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The Fraser Institute’s Fred McMahon on Resource Intelligence TV

Fraser institute on Resource Intelligence TV

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RI: Today we have a smorgasbord of intelligence for you. Joining us on the show is the co-author of the prestigious Fraser Institute’s Survey of Mines. He’s done it for 13 years and he’s joining us here on Skype.  Fred, thanks for joining. What was the genesis of the survey?

FM: It started 13 years ago. The Fraser Institute held a mining conference in British Columbia when the mining regulatory atmosphere was very hostile to mining companies. The head of one of the largest mining companies in the world stood up and praised the British Columbia government up and down even though what it was doing was closing down mines and opportunity. The then head of the Fraser Institute, Mike Walker, took the stage and said, “With all due respect I disagree with everything that’s just been said.” The room broke out into loud applause. What Mike realized is that mining companies have a great difficulty speaking the truth about mining hostile governments because if they speak the truth they only get punished more. Our survey is an attempt to give mining executives across Canada and around the world a chance to make their voices heard, make their opinions heard, without risking their projects, unless to create transparency for the public as to what’s going on in mining and accountability for policy makers

RI: Who funds the survey?

FM: We get funding from a number of sources. The PDAC partially funds it, our main funder is the MUNK foundation, we also have some funding from individual companies.

RI: After 13 years have you delivered the promises, are governments listening to you?

FM: Oh sure, I think so. Its quite interesting to know that during the life of the survey, it’s had its biggest impact in Canada and the Canadian provinces have, as a whole moved up and up quite substantially in the rankings over the life of the survey. I also get calls from mining ministries across the country at the time of the release of the survey, asking if they could get a little heads up on whats coming out, a little bit of information on what they need to do to improve the regulatory environment there. The interesting thing is, now that I am getting those calls from around the world in the last little while, from mining ministries around the world and also greater and greater international interest in it. In the last little while, I’ve been in Chile, Mexico, Columbia, Australia, the United States talking about the mining survey, so yes, its certainly made an impact in Canada and now I think its making an impact around the world.

RI: Is it making an affect as far as legislation and actions?

FM: You know legislation and actions in some ways are the smallest part of what actually goes on. The real thing is the attitude of the regulators and the attitude of the public to mining. Once again, from what we see in the survey with the rankings of the Canadian provinces moving up, it has made an improvement. British Columbia is not where we would like it to be, but at one point it was ranked with Zimbabwe

RI: What is the size of the sample and how representative are the answers to the industry as a whole?

FM: The survey goes out all around the world, pretty equal waiting compared to the size of the mining industries in those countries. This year we translated our letter into Russian, Spanish, Portuguese, French and a couple others. We send it to 3000 mining executives around the world. Very good response rate – six hundred seventy of them.

RI: So the people that you ask the questions of are experts, they’re working in the field, so they know what they’re talking about when they are answering the survey. Is that correct?

FM: Absolutely. We only send it to mining company executives and consultants for the mining industry and we also ask that they respond only about those jurisdictions with which they are familiar and we have to keep the survey quite confidential, but I am able to go into the background, look around and I can assure that’s happening. If it wasn’t happening, if the survey wasn’t representing reality, we wouldn’t get the attention from around the world that we’re getting on this survey. Today I had calls from Peru, Mexico, Chile and I expect as the night wears on and it releases in Asia and Australia, I’ll get calls from there too and needless to say from across Canada.

RI: How many jurisdictions were measured?

FM: We measured 72 jurisdictions.

RI: To an investor, what is the importance of the standings?

FM: The standings reveal several things. One, it can be the start of a due diligence process. It’s like consulting with six hundred and seventy of the top experts in mining worldwide. It can also show you whether a jurisdiction is variable. By which I mean you can notice the number of responses, where they say this jurisdiction is horrible and there may be mixed in some responses that say this is a pretty good jurisdiction. What that tells you is that there is a way to play that jurisdiction and you have to get the intelligence to do it that way. It can also reveal unexpected landmines to the investor. A couple of years back I was up in Nunavut. I met the Premier. He was absolutely furious of the survey. He said we get a low mark in aboriginal land claims, don’t you idiots know we have solved all the land claims in Nunavut? Well, that’s true but what the investors realise, is that if you go into these areas you face massive different meetings, different interests, different regulations, different negotiations and you get a very difficult and slow process in exploring or developing on native land. Something that you wouldn’t know just by talking to the government or looking at the regulations where you might think that you had a clear trek through because the land claims are settled. Not so, it’s still a very difficult process

RI: Should an investor attach a discount on the shares of a company based on your ranking? In other words, have a risk index. Such as, the best jurisdiction has a ranking of one hundred and the lowest let’s say has the ranking of one.

FM: I’d be cautious about that. What I think the survey does is it gives the investor another source of information. It’s a start for due diligence but its not the end of due diligence. It’ll give the investor an idea where problems may lie, what difficulties they may face. Yes, I would suggest the investor look at the survey carefully, pay attention to it, but only as one part of the due diligence process.

RI: Ok, lets have a small drum roll here for you now. What are the top ten jurisdictions in the world.

FM: Top ten jurisdictions? Well as I mentioned Canada has consistently moved up in the survey and this year six of the top ten jurisdictions are Canadians. The top jurisdictions are Quebec, New Brunswick, Finland, Alberta, Nevada, Saskatchewan, Chile, New Foundland and Labrador, Manitoba and South Australia. I may have named 11 there.

RI: There you go. And who are the bottom ten?

FM: Oh, the usual suspects. They are Venezuela, Ecuador, Philippines, Zimbabwe, Democratic Republic of Congo, Mongolia, Bolivia, Honduras, Guatemala and California which seems to aspire to that sort of status these days

RI: Is this study saying that Argentina is three times riskier than Quebec?

FM: No, It’s saying its considerably less risky than Quebec and it will also put Argentina in context. So Argentina is fifty ninth in the survey. That tells you it’s a little bit less risky than say Bolivia which is sixty sixth and more risky than say Tanzania which is forty fourth. So I think in mathematics they call it an ordinal ranking. You can’t multiply or divide but you know how each country relates globally to risk in other countries, higher or lower.

RI: Alright we’ve got the interest of the investors. Now how do they get a copy of your report?

FM: The report’s available for free download at www.fraserinstitute.org, Go under publications, pull down research areas and click on mining.

RI: Terrific. I’d like to ask couple of quick questions about some of the graphs and their interpretations, they’re up on the screen right now. What is the significance of the graph entitled ‘current minimal potential  assuming current regulations and land use restrictions’.

FM: That tells you what miners think of the potential in these particular countries under the current regulatory regime. And the current regulatory regime if it’s good, will make the country more attractive, if its bad will make the country considerably less attractive

RI: Similarly, could you explain your ‘policy minimal potential assuming no land use restrictions in place and assuming industry best practices’.

FM: That’s basically a pure mineral potential question. So that says, if this jurisdiction had world best practices in regulations, how attractive would it be? And you know its quite interesting when you compare the two charts. For instance, DR Congo would be number one in the world just on pure mineral potential, but if you look at DR Congo under its current confused regulations, it’s number fifty six in the world.

RI: Powerful information. Fred have you sent the room to improve chart as a poster to every prime minister, president and mining minister in the world?

FM: Well no, but I’m glad to tell you that they are paying attention, because I do get enquiries from around the world.

RI: Well Fred, Thanks very much for being our poster boy for Intelligence and we look forward to talking with you next year.

FM: Great, really appreciate your interest.