Topic: Making Canada Relevant Again- The Economic Super-Thread

[Brad Sallows]

Ironically, one of the reasons teachers in BC continue to assert their demands is that they feel they are underpaid in comparison with Ontario teachers.

[Kirkhill]

It will be harder and harder to do the longer we postpone the inevitable paying of the piper.

While it may be harder for society at large, the longer that the inevitable is delayed, it seems to me to be an unfortunate fact that the politician and the survivalist share a common hidden joy at the prospect of the end of days.  As the European Politician implies, as long as the status quo holds the status quo will hold.  Until such time as the status quo fails nothing is possible.  Once the status quo does fail everything is possible.

The risk for the politician is to be the one on watch when everything fails.  The reward will go to "the other guy". 

Anyone for a game of "Hot Potato"?

[E.R. Campbell]

A reminder about why Ontario's woes matter to all Canadians and a look at the perverse effects of "fiscal federalism" in this article which is reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

My emphasisadded
http://www.theglobeandmail.com/news/politics/john-ibbitson/other-provinces-have-no-cause-to-gloat-over-ontarios-economic-woes/article2343676/

Other provinces have no cause to gloat over Ontario’s economic woes

JOHN IBBITSON

OTTAWA— From Monday's Globe and Mail
Published Monday, Feb. 20, 2012

Anyone who might take satisfaction in watching Ontario, once the richest province in Canada, get its comeuppance as it grapples with low growth and high debt should remember that the province’s troubles are everyone’s troubles. In this country, when Ontario suffers, everyone else suffers, too.

Many of us remember the waves of public-sector strikes and repeated civil disturbances that accompanied the Mike Harris government’s efforts to eliminate a chronic deficit in the 1990s. Economist Don Drummond in his report on Ontario’s current situation warns that this time “the government will have to cut program spending more deeply … and over a much longer period of time than the Harris government did.”

Things have gotten so bad because over the past decade the province has become two Ontarios.

The first Ontario is Toronto, a Canadian New York whose economy is powered by financial services, education, biosciences, cultural industries, tourism and more. Living in or near Toronto, it can feel as though things are still going reasonably well.

But outside Greater Toronto is a whole lot of Ohio, as the manufacturing sector follows other Great Lakes economies into rustbelt status. This is why unemployment has been above the national average for five years, and why the last recession was far worse in Ontario than elsewhere. It is why, amazingly, average personal income has dropped below the national average. And it is why real growth of about 2 per cent annually is the most the province can expect for years to come.

Yet Ontario continues to finance the social programs that many provinces depend on. Its taxpayers contribute 39 per cent of federal revenues, but receive only 34 per cent of federal spending. Each year, 2 per cent of the province’s GDP, or $12.3-billion, bleeds to the rest of the country, even as Queen’s Park records a deficit of $14-billion, which Mr. Drummond calls “a clear demonstration of the perverse structure of Canadian fiscal federalism.”

Ontario voters can no longer afford to finance Employment Insurance programs that favour Atlantic fishermen over laid-off auto workers. No Ontario government can tolerate equalization programs that subsidize university tuition outside the province, even as Mr. Drummond calls for annual increases to postsecondary education of no more than 1.5 per cent, less than the rate of inflation.

Voters in the Prairie and Pacific provinces may shrug and say this is an Eastern problem for the Eastern provinces to sort out. This attitude is delusional. Even the most resource-rich provinces and Ottawa, as well, face lean years as they try to balance their books.

“People shouldn’t have any illusions,” said Craig Alexander, Mr. Drummond’s successor as chief economist of the Toronto Dominion Bank. “Keeping program spending to around the pace of inflation or below is extraordinarily difficult.

“If governments actually managed to do what they have committed to do up to this point, it would be one of the longest and most painful periods of fiscal austerity the country has ever had.”

And this time the economic engine in the heartland won’t be there to cushion the pain and take up the slack.

The Drummond report won’t be fully implemented. At best, the McGuinty government is likely to slow the growth of the debt. It lacks the mandate, and probably the political will, to slash spending as severely as needed to balance the budget.

This will leave the province dangerously vulnerable to another recession, an oil shock or a sharp rise in interest rates, which could swiftly bring on a fiscal emergency.

Alberta defaulted on its debt during the Depression. In more recent times, Saskatchewan and Newfoundland came close. If any province found itself unable to service its debt, “we explicitly assume that there is a high probability that the federal government would help the province,” said Jennifer Wong, assistant vice-president at Moody’s Investors Service, in an interview.

If things go badly, Ontario’s problem could become everyone’s problem, with a vengeance.

'Nuff said, I think.

[Haletown]

Dalton must be taking lessons  from Obama in The Management of Public Finances.

He's doing the same thing, pandering to public service unions and organized labor.  The only difference is Dalton is jogging down the road of fiscal insanity to Hell, while Obamassiah is sprinting.

[Kirkhill]

Alberta defaulted on its debt during the Depression. In more recent times, Saskatchewan and Newfoundland came close. If any province found itself unable to service its debt, “we explicitly assume that there is a high probability that the federal government would help the province,” said Jennifer Wong, assistant vice-president at Moody’s Investors Service, in an interview

There's the difference between Canada's dollar and the EU's euro.  We are on the hook for each other's debt.  Thankfully.  Because in so doing we spread the risk around.

Having said that, that doesn't mean we can't whinge, moan and gripe about the idiots that wilfully cause their own problems - and - hopefully - convince them of the error of their ways.

Someone, somewhere once told me a story about seven fat years followed by seven lean years and storing up corn during the fat times for the lean times...... but that was a lifetime ago.

[GAP]

well there's always family.............

