move it back, there is a need for recognition by members of Parliament, as well as the government, of the importance of government science to Canada's industries' competitive advantage. Each company will not go out and invest, to give you an example, $10 million in sophisticated microstructural equipment, because it's not going to provide them with a competitive advantage. But collectively, through our taxes and through other means, we need a facility to do that. We need that critical mass to do it.

My concern is stability. This world of a thousand cuts just doesn't work. I talked in my presentation about the infrastructure issues, the personnel issues and the funding issues, not only on the government side but also in universities. I sit on the advisory council of the University of British Columbia, where I was last week, and I get students telling me that their professors, their research directors, spend very, very little time with them because they're out chasing a dollar. That is not acceptable in Canada, nor is it acceptable anywhere in the world.

The other thing I'm worried about is renewal of staff. To be frank, salaries within government have got to the point where they are non-competitive with the private sector, and with the uncertainty of working in government in terms of stability of jobs, they are really uncompetitive. There are many excellent scientists and policy people who will leave government or never come into government because of the dichotomy of salaries. I don't want to tell you what I earn versus what I did earn, but I can tell you that it is substantially different.

• 1240

That is not to say members of Parliament are adequately compensated either. I don't think they are.

The Chairman: I'm glad you added that.

Dr. Irwin Itzkovitch: I really don't think they are, but that's something you can take up with the Prime Minister. He had an opportunity to change that.

Mr. Carmen Provenzano (Sault Ste. Marie, Lib.): Would you care to make a press release?

Dr. Irwin Itzkovitch: I have said this to as many people as I can.

Renewal of staff at Natural Resources Canada is absolutely critical. My concern is again that the swing from where the rubber hits the road in developing the policy or the development of the science versus maintaining the bureaucracy within a department is something government should look at. We constantly look at trimming our overheads.

Does that help you?

Mr. Réginald Bélair: Yes. It gives me a kind of summary of the consequences from the big restructuring and downsizing.

I think Mr. Baird wanted to add something.

Mr. John Baird: As someone who wasn't within that process and somebody who observed it from the outside, I worry, as Irwin does, about the loss of very competent people. If you have fewer people—

Mr. Réginald Bélair: Have those people been absorbed by the industry?

Mr. John Baird: Perhaps. But the point is, who is left? If you have fewer people, you need better people. You can't just lose technological knowledge or know-how or whatever you want to call it. It's not only science I'm talking about, it's policy. I do worry about that.

From the point of view of the subsector I represent, perhaps it's due to this restructuring, I don't know, but our relations with Natural Resources Canada have improved immensely over that period. Our sector, which is, as I said, 600 small and medium-sized companies spread all over the country, really did not have the time of day at Natural Resources Canada.

In the business plan of Natural Resources Canada that was presented about a year ago, if you read the mission statement, it refers to the technologies created for the resource industries, and I believe even the export potential of those things. That's in the mission statement. It's wonderful.

We've worked out excellent means of communication with people within the mineral and metals sector of Natural Resources Canada. I wanted to say that whether or not it's a result of restructuring and the need for partnerships—perhaps it is that—it has been working very well.

Mr. Réginald Bélair: I have just a brief one yet on the impact of the streamlining of the environmental guidelines between the Government of Canada and the governments of the provinces. Maybe Noranda would know more about this.

Dr. Irwin Itzkovitch: Well, it's helping. It's not there yet. As Gordon said, this is relatively new. Noranda, like others, will take a wait-and-see attitude. We do try to influence regulations.

The cost of regulations is not so much in meeting the regulations as, when you're analysing a project in terms of going forward with that project, the cost of panel reviews and environmental impact statements adds tremendously to the front-end costs of the evaluation of a project, and it's put into the equation as to whether that project is economic or not. When you're dealing with two levels of government and you have to go through two separate processes, you've just doubled your cost.

Mr. Réginald Bélair: So you have not seen the impact of that at all yet.

Dr. Irwin Itzkovitch: Not yet.

Mr. Réginald Bélair: That's too bad. That's something we could work on.

The Chairman: Mr. Chatters.

Mr. David Chatters: Thank you, Mr. Chairman.

I think we've wandered around a lot today, away from the purpose of the committee and the study about what the government is doing or what the government might do in the development of high technology. I would like to go over what I think I've heard and then have you confirm that.

• 1245

Certainly you've pointed out, and rightly, that Canada is a world leader in mining technologies and mining development, with more head offices in Canada than in all the other countries in the world put together. But it will not stay that way if we don't fix some things that are wrong. Some of those things are the environmental regulations. I think land tenure is another big one; certainly Voisey's Bay is a big one there.

