PDAC 2010: Saskatchewan's turbulent times

Of all the provinces in Canada, Saskatchewan probably knows boom and bust the best. It enjoyed a couple of ridiculous boom years in 2007 and 2008, when uranium and potash took turns being the hottest commodities on earth. It was then faced with collapsing resource revenues in 2009 when potash crashed back to earth. Bill Boyd oversees the whole industry as the province’s minister of energy and resources. He talked with the Financial Post’s Peter Koven about the turbulent times in Saskatchewan’s mining sector.

Financial Post: What have you done to draw foreign mining investors into Saskatchewan?

Bill Boyd: We regularly attend the PDAC conferences and the China mining conference in China as well. I just got back recently from China, where we had occasion to meet with a number of companies and talk to them about investment in the oil and gas and mining sectors.

We regularly do that and it seems to be paying dividends now. We’ve seen investments from both Korea and Japan into Saskatchewan, both in the uranium sector. Typically what happens is we talk about some of the companies doing business in Saskatchewan, we more or less open the door for discussion between those companies, and they make their own private deal at that point.

FP: What have you done to beat out rival provinces for investment dollars?

BB: We review on a regular basis our royalty structure and mining regulations and we’ve made some adjustments in both of those areas. We did some review in the area of coal royalties. We extended the flow-through share options for companies to invest. We are currently going through a royalty structure discussion in uranium that the companies are all aware of, and they’re awaiting a decision with respect to that.

FP: A lot has been written about BHP Billiton’s move into Saskatchewan’s potash sector. How have they been as a partner?

BB: They’ve been very good. We’ve met with them on numerous occasions to talk about what their needs may be in terms of facilitating permits and that sort of thing. I’m certain they’d agree that the province has been very accommodating. So we feel their project (Jansen) is moving forward in a very positive fashion.

FP: It seems like the incumbent potash companies are not so happy to see BHP in their backyard. Have they expressed any concern to you?

BB: I think there’s interest more than concern. The existing players have never raised any kind of official concern to us. They’re certainly interested in what BHP is doing and I suspect that they’re wondering what the next step for that company is. But that’s all we’ve heard from them.

FP: What do you think of the rumours that BHP could buy out one of the major potash companies?

BB: I guess we’re like everyone else, we’re interested in it. We watch and pay attention to news reports. But I don’t think we would have concern. Those are private business deals between companies that the government of Saskatchewan wouldn’t have a role in.

FP: How has the huge volatility in potash pricing affected the province?

BB: We certainly realize that commodities are very cyclical, they go up and down and they can go sideways for long periods of time. And it can be very choppy in terms of pricing. That creates some challenges in terms of budgeting for our province. Last year, every single analyst out there on a worldwide basis, and the companies themselves, all predicted that 2009 would be an absolute banner year both in terms of pricing and in terms of volumes of exports. And every single analyst couldn’t have been more wrong.

We were budgeting $1.9-billion of revenue from the potash sector. We will be lucky if we achieve $100-million for 2009. And we were very conservative in our estimates. So it is difficult for a government to try and predict what the price forecast and volume forecasts will be. That’s the challenge that you’re faced with in a resource-based economy.

FP: What do you think of the rebound we’re seeing in potash now?

BB: The recovery in the potash sector has almost been as dramatic as when it went down. It’s coming back almost as quickly, not necessarily in price but certainly in volumes. Canpotex, the export agent for the producing companies here in Saskatchewan, recently announced a couple of large sales, one to China and one to India. And they also indicated they were fully booked for the first quarter, which essentially means they’re exporting at maximum capacity.

FP: How is development going on the oil sands side?

BB: I’d say slow but careful discussions in that area. The oil sands on our side of the border in Saskatchewan are much deeper than the Alberta side. As a result, there is a much different use of technology to extract that oil. This will be a much different operation, we think much less intrusive on the surface, and therefore we believe the oil sands can be done in a very positive, environmentally friendly way in our province.

FP: Given a lot of energy companies are unhappy with royalty structure in Alberta, has that drawn more investment in Saskatchewan?

BB: In the oil and gas sector as a whole, I’d say yes, very much so. We’ve seen significant increases and we expect that will continue in 2010.

FP: How many investment dollars are you targeting this year in mining?

BB: We haven’t set a target. Our province has a position that we’re seeking investment. I think that’s the responsible thing for us. If you miss the target people wonder why. And if you over-achieve the target, people wonder if you’re too generous in terms of your royalty structure.

Our role is just to facilitate further investment and that seems to be working pretty well. Last year, I’d expect we got several hundred million dollars at a minimum. And that was a down year. In 2008, Saskatchewan achieved the status of the most investment anywhere in Canada in the mining sector, the highest returns. It was the first time that Saskatchewan led the country. It edged out Ontario.

Financial Post

pkoven@nationalpost.com