[E.R. Campbell]

Well, the faint hope disappears, according to a report in the Ottawa Citizen which has Premier McGuinty saying that while the Drummond report is a "helpful road map," he will not implement all the recommendation and he will not raise taxes.

Article link

The Drummond report says "the province must implement all of the 362 recommendations laid out in the massive cost-cutting plan if it wants to "just make" its target of eliminating a projected $30.2-billion deficit by 2017-18."

Since McGuinty says he will not implement all 362 recommendations nor raise taxes he is also saying, implicitly, that a balanced budget is not in Ontario's future - Ontario will, in other words, edge closer and closer to a lower credit rating (higher cost of borrowing even more money) and default.

[Kirkhill]

How long before McGuinty does a Campbell and decide he has "done enough"?  Sinecure as Ontario's High Commissioner to somewhere or other?

[Thucydides]

I think the more probable outcome will be the NDP joins forces with the Ontario Liberals. The Drummond report is a repudiation of all of Dalton McGuinty's policies and programs, so to use the report is to basically admit "hey, I was totally out to lunch these last eight years..."

Preimier McGuinty has never been shy of trying to cover a spending problem with more taxes, and the NDP veiw the report as a joke, with the leader clearly stating the problem is there is simply not enough revenue, so we have a meeting of kindred spirits.

I rather doubt that Tim Hudac has the will to force an election (and a possible coalition of the free spending makes that unlikely), nor has he demonstrated the spine required to march forward with something like the Drummond Report (otherwise he would have fought the election using his own version of the report), so things are looking very poorly for Ontario for the next decade or so.

[Kirkhill]

....
Preimier McGuinty has never been shy of trying to cover a spending problem with more taxes, and the NDP veiw the report as a joke, with the leader clearly stating the problem is there is simply not enough revenue, so we have a meeting of kindred spirits.

......

Blood from stone?

[E.R. Campbell]

There is one thing about which the Good Grey Globe's national affairs columnist Jeffrey Simpson and I agree: Canada has a productivity problem. He outlines part of it in this column which is reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/news/opinions/jeffrey-simpson/exploiting-canadas-resources-can-be-a-fools-game/article2345076/

Exploiting Canada’s resources can be a fool’s game

JEFFREY SIMPSON

From Wednesday's Globe and Mail
Published Wednesday, Feb. 22, 2012

Everywhere in Canada, the news is about natural resources: forestry and mines in British Columbia; oil and coal in Alberta; potash in Saskatchewan; hydro in Manitoba; the “ring of fire” minerals in Ontario; hydro and Old Harry oil and shale gas in Quebec; offshore oil and hydro in Newfoundland.

Canadians are so damn lucky. We just dig and pump and cut and ship, and we never seem to run out. We just hope commodities prices remain high.

All those resources can be a fool’s game. Pumping and digging and cutting can keep the country comfortable, but they do little to address the country’s biggest challenge – a sagging competitive position. All those natural resources soak up capital; they usually don’t require much innovation or processing.

The Harper government, possessed of a majority government, seems to have its mind around elements of the long-term challenge. Whether it can persuade the country to confront them is another matter, in part because this government doesn’t like “visionary” politics, and in part because of its relentless partisanship, which waxes so many ears beyond its own supporters.

Canada has one of the worst productivity records in the industrialized world. Upon productivity improvements household incomes depend, not burgeoning household debt. When you ask why median household incomes stagnated for a long time in Canada, and why the lowest-income Canadians have gotten poorer, one reason (among many) is low productivity.

Part of the country’s long-term challenge is demographics. The population is aging (the first of the baby boomers hit 65 in 2011). Slowly, aging will influence everything for the next quarter-century. It will strain public finances in two ways. First, social programs for seniors will cost more. Second, there will be fewer people in the work force relative to those who are not.

If nothing changes, taxes will certainly have to rise on them just to deal with aging alone, unless those who remain in the work force are more productive. You don’t have to like the Harper government, or agree with its yet-unknown prescriptions, to understand that it has identified this inescapable issue. And you don’t have to like any particular government to know that a Canada Pension Plan worked out almost half a century ago (and Old Age Security somewhat later), when people lived shorter lives, has to be revisited. And that a health-care program devised at about the same time also needs an overhaul.

The government has also grabbed hold of the immigration challenge, a major determinant of long-term productivity for a country such as Canada. Immigration is not working for Canada as it did for so long. Many recent studies have shown that immigrants are falling faster into poverty, taking much longer to reach average Canadian incomes and are collectively a drag on productivity, instead of giving it a boost.

Some of this reversal undoubtedly relates to domestic policies; some relates to who the immigrants are, where they come from, what they don’t know when they arrive, and what languages they do not speak. The government is right to try to change criteria for admission to make immigration work better for Canada. (It is also right to change the refugee-determination system to fast-track out of Canada those coming from a list of democratic countries.)

The Prime Minister’s recent trip to China symbolically pointed to another reality: the fast-developing countries of that region. It took him a long time to wake up, and Canada has a huge catch-up job in the Asia-Pacific region.

Governments, in fairness, can only do so much. Business has to do the rest. It’s been estimated that only 4 per cent of small- and medium-sized businesses export to developing markets. Sadly, Canada lacks a free-trade agreement with any of them in Asia. Canada isn’t of much interest to Brazil, and hasn’t pursued actively such countries as Turkey and Indonesia.

The old model of exploiting natural resources and shipping most of them (and everything else) to the United States will certainly keep Canada comfortable. But increasingly it won’t make Canada more productive at a time when the population is aging and immigration isn’t working. Without better productivity, forget real income growth. Without it, a comfortable stagnation.

Despite his unnecessary and uncalled for anti-Harper dig, Simpson gets most of it right.