Somebody alluded briefly in the presentation to the uneven personal and corporate tax levels in this country compared with those of other countries in the world. That is a major thing, I should think.

If we don't fix those things...and we've been talking about those things for the last five years I have been here, and some small changes are taking place, but certainly they are small at this point. We have a long way to go yet.

I also have a concern that even if we manage to keep the mining industry centred in Canada, it is a global industry, and it continues to grow more and more as a global industry. Canada has a responsibility to invest substantially in the development of technologies. I have some concerns about the ownership of intellectual property—ownership of some of that technology by the Canadian government and by the taxpayers of Canada. I don't worry so much about it when I see those technologies being developed and used in Canada, but when only 8% of the new developments are taking place in Canada and the government is investing in these technologies to be used in other parts of the world, that is an area I have concerns about and I would like you to talk a bit about.

I applaud the streamlining of Natural Resources Canada, especially the willingness to enter into partnerships in environmental review and certainly the policy against direct involvement and equity ownership in the development of major projects. I think that was a place the federal government had no place to be and it has been disastrous in lots of places.

I'll let you comment on some of that to start with.

Dr. Laeke Daneshmend: One of the things that bothered me from my own experience in this was that in the R and D we did in private enterprise we received in the vicinity of $1 million of R and D funding from the provincial mining association. We received in the vicinity of $500,000 of federal government money through the MDA through other mining companies.

The Chairman: This is your venture?

Dr. Laeke Daneshmend: Yes. We came up with intellectual property; and all that intellectual property is now owned by a U.S. company.

There didn't appear to be any coherent view from either the government or the mining industry as to the importance of intellectual property or the importance of wealth creation from the commercialization of the technology. Basically the industry wanted the technology, and once they got it they could not have cared less who provided it. They didn't care if it came from Montreal or if it came from Peoria.

Mr. David Chatters: That is my concern as well. I think you're right on.

Dr. Laeke Daneshmend: I would say that is a pretty prevalent attitude in the industry. But then again, they are in the mining business.

Mr. John Baird: I represent those kinds of companies, and I would tell you they shouldn't care where it comes from. If we cannot deal on an international basis, then we have to sell our technology or import it or do whatever we have to do.

But I was very interested in Irwin's comments from a large company's point of view, and now we have the academic point of view. In this country we don't have a good network for getting these good ideas and putting together consortia, or whatever you want to call them, to exploit those ideas.

The best example I can give you is that I went to the Soviet Union once a year for 10 years at least to try to find technology they had developed that could be exploited in the west. I looked at about fifty different scientific projects and finally came up with one.

• 1250

Then I was faced with the challenge of going to the Norandas, the Falconbridges, the Incos. I could name the top twelve mining companies in this country. After months of work their technical people said, “This sounds good; now will you talk to our lawyers? We're willing to give $50,000 each, but now talk to our lawyers.” It took months and months and months to get these 12 company lawyers to sign the same contract. Each has his favourite liability clauses, and it goes on and on and on. So we did these test programs here, spending maybe half a million dollars in a couple of summers.

I did the same thing in Australia by fax and phone. I raised the same amount of money, doing the same kind of work, for the same kind of project, in Australia remotely. I didn't make a trip to Australia. What is the difference? They have a system in Australia.

I tried with Gordon's predecessor for a while and couldn't get MAC interested in this. In this country we need a system that allows the circulation of ideas; people to jump in and say, “Don't do it; I've done it before.” If somebody says, “Hey, I have half the puzzle”...we have to get these groups doing research.

Irwin's model, the one Noranda has developed, and Inco to some degree, is that you spend your $50 million per year and you get this stuff, and then you realize you have to do more than just use it yourself. Now you need a partner. So you develop certain relationships with STAS and other companies you spin this off to.

It would be far, far better if we had a much larger, more broadly based system for this, like the Australian system. There, if somebody comes up with an idea, it's properly conditioned by some central little node which knows how to ask a few questions of its own, and then it's thrown out to the academics and the suppliers and the mining companies and so on and people can buy into this thing. It moves forward in that way, and when you start the project, you already have somebody in there who knows about the production and engineering of the thing and, even more important, knows about the international marketing of it.

I would just like to throw in the word “CANMET”, which I've not heard mentioned here today.

Mr. David Chatters: It was mentioned.

Mr. John Baird: Sorry. I missed it. But I just throw the word in.

CANMET is a very important repository—a diminishing repository, I might add—of mining knowledge. CANMET, in my view, needs to do an awful lot more to connect with the group I represent, the money suppliers. When you talk to CANMET, they say, oh, we used them as contractors. Wait a minute. That's the wrong way to start. They have to be partners. They have to be in it from the beginning. They have to feel they can contribute ideas and create the program.

