The Auditor General’s report for Ontario was recently released, and one section pertains to auditing of the Ministry of Northern Development and Mines. The report summarizes general trends in royalty receipts of the government, exploration expenditures, while also addressing the Ministry’s performance. The perspective of Auditor General is broad, covering issues from expenditure reports from prospectors and juniors to problems associated with mine closure plans.
The Mines and Minerals Section (Section 3.11) is pages 434 to 471, and unfortunately could not be produced separately as the document is protected (PDF).
The report shows a decrease in mineral exploration activity since 2011, with estimated expenditures being estimated at 507 MM. A similar decrease in staking of mineral claims occurred, reaching an eight year low of 235,000 active claims. The rate of cancellation remained relatively consistent from the year before indicating the trend is continuing.
Most Applicable to the Prospector
The taxes on claims that are either patents or leases were deemed artificially cheap by the Auditor General, and an increase was implied by the critique. The Ministry stated that updating the fees are part of the Mining Act modernization process, tabling the fall, 2015, for the development of new fee schedules (Section 4.6.1).
The report also suggests a problem with prospectors and land owners who stake claims without the intention of completing exploration work. Section 4.3.1 suggests a policy that would prohibit a prospector from re-staking a claim on which no assessment work was completed. It should be noted that a similar policy was suggested in the 2005 Auditor General Report.
Remediation work following exploration work that falls under plans and permits are not enforced due to a lack of site inspections by the ministry. The report identifies problems with prospectors leaving unremediated sites after abandoning claims following the expiration of a plan or permit (Section 4.3.2, Recommendation 4).
The report was also critical of the Ontario Geological Survey for the delays for timelines given for the dissemination of projects related to summer mapping projects. It noted that projects were delayed up to 19 months, and that “shifting priorities in the ministry” may have contributed to these delays (Section 4.1.2). It noted that slow uploading of digital assessment work for easy access for property evaluations was also a short coming of the Ministry.
Incentives to Mineral Exploration, Development, and Extraction
The report addresses tax incentives it deems to be too accommodating to mineral producers in Ontario, citing an effective tax rate of 5.6 % in Ontario in comparison to an 8.6 % national average. It also noted the variability in tax revenues due to the tax being applied to profits, which are heavily reliant on metal prices (Section 4.6.1). The report mentions the diamond royalties as especially accommodating due to the plethora of additional tax write-offs for exploration and contributions to aboriginal communities; although, the regulations prior to write-offs are similar to other diamond royalty agreements in the territories.
The report references a paradox of this low mining tax rate, and the ranking of Ontario in terms of attractiveness for mining to other provinces. The province is ranked 9th in Canada. One instance mentioned is the confusion on the duty to consult (Section 4.1.3), as the timeline, costs, and clarity of the consultation process is variable and very difficult to determine by delegating the consultation process to private industry.
Mine Closure and Rehabilitation
Although not directly applicable to the prospector and early stage exploration, the report was critical of the handling of mine closure plans and the rehabilitation of abandon mine sites. Few inspections are completed on abandoned mine sites, and the guidelines for review of highly technical mine closure plans by the Ministry by those with sufficient expertise remain poorly defined (Section 4.4.1). Additionally, the report raises an interesting point where mine sites on patented and leased claims with abandoned mine hazards are not forfeited, which delays the transfer of liability to the government for remediation of these sites (Section 4.6). Risks to the government of allowing mining companies to assure mine closure and remediation were also identified in the report (Section 4.4.4). The costs of rehabilitation of these grandfathered sites to the government were also deemed to be poorly understood, and liabilities are not properly understood as there are no current estimates by the Ministry.