At the risk of repeating myself: low productivity is not the workers' fault, although trade unions that try to stifle productivity in order to featherbed jobs are part of the problem. Governments are only a minor part of the problem: they can to better in some tax policies (making it cheaper/easier to import technology and tooling, for example), some support programmes (to offset those put in place by our trading partners) and promoting freer and freer trade, even in agriculture and food, and better and better focused R&D support. The main problem is a risk averse business culture.

But: our resource base does provide a nice cushion and we should not stop or even slow exploiting it. In fact we can, should be establishing new, productive resource extraction and distribution industries.

[Thucydides]

We may have a twofer here:

Prime Minister Harper suggested immigration reform must be on the table in his Davros speech.

We have a declining population of working age people due to the demographic bust, and are already hurting for skilled workers now

The United States is suffering an unemployment crisis with something like 11% unemployment and 15% when you add involuntarily underemployed.

Solution; adjust immigration policy to favour skille American workers. We already admit @200,000 people a year, why not have half of the slots come from the United States. (I seem to recall @ 30,000 Americans/year come already). We will get skilled workers from a culturally similar background, and they will get a chance to work at high wage jobs and repair their personal fortunes. The hidden benefit is they will also be bringing their workplace culture as well, bootstrapping some of the productivity issues we see here.

For people looking for a checksum; consider Alberta is the only province which was largely settlled from the United States, and has a very distinctive culture from the rest of Canada. Albertans have embraced a much greater willingness to take risks, and have prospered far beyond their size within Canada.

[ballz]

The only thing I wonder about for you idea Thucyclides (which I think is a good one) is that I was under the impression that the US, despite it's unemployment rate, also has a shortage of skilled workers, especially blue-collar / trades / etc which is largely what Alberta is hurting for.

[Thucydides]

Which is why this stands as a "maybe".

Still, with something like 39 million Americans unemployed there must be some percentage of skilled workers in a pool of that size with the training and aptitude needed, and who would be willing to come over to the Great White North.

[ballz]

The aptitude for sure... one thing about the big oil companies in Alberta (especially, because oil sands and the drilling are labour intensive) is that they don't only need skilled labour, the amount of money they are paying just to get grunt labour is insane. As an 18 and 19 year old in Fort Mac I was getting paid $26/hr (with as much OT as you want... time-and-half, double-time, and on site triple-time on Stat holidays) as a first-year apprentice, even though by boss knew I was not going to be there for the long-haul, and just needed me to be an extra set of hands / set of clamps for his journeyman. They are paying the same kind of money literally for a "general labourer."

Syncrude/Suncor/CNRL/Albian Sands (Shell) were all hiring people my age as unskilled workers and signing them to huge retention packages to train them into operators of various equipment.

However, these companies were also bringing foreign companies in because it was cheaper. I'm not sure if there is a way for the government to advertise to Americans to come up to Fort McMurray and actually get hired, instead of having the private companies pay for their own advertising campaigns in the south. Perhaps you won't agree with this, but they *could* agree to subsidize advertisement expenses that are geared towards advertising to the labour market south of the border what kind of opportunities are available up here.

[Thucydides]

Or you could just write to all your friends in the states 

Canada did use government agencies to bring in the last great wave of immigration in the late 1800's early 1900's, so there is a precedent there. You do have to wonder how the word gets out to 200,000 people in India, China, Lower Togoland etc. that Canada is wide open without overt action by government "settlement agents".

There is nothing wrong with companies putting out "help wanted" ads in US publications or web sites, and if the situation is desperate for labour, they will do what it takes without waiting for some government bureaucrat or agency to vet the ad for English/French content, posting to under represented groups or any other number of considerations dear to the bureaucratic heart.

The real action needs to take place in terms of the government identifying and fast tracking potential immigrants who fulfill needs in the Canadian labour market.

[Thucydides]

While resources may be a "fools game" in the long run, in the short term it is probably what we will need to generate wealth to pay down the debt and unfunded pension liabilities (totalling $ 1 trillion Cdn). Saskatchewan seems idealy situated to become the new economic center of Canda according to this report, and with the business friendly Saskatchewan Party in office I can see a flood of investment and economic growth in the coming years:

http://oakshirefinancial.com/2012/02/22/energy-investing-in-saskatchewan/

Energy Investing in Saskatchewan
02/22/12 by Guest Contributor   
Filed under Bourbon & Bayonets
   
Tom MacNeill doesn’t have to go far to find the most unique early-stage energy companies to invest in. The President and CEO of Saskatchewan-based investment firm 49 North Resources, MacNeill is bullish on his own backyard, and says of the province’s resources, “You name it, we’ve got it.” In this exclusive interview with The Energy Report, he explains why Saskatchewan resource plays trump their Alberta or Ontario counterparts.

The Energy Report: Even some of the most successful small-cap resource investors were schooled in 2011. What did you learn from last year’s ups and downs?

Tom MacNeill: We were definitely reminded of the nature of resource investments. Liquidity absolutely vanished in 2008, but by the time it reappeared in 2009 and 2010, investors had decided they wanted to keep their hands on their cash. Oil entered and exited 2011 at roughly the same price, but at times it had been much higher and much lower. That spooked investors. It became evident that most of the investors who were still comfortable with equity investments preferred dividend paying structures. It’s been a very edgy time.

We were reminded that investors were walking on thin ice. The companies that stepped up and started increasing distributions from their oil and gas production were well served. Those that did not, were not. There’s been a bifurcation in the market. The entire capped energy index is down relative to most of the broader indexes for the simple reason that investors were withdrawing money from the sector even though one barrel (bbl) of oil was about $100 throughout the year.