What I'm saying is there really is a need. I think it can be conjured up very easily with very little money for forming a network in this country that brings in all kinds of stakeholders for mining research.

Mr. David Chatters: I appreciate your view, but as I listen to it, it's heavily biased from an industry view. We're politicians.

Mr. John Baird: I understand that.

Mr. David Chatters: That's good. But when we go to the people...and money is tight. You talked about getting the debt under control. We haven't finished that job yet, because part of that is the tax situation—having the highest taxes in the developed world. But when there's a dollar to spare because you've balanced the budget and you've created a surplus, you have to make a decision: are you going to spend that dollar on better social programs or are you going to invest in research and development? When the taxpayer out there sees you take that money and put it into research and development to develop technology that ends up in the United States with no return to the taxpayers of Canada, that's a hard sell for a politician.

Mr. John Baird: That's not what I'm suggesting. What I'm suggesting may not cost anything. I'm not talking about funding research. I'm simply talking about a way in which good ideas can come from the smallest little entity in this country and get the support of the different sides of the thing; and government is included in this to some degree. I'm not necessarily talking about funding. I'm just talking about being smarter and communicating.

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The Chairman: Professor Daneshmend.

Dr. Laeke Daneshmend: I'd like to follow up on what John Baird was saying. The reason he could be that effective in Australia was that there exists something called the Australian Minerals Industries Research Association, which is excellent at disseminating information amongst all the stakeholders. It also has a bunch of policies with respect to intellectual property and commercialization amongst its members.

We used to have two similar organizations in this country, MITEC and MIROC, which are both now defunct. We have an organization now, the Canadian Mining Industry Research Organization, or CAMIRO. However, its membership is a very small subset of the entire industry. It's more of a club than an open association of all the stakeholders.

So having in place this type of mechanism would basically give us more bang for the research buck in this knowledge-intensive area.

Dr. Irwin Itzkovitch: I have to correct a couple of things. Being a director of CAMIRO, I must get up and say that CAMIRO is not a club. It is an organization that is attempting to collectively partner in technology development.

There's one issue in this country that is a very simple one. There are many companies in this country that sit on the sidelines and wait for the big boys to develop technology and then try to access that technology and not pay for it. That's something that has to be dealt with, because Noranda and Noranda Falconbridge, of which we own 48%, is one company; Cominco, Inco...you stop there in terms of people who are really developing technology.

Let me say that you can't compare Australia with Canada in terms of funding of technology. We have an excellent system here, called the NSERC chairs, which Australia does not have. Industry-funded chairs amount to a lot of investment of money, in an unrestricted way, to the intellectual capital of this country. We at Noranda fund four chairs in this country. We also contract out some $350,000 to $500,000 a year to Canadian universities.

I caution you, as members of Parliament, to understand that technology again knows no borders and knows no jurisdictions. If you turn off the tap in terms of technology development in this country, I don't have a problem with it. I'll go into Russia. I'll go into China. I'll go into other jurisdictions and I will find the technology I need to be competitive around the world. But what benefit does that have to Canada?

The issue of intellectual property and fair value to the taxpayer for the investment it makes in technology I think is there, and has always been there.

You sold out your company to the Americans. I'm sure you got a certain number of dollars for that company, on which you pay taxes. If you didn't, then that's an issue, but you need to look at it as a systems-type approach as to the investment and the return to the taxpayer.

Canada, for its size, has a unique situation in the world in terms of standard of living, in terms of its medical care, in terms of a whole bunch of things that, frankly, have come about because of the way we are and the investments we make. So I caution you; there is a tremendous investment return to Canadian taxpayers, to Canadian people, from the investment the country is making in technology.

The Chairman: Maybe we should let Dr. Daneshmend say something.

Dr. Laeke Daneshmend: I think Mr. Itzkovitch is right that trying to keep technology under our control is a lost cause, but we seem to have gotten onto this topic of research and the effectiveness of the research.

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In terms of ensuring that the research that's being done in this country in technology and knowledge-based sectors related to mining is being done so that there's no duplication, so that there's some coherence, so that there's some focus, I think there's tremendous scope there for some coordination because, frankly, right now that coordination is totally lacking.

In terms of saying that we're different from Australia, in fact, AMIRA in Australia funds three enormous research centres related to mining technology, far larger by order of magnitude than any research efforts at any Canadian university related to the mining sector.

When it said that mining companies here fund university research and they fund chairs, well, actually I get paid by an endowment from Noranda, for which I am very grateful, but frankly, the linkage between university research and what the industry needs is pretty abysmal. I'm saying that, and I'm doing myself a disservice.

