NORTHWEST TERRITORIES
The Conference Board of Canada recently released its territorial economic outlook and points to economic growth over the next few years while making significant assumptions concerning mining projects moving forward.

Projects like Avalon Rare Metals Inc. Nechalacho rare earth metal mine project near Thor Lake would need to come online soon to help offset what the Conference Board of Canada expects to be a gradual decline in mining value in the NWT beginning in 2020. - NNSL file photo

With the De Beers-Mountain Province Gahcho Kue diamond mine coming in to full construction this year and thanks to ongoing work on the Inuvik to Tuktoyaktuk highway, 2015 promises to be a busy year for those involved in the construction industry and its support sectors.

Because of work on both projects, GDP growth is forecasted to be 3.6 per cent in 2015, outstripping the overall national forecasted GDP growth of 2.6 per cent.

The report calls for construction to grow in the NWT over the next three years by an annual compounded rate of 10.2 per cent.

But the rate of growth is based on the assumption that not only Gahcho Kue and the Inuvik-to-Tuktoyaktuk projects will continue to move forward, but also on the assumption that three major metal-mining projects will begin construction this year.

While there doesn't appear to be any reason to believe anything will stall either Gahcho Kue or the highway, one could be forgiven for being skeptical of the board's assumptions regarding metal mining.

The report includes the assumption that construction at Fortune Minerals' NICO mine will begin in 2015, that Canada Zinc's Prairie Creek Mine will find the funding it needs to begin construction this year and that Avalon Rare Metals Inc.'s $1.5 billion Nechalacho mine will begin construction late this year.

The report's authors acknowledged "downside risk" in including some of these projects in the projection considering how dependent they are on relatively unpredictable global commodity markets.

"Uncertainty about commodity prices and a still difficult financing environment could stall development of the metal mines included in the forecast," stated Justin Cooke, Conference Board of Canada economist and joint author of the report.

In the worst case - assuming none of the proposed new mines come online - the NWT faces a difficult situation. Diamond is forecast to peak in 2019 and begin to decline every year thereafter - even with production from Gahcho Kue included - as the Snap Lake, Ekati and Diavik mines enter their last years of productive life.

When the decline in diamond production is coupled with the expected decline in oil and gas production and exploration revenues, the NWT begins a downward economic trend starting in 2020.

New mines needed before diamond mines retire

The value of diamond production in the NWT is projected to be approximately $1.25 billion by 2019. By 2025, it could be down to approximately $500 million, although the report did not include the development of the proposed Ekati Jay pipe extension which would add at least 10 years of productive life to the Ekati diamond mine, keeping it alive until 2030 and skewing the numbers for the positive.

The importance of new metal mines in the NWT - the Cantung tungsten mine is the only one operating in the NWT now - is brought into further relief by the expectation that petroleum exploration, both in the Sahtu and offshore, will not contribute meaningfully to the NWT economy over the next couple of years.

Further to this projection is the declining value of production from Imperial Oil's Norman Wells operations. Oil and gas production and exploration in the NWT was valued at a little more than $1 billion in 2001. In contrast, 2015 is expected to show approximately $250 million in petroleum revenues, with an expected 3.7 per cent average annual compounded decline in value through 2025.

Even if the three metal mines the report assumes will begin construction in 2015 - NICO, Nechalacho, and Prairie Creek - begin producing by 2020, the NWT would still face an overall decline in mining value starting in 2020. By 2025, the value of petroleum, diamond and metal mining and extraction is expected to drop to $1.25 billion, from a high in 2019 of approximately $2 billion.

But whatever the fortune of NICO, Prairie Creek and Nechalacho this year, the next few years are projected to be positive ones for the territory.

Based solely on the strength of the NWT's diamond mines, the board projects continued economic growth until at least until 2019.