TER: Will the legacy of 2011 be the split between those companies that brought in dividends and those that didn’t?

TM: It’s one of the legacies. A lot of companies die in the aftermath of an event like the 2008 downturn. However, not enough undeserving companies died off because they had just completed financings and had millions of dollars in their treasuries that enabled them to weather the storm. We didn’t have enough of a rout.

Going into 2011, there were still a bunch of these Johnny-come-latelies and investors got wise. They started to watch the burn rate and what management was doing. It was a wakeup call. It was a really bad year in ’08, it was OK in ’09 and ’10, and then ’11 leveled as investors became objective. I believe that investors are more objective this year than they have been in five years.

TER: Your company doesn’t just invest in resource companies, it also instills management teams and brings in consultants with specific expertise. It’s an investor and a partner.

TM: We’ve had to be a little bit of everything within 49 North. We act as in-house management for developing companies. We provide seed capital and later-stage capital. We’ve got 25-plus of the best geoscientists in Saskatchewan on staff in one of our subsidiary companies, Northrim Exploration Ltd. That enterprise works with most of the senior players working in the province developing potash, oil and gas, and other sedimentary resources and is moving into hard rock mining consultation. We also have substantial connections within the junior resource capital market and investment banking community worldwide.

We had to develop it that way for the simple reason that we had no capital market in Saskatchewan. Where government used to hold business back, it is now very supportive. The resource business is now wide open. It’s a tremendous opportunity for us, and anybody who wants to invest in the province, because it’s like Alberta was in the ’40s and ’50s.

TER: Saskatchewan certainly shares some of the same commodities with Alberta.

TM: We view ourselves as much better off than Alberta from a geological perspective. The Western Canadian Sedimentary Basin overlays almost all of Alberta, meaning there’s really no hard rock mining with the exception of some coal mining and some other assets in the Rockies. Alberta is very much an “energy only” resource province.

Saskatchewan is the opposite. The sedimentary basin covers the southern half, but the northern half is exposed Precambrian shield. We’ve got all of the mining prospectivity and assets that you would find in Ontario and other hard rock jurisdictions, plus all of the oil and gas that you find in Alberta, and a sea of potash and other natural resources. You name it, we’ve got it. The neatest part is that it’s mostly still in the ground. There are 27 active mines in the province, but we should have a multiple of that given our resource base.

TER: How long do you think it will take you to get to that point?

TM: We have just begun, but it is moving fast. There is $15 billion (B) worth of capital committed already to expansion in the potash industry, not including capital commitments from BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK), which is moving into the final feasibility stage of its 8 million tons (Mt) per annum potash mine at Jansen Lake. When mining is combined with our exponential growth in energy development I expect that $15B will double or triple in the next 5-10 years.

One new gold mine just came on-stream this past year. There are three others that are prospective in the Greenstone Belt in northern Saskatchewan. There’s a potential rare earth elements deposit that’s near development. In the next 10 years, at least 10–20 mining operations should reach feasibility in the province.

TER: One commodity that Saskatchewan is well known for is uranium. The Athabasca Basin is one of the richest areas for uranium in the world. In a 2010 interview with The Gold Report, you told us that you had mostly purged uranium from 49 North Resources’ portfolio and wouldn’t get back in until it was “time.” Is it time yet?

TM: The comments I made were based on a couple of observations. There was a physical price spike in 2006 due to uranium speculators. It created a parabolic price chart, so we knew that the price of uranium was going to come off. When that happens, all of the junior explorers get crucified. We took that time to exit our positions.

We’ve been diligently watching the uranium price chart and energy complex in general and view this year as the time to be taking positions. Uranium stocks have been beaten up. That’s the time when we get involved in projects and we’re actively pursuing more than what we have on the books right now.

We’ve got a significant investment in Unity Energy Corp. (UTY:CVE), which is an early-stage explorer in the same area as Hathor Exploration Ltd.’s (HAT:TSX.V) RoughRider deposit and the area were Fission Energy Corp. (FIS:TSX.V; FSSIF:OTCQX) is exploring. Also we have been accumulating a large position in Eagle Plains Resources. They have substantial landholdings in the Athabasca basin in Saskatchewan and recently announced a high-grade uranium discovery on their property near the Rabbit and Cigar lake mines.

TER: Tell us about Unity.

TM: It’s in the early stages of a promising exploration program having done the geophysical work necessary to advance their package of properties. We hold approximately 12% of Unity. Given that initial results have been very encouraging, we will likely be expanding our exposure shortly.

TER: What’s the earliest that Unity would have a resource estimate?

TM: They are at a very early stage in the exploration cycle so the earliest would likely be at least 2-3 years. Investors need to realize uranium exploration takes time, is expensive and if you want good science you can’t rush the process. This is a long-term investment, as all uranium exploration plays are.

TER: What macroeconomic trends are going to continue to drive energy commodities?

TM: Oil acts a lot like gold in that it’s a good parking lot for rampant money printing in the U.S. One thing that can quell inflation in the short term is a high oil price since it slops up many of the newly printed dollar bills in an asset that is used almost immediatly. This seems counter-intuitive, but it takes time for the inflationary effect of high oil prices to bleed into higher asset prices. So in the short term, it actually helps the money printers because all over the world, oil is traded in U.S. currency, thus distributing the new liquidity worldwide. The U.S. is the only country with this advantage, which creates some ironic economic activity that investors should pay attention to. As long as the U.S. keeps printing money, there’s going to be a high oil price. If the liquidity being added actually creates economic development, there will be rampant inflation. Usually that’s a tap that can’t be turned off, which could lead to much higher oil and gold prices. We view the coming five-year period as very interesting and probably very lucrative for resource investors, especially in gold and energy.