The Chairman: We certainly appreciate the honesty and frankness.

Maybe we'll have a final comment from you, Gord, and then we'll let Carmen have a short question and conclude.

Mr. Gordon Peeling: We've sort of got off track a bit, but I think you have a good flavour for the complexity of the issue and the difficulties in this whole area.

I do want to go back to some of your original points and say to you, yes, as John Baird said very early on, the size and the health of the Canadian mining industry is at the core of what we can accomplish in the technology and R and D area. To ensure that health, what we need is secure land access and secure land tenure.

We do have a problem. We would say to the government that we would encourage it to resolve land claims issues as quickly as possible in light of the Delgamuukw decision, and so on, in British Columbia. So in those areas where we have not settled, we need to encourage the government to settle as quickly as possible so that land tenure and land access will be clear.

We have touched on the environmental regulatory area—yes, absolutely.

On tax levels, Canada is reasonably competitive, but not as competitive as it could and should be. On the level of personal income taxes collected by provincial government, they account for almost 14% of gross domestic product. That compares to 10% in the United States, 10.7% in Germany, 9.7% in the United Kingdom, and so on, and an OECD average of 10%.

You can say that's only 4 percentage points difference, but in actual fact, when somebody's doing a cost analysis of a project, that's a 40% difference and that's a 40% challenge to this industry in trying to retain that knowledge-based component that is locked up in its employees. That does make it tough. That's a tough challenge for this industry. So that's an area where the government can indeed bring some change, now that we have the deficit under control. We need to focus on the debt, but then we can also address this issue of taxation.

On the issue of intellectual property and its ownership, from my perspective and 25-plus years working in this industry, it has one operating premise. It will compete with anybody anywhere in the world as long as there is a level playing field. It wants access to capital, and it wants access to intellectual property, and it will take it wherever it can get it in a cost-effective manner. We have gotten to a level in Canada where we have an economy of scale and where we have an opportunity. We do have a healthy industry and we want to see that it is maintained in terms of the service side and the R and D side.

We're not out of the woods. It's not a story that is at an end point. We do have these issues. Are we coordinated as well as we should be? Do we have the right networks in place?

Like our commitment to excellence, I think we should always be asking ourselves those questions. We should always be looking at the structures we have in place and seeing if indeed we can do them better. But there is no way, in my view, that we can tie up intellectual property to its application strictly in Canada, because that's not a sufficient base on which to get a payback on that intellectual property. It has to be capitalized on a worldwide basis, and there will always be a certain amount of give and take.

Mining companies elsewhere in the world, whether it's Rio Tinto in the United Kingdom, BHP in Australia, or even CODELCO-CHILE in Chile, which has adapted some of the Noranda technology and then sells it in competition with Noranda around the world...none of them retain those technologies for their own use, because none of them have the capability of getting the payback from it entirely on their own.

So it is out there, and we have to compete with it. We have to use it.

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Mr. David Chatters: I didn't mean to suggest we would lock up that technology and save it at home for ourselves. I agree completely you can't do that and you wouldn't want to do that. What I'm saying is that the Canadian taxpayer makes a substantial investment in the development of these technologies. Companies like yours use and sell that technology. In the end they sell it around the world. I wonder if there couldn't be a return to the taxpayers on the sale of that.

Mr. Gordon Peeling: It is a two-way street. I've seen technology developed by the U.S. Bureau of Mines. They couldn't sell it in the United States. Canadian industry took it up and we've been making hay with it in Canada ever since, much to the chagrin of the rest of the U.S. industry. So there are examples of where the shoe is on the other foot.

But I take your point. But I think Irwin, who can speak about the actual management of intellectual property, is in a better position to answer this.

Dr. Irwin Itzkovitch: There are two things. Last year I wrote Roy Cullen a multi-page letter on the issue of government-owned intellectual capital and the value thereof. I think it was this committee that was looking at that issue. I'm sure Roy will share that letter with you, and if you would like, you could enter it into the record.

The Chairman: If you could send it to the clerk for distribution, that would be good, Irwin.

Dr. Irwin Itzkovitch: Okay.

The Chairman: It may have been the industry committee, but if it's a letter to Roy, I'm sure Roy will give permission for it to be shared with all of us.

Dr. Irwin Itzkovitch: I have just one last point. The main issue when you're looking at the value of intellectual capital, the issue you need to consider, is that the risk is not in the development of that intellectual capital, it is in the application of that capital. I mentioned the Magnola project. We're putting $720 million on the table, and that thing can bomb on us. That $720 million is at risk. The investment we made in technology, including the pilot plant, was $62 million.