TER: What energy commodities are you most bullish on this year?

TM: We’re focusing on heavy oil and coal (for conversion to crude oil), but our backyard is unique. There are 20–40 billion barrels (Bbbl) of heavy oil in place in west central Saskatchewan. There are also staggering quantities of light oil as well in Saskatchewan, but I’m not as interested in that. Everyone knows about the Bakken shale and other tight light oil plays now being developed using modern multi-staged fracturing but very few follow heavy oil development.

My interest is tied to the recycle ratio, which is the net profit/bbl divided by acquisition and development costs/bbl. The ratio for light oil in Saskatchewan averages somewhere around two, meaning if a company puts $1 million (M) into acquiring and developing an average well, it will get $2M out of it. But heavy oil in Saskatchewan can have a recycle ratio as high as five.

That’s not true of everywhere in the world. We have two heavy oil upgraders in Saskatchewan that have been consistently adding capacity so we’ve got a real blessing here in that we can develop our heavy oil fields and achieve higher netbacks than elsewhere because of that very unique refining capacity in our backyard.

TER: What are some of the companies benefiting from that?

TM: Most of the companies that are developing these heavy oil assets that are in production are very large already and beyond our scope, such as Canadian Natural Resources LTD. (CNQ;TSX) and Baytex Energy Corp. (BTE.UN:TSX). We’re sponsoring private companies in this space. However, Baytex is coming up with ingeneous ways to drill multiple lateral wells from one drill pad and get enormous production out of thin-formation, heavy oil projects. They also pay a pretty decent dividend yield as well. That’s the kind of story we’re looking for, but we’re looking for it at a very early stage when a company has a prospective heavy oil development field and is investing its first $1–5M in the project.

TER: Are any of your private oil plays expected to go public?

TM: Probably. Allstar Energy Ltd., in west central Saskatchewan, is a light oil producer that is converting into a heavy oil producer as well. We’ve actually taken that one in-house and made it a subsidiary company. Had the capital markets been a little bit more buoyant over the last nine months, we might have entertained taking that company public sometime last year. At some point, given it’s growth potential, its capital needs will outstrip our ability to supply it and we’ll have to take the training wheels off and take it public. That could be in 2012 or 2013 depending on how development goes.

We also sponsor Admiralty Oil Ltd., a very early-stage light oil development in southeastern Saskatchewan. It will probably go public if it has some success this year.

TER: You said you are bullish on coal. What are some of your holdings in that space?

TM: There are two that we really like, which are both developing coal-to-liquid technology. We view coal as just another long carbon chain that can be converted into a shorter carbon chain to make heavy crude. These two enterprises are going about it in different ways.
NuCoal, a private company in southern Saskatchewan, will use full gasification to convert coal into transportation fuels at the mine site. It’s a multibillion-dollar project. The company has control of one of the largest coal resources in the world and it could possibly go public sometime in the next 12–18 months.

Westcore Energy Ltd. (WTR:TSX.V), which we have an approximate 25% stake in, has a significant thermal coal resource that it’s developing on the Saskatchewan-Manitoba border. It is working with Quantex Energy in Calgary, which has a proprietary technology developed at the University of West Virginia. Quantex tested some of Westcore’s coal and determined that it’s perfectly adequate for converting into heavy or light crude depending on the extent of processing.

Westcore is currently starting its winter drilling exploration program. It already has at least seven defined targets that have hit intersections as thick as 100 meters (m) of coal, which is absolutely enormous. It’s conservative to estimate that those intersections average 50Mt/coal, which could mean that the company has at least 300Mt/coal in one small area. That’s world class. It appears it will cost about $40-50/bbl of oil for the conversion technology. It will probably cost approximately $200M to build an initial 10,000 bbl/day conversion facility. Given that the process appears to convert coal to heavy crude at a ratio of 3-4 bbl crude from each ton of coal, there’s an almost endless potential supply of heavy crude oil for the refiners in Saskatchewan. Now that is an exciting energy story.

TER: It does sound exciting. Is the process by which they turn coal into heavy oil similar to what’s happening in the oil sands where they steam the bitumen to separate the oil from the sand and gravel?

TM: That’s a liberating technique using steam to get the bitumen. Then the bitumen is processed through hydrocracking, which involves heating up the bitumen under pressure with catalysts to separate it by strata into various elements. The lights float to the top of the column and the heavy stuff stays at the bottom, leaving five or six different strata. These synthetic crude products are then piped to refineries for further processing. The NuCoal project is similar to that in that it uses similar full-scale gasification technology but with the intention of the plant refining all the way to the transportation fuel level right on site.

The Westcore/Quantex route involves using a low-temperature direct liquefaction process. It adds some proprietary chemicals to the coal once it’s emulsified and converts it into heavy crude. The beauty is that the process does not leave much of a greenhouse gas footprint at the mine/processing site because most of the carbon dioxide and other problematic gases that would be emitted stay in the heavy crude and go to the refinery. The exciting part about low temperature conversion is its scale-ability with initial capital cost of probably one tenth that of full-scale gasification.
Both companies have viable approaches; they are simply on opposite ends of the development spectrum. One has low capital cost with smaller initial production while the other has large capital requirements at startup and therefore large initial output. At these energy prices we believe both approaches will be robustly economic.

TER: Once it’s converted it goes to the refineries. Where does the oil go from there?

TM: It is channeled into the North American distribution system running from northern Alberta into a hub center near Chicago. It goes directly into the pipeline system that bisects Saskatchewan diagonally. That’s the beauty. We’re infrastructure laden because we’re in between the consumptive market in the eastern U.S. and the production of western Canadian oil sands and conventional producers in the Western Canadian Sedimentary Basin.

TER: Do you have some parting thoughts on the energy space?

TM: I’m curious to see what prices are going to do. We’re comfortable that the price of uranium has bottomed and that it’s likely a very long-term bottom. We got our feet wet last year in some of the early-stage investments we’ve made. We’re going a lot harder this year and repatriating capital back into projects that we like. There are lots of good opportunities out there within companies that have done poorly in this twitchy market but have good projects.

The energy space should be an exciting one. If the governments keep adding liquidity, the resulting competitive devaluation of currencies will be inflationary and good for commodity prices. Or perhaps the world is going to get a little bit better—also good for commodity prices. It’s a bit of a win-win situation over the next five years if investors are patient.

Investors have to make sure that they stick to certain criteria. Look at management first, not the project, because the best project in the world can be screwed up by bad management. A marginal project can be made wonderful by good management.

TER: Thanks, Tom.

Tom MacNeill is the founder, president and chief executive officer of 49 North Resources Inc., a Canadian resource investment company headquartered in Saskatchewan. As the first entity of its kind in the province’s history, 49 North is a pioneer in what is rapidly becoming one of the world’s most renowned resource jurisdictions. A graduate of the University of Saskatchewan (economics/geology), MacNeill is also a certified general accountant and holds a chartered financial analyst designation. MacNeill’s extensive knowledge of Canadian capital markets has been gained through experience as a management accountant within the mining industry, investment advisor with a major Canadian brokerage firm and chief financial officer of a Canadian trust corporation. He is a well-respected member of the resource industry and part of a worldwide network of exploration professionals and resource developers which enables him to source and structure projects.

[E.R. Campbell]

Just in case we needed yet more proof that Dalton McGuinty is a blithering f_cking idiot who slept through Economics 101 we have this, which is reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/news/politics/mcguinty-rebuffs-redfords-oil-sands-plea/article2351145/

McGuinty rebuffs Redford's oil-sands plea

KAREN HOWLETT

Globe and Mail Update
Published Monday, Feb. 27, 2012

Ontario Premier Dalton McGuinty has rebuffed Alberta Premier Alison Redford’s plea to publicly defend the oil sands, saying the high “petro” Canadian dollar has “knocked the wind” out of exporters in his province.

Ms. Redford, in Chicago for a few days talking up Alberta’s oil and gas industry, has said Mr. McGuinty needs to do his part to help tell her story: that Ontario’s economy is the second-largest beneficiary from the production of the gooey bitumen.

Mr. McGuinty flat out rejected that assertion, saying the harm caused by the high Canadian dollar relative to the U.S. greenback far outweighs any spin-off benefits Ontario might derive from Alberta’s oil and gas sector.

The value of the Canadian dollar has soared from just 67 cents in 2003 to over $1 last year, Mr. McGuinty told reporters on Monday. The “petro dollar,” he said, has been driven by global demand for oil and gas from Western Canada.

“That has knocked the wind out of Ontario exporters and manufacturing in particular,” Mr. McGuinty said. “So if I had my preferences as to whether we had a rapidly growing oil and gas sector in the West or a lower dollar, I’ll tell you where I stand: with the lower dollar.”

According to the Canadian Energy Research Institute, the province enjoys the lion’s share of oil-sands benefits outside Alberta. Between 2010 and 2035, Ontario is expected to see $63-billion in economic spinoffs and 65,520 oil-sands-related jobs.

Elsewhere in Ontario’s manufacturing heartland, thousands of jobs have been lost as companies pull up stakes and relocate to jurisdictions with lower costs. Ontario is facing a deficit of $16-billion this year.

Sadly I'll wager that a majority of Ontarians also believe (for the same reasons they believe in e.g. virgin birth, the tooth fairy and female genital mutilation) that a low dollar/no profitable energy sector is "good" for Canada. I except the Good Grey Globe's Jeffrey Simpson to chime in any moment now support Dimwit Dalton's views.
 
Ontario manufacturers should have been using the strong dollar to retool and rebuild with imported technology and boost their productivity - provincial governments, Tory and Liberal, should have been giving them tax breaks to do so, but Dismal Dalton would rather ***** about Alberta's energy boom.

It is to weep!

[E.R. Campbell]

Just in case we needed yet more proof that Dalton McGuinty is a blithering f_cking idiot who slept through Economics 101 we have this, which is reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/news/politics/mcguinty-rebuffs-redfords-oil-sands-plea/article2351145/

Sadly I'll wager that a majority of Ontarians also believe (for the same reasons they believe in e.g. virgin birth, the tooth fairy and female genital mutilation) that a low dollar/no profitable energy sector is "good" for Canada. I except the Good Grey Globe's Jeffrey Simpson to chime in any moment now support Dimwit Dalton's views.
 
Ontario manufacturers should have been using the strong dollar to retool and rebuild with imported technology and boost their productivity - provincial governments, Tory and Liberal, should have been giving them tax breaks to do so, but Dismal Dalton would rather ***** about Alberta's energy boom.

It is to weep!

As to why McGuinty is a dimwit, see this article, which is reproduced under the fair Dealing provisions of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/report-on-business/economy/economy-lab/stephen-gordon/memo-to-ontarios-dalton-mcguinty-strong-dollar-is-good-for-canada/article2352230/

Memo to Ontario's Dalton McGuinty: Strong dollar is good for Canada

STEPHEN GORDON

Globe and Mail Blog
Posted on Tuesday, February 28, 2012

Ontario Premier Dalton McGuinty has been reported as saying:

“[The high Canadian dollar] has knocked the wind out of Ontario exporters and manufacturing in particular… So if I had my preferences as to whether we had a rapidly growing oil and gas sector in the West or a lower dollar, I’ll tell you where I stand: with the lower dollar.”