There is an unreal concept in the minds of researchers of the value of an idea versus the risk that has to be taken to commercialize that idea. People want tremendous licence royalties, without understanding that it costs a fortune to take it from an idea through to the point of putting it into a design, to putting it into a commercial plant. A caution.

Mr. David Chatters: Ask anybody who ever studied the development of Atomic Energy of Canada and nuclear power.

Dr. Irwin Itzkovitch: I used to be in the nuclear industry.

The Chairman: We'll give Carmen the last word.

Mr. Carmen Provenzano: Unfortunately, Mr. Chair, I don't have any short questions. They are the same questions I've wanted to—

The Chairman: We're sitting down. Go ahead, Carmen.

Mr. Carmen Provenzano: They are the same questions I wanted to ask the science people in the forestry sector.

I had three questions. Two of them I'll ask, and if you care to write to me on them, I would like the answers.

Mr. Itzkovitch, you made an interesting statement, that our universities and government labs are in a financial infrastructure and personnel crisis and that has implications. I noted your comments about the implementation of technology and the problems associated with that.

From the other end, I guess the question arises, and not only in the mining sector but in the forestry sector, of whether we are able, at entry level, to get the technologists and technicians properly trained to perform the functions your industry requires. For example, geomatic technicians: are they available to you at entry level, or are we relying on the private sector and government to train these people to a level where you can utilize them?

My other question would have related to your comments, and those of others, that Canada is, and in some cases was, a leader in certain fields of mining technology. I think the same holds true in our forestry sector, and in the forestry sector we've lost our grip in a couple of areas.

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My question—if you care to answer it, and it's in correspondence—would be, what areas do we lead in now? What do you attribute our leadership role to primarily? What areas did we lead in where we no longer hold the lead? Could you indicate the primary factors that relate to the loss of our leadership role in those areas? Potentially, what areas—

Dr. Irwin Itzkovitch: I can't write that fast.

Mr. Carmen Provenzano: I understand.

Potentially, what areas can we lead in and what do we have to do to position ourselves for that leadership?

If any of you gentlemen, Mr. Itzkovitch particularly because of your dual experience...I'd really appreciate your comments.

I also have some large questions in the area of intellectual property. It's one thing to control technology. Another thing certainly is controlling who uses it through licensing. That could be revenue producing.

I acknowledge Mr. Chatters' questions. We have some of the answers to my questions. I'll save those for another day.

Thanks a lot.

Dr. Irwin Itzkovitch: Maybe that other day is when you visit the Noranda technology centre.

Mr. Carmen Provenzano: I'd be happy to do it.

Dr. Irwin Itzkovitch: Can I just answer the first one, Mr. Chairman? I think it's an easy one to answer.

The Chairman: Yes.

Dr. Irwin Itzkovitch: The second one is very difficult.

On the first one, at least in my business—which spans knowledge-based technologies through to what I would call process and product development technologies—we do not find it very difficult to get people at the entry level with the proper skills and the proper knowledge. Our universities do a bang-up job in giving people the skills.

The issue is excellence of the graduates. I guess my feeling is that at least in the sectors I deal with in mining and forestry, because of the public persona of those sectors, we do not get the best people entering those engineering schools. They go into software development and electrical engineering. That's a concern for us in trying to get the best, because we only want the best. We've created a persona that doesn't get the best into those schools.

I saw some interesting statistics. Quebec is a leading producer of mining Masters and PhD graduates by a factor of six or seven compared to other jurisdictions. Metallurgical expertise in Masters and PhDs seems to be...British Columbia, with Ontario a close second. Quebec just doesn't even play in it.

I believe this is because in Quebec, mining is seen to be a damn good field to enter. Nobody makes the transition between mining being an industry that not only digs the stuff up out of the ground but produces the products you represent. There is an educational issue and a public persona issue. That is a major barrier to knowledge-based industries in the industry we're talking about.

The Chairman: Mr. Provenzano, thank you for those questions. Maybe through the office of the MAC and with the help of Dan Paszkowski at the back, if it's possible, we could get answers to the other questions Carmen put.

On behalf of the committee, I'd like to thank you for being here today. You've been very patient. You're really the first sector of the various natural resources sectors to appear in a panel like this. You've given us much food for thought, to the extent that we can have an impact on government policies that will aid and abet the process of further encouraging and enhancing Canadian knowledge in high technology. We will do that with your help, and we appreciate that.

With that, we'll adjourn. Hopefully we'll see you another day. We reserve the right to speak to you again.

The meeting is adjourned.