There are several things wrong with this:

1. Exports are costs. The goal of international trade is to import goods and services; exports are the price we pay in return. If a higher exchange rate allows Ontario to import more and export less, Ontarians are better off.

2. A fallacy of composition. Bad news for one sector is not necessarily bad news for Ontario as a whole. Jobs lost in manufacturing were more than made up for by jobs created in other sectors.

3. Increased purchasing power. Since much of what we purchase is imported, a higher exchange rate means an increase in purchasing power. All Canadians -- including Ontarians -- benefited from real wage growth during the 2000s. Real wage growth during the resource-based expansion of the 2000s was stronger than it was during the manufacturing-based expansion of the 1990s. This increased buying power produced employment opportunities for firms serving the domestic market.

4. Lower interest rates. Everything else being equal, a higher exchange rate is the same thing as a monetary contraction: the lower prices produced by an appreciation keeps inflation in check. As long as the dollar was appreciating, the Bank of Canada could -- and did -- keep interest rates lower that they would have been if the dollar had not appreciated.

The resource boom and the exchange rate appreciation that went with it were good times for all provinces. This cannot have gone unnoticed by the Ontario government: personal income tax revenues grew on average by more than 9 per cent a year between 2003 and 2007 -- even as 150,000 manufacturing jobs were lost.

Even though the net effect of the resource boom on Ontario was positive, not everyone benefited, and Premier McGuinty’s government has an obligation to offer whatever support it can to those who lose their jobs in this transition.

But it also has an obligation to consider the interests of the vast majority of Ontarians who do not work in the manufacturing sector. For most Ontarians, the effects of a higher exchange rate and the increased purchasing power it brings are unambiguously positive.

But I see, also in today's Globe and Mail that McGuinty retreats in oil-sands spat, calls for national energy strategy, "Note to Alison Redford from Dalton McGuinty: I’m sorry I said the high “petro dollar” has hobbled my province, but that’s what happens when I work in “real time” and have no opportunity to self-edit.

That was the much more conciliatory tone Ontario Premier Dalton McGuinty struck with Alberta Premier Alison Redford on Wednesday, two days after he rebuffed her when she called on him to be a more vocal advocate for her province’s oil-sands development."

More on link

Maybe the one and only and only Liberal who did stay awake in Economics 101 came to the office ...

[Thucydides]

“That has Ontario's high taxes and escalating electrical bills knocked the wind out of Ontario exporters and manufacturing in particular,” Mr. McGuinty said.

Fixed that for you, Dalton.

[E.R. Campbell]

Jennifer Welsh gained both 'face' and popularity here by disagreeing, publicly and eloquently, with Alan Gotlieb and the big bang group here in Ottawa.   Gotlieb and friends argue that the only way we can make the Americans 'pay attention' is to offer them a truly big deal - no more creeping continentalism (my phrase), rather a customs union and a common border 'union' and North American Defence Command all rolled up into one package.

Welsh countered, correctly, I think, that there are so few Americans interested in anything like a big bang that it would land with a dull thud and be forgotten by Tuesday morning.   She argued for many of the same things Gotlieb wants ~ a customs union, to start (followed by a currency union), security union (common outer perimeter border, etc and a complete joint and combined (sea, land air), North American Defence Command, etc - but, she suggested, one at a time, without too much political involvement because Canadians, broadly, do   to want to cozy up to our American friends and neighbours â “ anti-Americanism is a deep rooted, dark and unpleasant part of our national psyche and Welsh, like many successful politicians, understand that.   Welsh positioned herself in the space into which Paul Martin was forced to back-peddle and he has grabbed her like a drowning man grabs a branch.

I hear that the foreign policy review â “ completed last fall with DND's inputs â “ was, really, a pretty sad piece of work.   I am not, personally, surprised because, in my personal, outsider's opinion, DFAIT's strategic analysis capability disappeared several years ago â “ driven out by a government (Chrétien's) with a Johnny-one-note agenda: trade, Trade, TRADE (trade imagery if not trade reality, anyway), and a deep distrust of the old, Anglophile, three-piece suit and spats, bureaucracy.

Some of what Welsh says makes really good sense, some doesn't and some reflects her, current, Eurocentric, work.   She has one other distinct advantage: she writes clear, concise English; one of the reason so many people disagree with her is that they actually understand what she said!

Paul Martin believes that he can, and must, improve his electoral prospects by presenting a new foreign policy with some pizzazz and then, he further believes, by doing well on the internationals stage where, he also believes, he does well.   Welsh might give him what he needs â “ something which Canadians can understand and something with which they can, broadly, agree.

About Welsh, specifically; she is young, attractive, female, part-aboriginal, a minor celebrity in Oxford (even better than Harvard) and she was a card carrying Liberal.

A lot of water has passed under many bridges - Paul Martin is gone and pizzaz is no longer required in foreign policy, just for a start, but creeping continentalism is alive and well according to this article which is reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/news/politics/ottawa-notebook/us-official-predicts-norad-border-pact-with-canada/article2356680/

U.S. official predicts ‘NORAD border’ pact with Canada

STEVEN CHASE

OTTAWA— Globe and Mail Update
Posted on Friday, March 2, 2012

A top Homeland Security official says he believes the time will come when Canada and the United States have a joint organization to handle border controls – what he described as the “NORAD border.”

The North American Aerospace Defense Command is a unified U.S.-Canada effort to protect continental airspace. Headquartered in Colorado, it was first created during the Cold War to deal with the threat of missile- or bomber-borne nuclear weapons from the Soviet Union.

The commander of NORAD, however, is always a United States officer while the deputy commander is always Canadian. The rotating duty shifts regularly put Canadians in operational command of North American airspace, such as when planes hit the World Trade Center on Sept. 11, 2001.

Alan Bersin, the assistant secretary of international affairs at the U.S. Department of Homeland Security, was speaking to an Ottawa audience Friday about efforts to flesh out a recent perimeter security deal between Canada and the United States.

He’s also the department’s chief diplomatic officer and until recently served as the commissioner of U.S. Customs and Border Protection.

Mr. Bersin was asked if he foresaw the day when Ottawa and Washington could agree on a bi-national institution to handle border matters – one that preserved each country’s sovereignty but where one official was in charge, regardless of whether they were Canadian or American.

Mr. Bersin said both NORAD and co-operation over managing the St. Lawrence Seaway are both good examples of joint efforts between the two countries.

“We have to actually get back to that mentality,” the U.S. official said. “While it will take awhile – and while we develop mechanisms to respect sovereignty, but also recognize where it is we need to blend our energies – I believe that time will come.”

Mr. Bersin gave the business audience he was addressing an example of where he’d like the relationship to proceed.

“Why should we have separate admissibility processes into our countries if in fact North American security would suggest that a Canadian and a U.S. immigrations and customs official ought to be working together to clear people in Frankfurt who are coming into Canada, to clear them such that they would be able then to come seamlessly across [the joint border into] the United States.”

This will take effort, he warned.

“To say that is to show how far we have to get there: to build the NORAD border,” Mr. Bersin said. “But I think that is the vision that will drive this co-operation, recognizing there are many intermediate steps.”

Mr. Bersin declined to elaborate on his remarks following his address.

Those who follow my musings here on Army.ca will remember that this, a "common perimeter," is something I favour. It essentially erases the  border ~ what the John Turner campaign accused Fibber Muldoon Brian Mulroney of wanting to do in the 1988 election campaign.

But the process needs to involve e.g. common product standards for everything from toothpaste to canned shrimp and it needs to involve common immigration and visitor visa standards ~ meaning that the US has to severely tighten its tourism visa rules, thereby closing a major terrorist and criminal route into North America.

Above all it needs to be done quietly, step-by-step, without fanfare until, suddenly, the border is .... We (they) have been at this for about 50 years - harmonizing, standardizing and so on ... another ten or twenty years should do it.

[Sythen]

Not sure if this is the right thread for this, but here goes:

http://ottawa.ctv.ca/servlet/an/local/CTVNews/20120302/will-iceland-switch-to-the-loonie-120302/20120302/?hub=OttawaHome

Iceland considering switch to Canadian dollar


Will ongoing economic uncertainty about the eurozone push Iceland into the stable arms of the Canadian dollar?

While the question may have seemed a loonie one only a decade ago, the idea has been gaining traction recently among Icelandic investors like Heidar Gudjonsson.

Gudjonsson is an economist at Iceland's Research Center for Social and Economic Studies.

He recently stated that Canada and Iceland share Arctic geography and export-driven economies. Gudjonsson also noted that Canada's sound economy is buffered by a wealth in natural resources like oil and water, making the loonie a stable long-term bet.

"Their export mix is very, very similar to ours," he said in November.

Iceland is still reeling from the 2008 economic collapse, which destroyed the country's banking system.

More on link. I can't see anything wrong with wanting to increase demand for our dollar.. Anyone who knows more about this than me (99.9% of posters on this forum lol) want to weigh in?

[E.R. Campbell]

Not sure if this is the right thread for this, but here goes:

http://ottawa.ctv.ca/servlet/an/local/CTVNews/20120302/will-iceland-switch-to-the-loonie-120302/20120302/?hub=OttawaHome

More on link. I can't see anything wrong with wanting to increase demand for our dollar.. Anyone who knows more about this than me (99.9% of posters on this forum lol) want to weigh in?

Also discussed here.

There is a potential in this for Canada and the "outside the EU" free trade area (Iceland, Leichenstein, Norway and Switzerland) to do a deal ~ not that the Norwegians or Swiss need a better currency.

The EU and the Euro are less and less attractive right now.

[Sythen]

Also discussed here.

ahh sorry, just moved and internet not up yet.. Kinda behind on my news reading.

[milnews.ca]

A lot of water has passed under many bridges - Paul Martin is gone and pizzaz is no longer required in foreign policy, just for a start, but creeping continentalism is alive and well according to this article which is reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/news/politics/ottawa-notebook/us-official-predicts-norad-border-pact-with-canada/article2356680/

Those who follow my musings here on Army.ca will remember that this, a "common perimeter," is something I favour. It essentially erases the  border ~ what the John Turner campaign accused Fibber Muldoon Brian Mulroney of wanting to do in the 1988 election campaign.

But the process needs to involve e.g. common product standards for everything from toothpaste to canned shrimp and it needs to involve common immigration and visitor visa standards ~ meaning that the US has to severely tighten its tourism visa rules, thereby closing a major terrorist and criminal route into North America.

Above all it needs to be done quietly, step-by-step, without fanfare until, suddenly, the border is .... We (they) have been at this for about 50 years - harmonizing, standardizing and so on ... another ten or twenty years should do it.

It certainly isn't in the cards right now - this bit appears to have been added to the original article....

.... The Prime Minister’s Office, however, said this did not reflect their intentions.

“Our plan is clear that it respects each nation’s sovereignty and those comments are not compatible with that vision,” said Andrew MacDougall, associate director of communications ....

While in theory, an erased border would be a good thing, I worry Canada may not arm twist strongly enough to ensure we don't get bulldozed by a much larger market south of us in "harmonizing".