The EU industrial policy, raw materials and the CETA agreement

Joint Declaration for an ambitious EU industrial strategy

In March 2017, 125 industrial sectors across Europe called for an ambitious industrial strategy for the EU, which still is the cradle of manufacturing industry and has been at the forefront of industrial revolutions and technological innovations. The EU industry employs over 34 million people across all Member States in supply chains comprising of hundreds of thousands of SMEs and larger suppliers.  The European manufacturing industry has tremendous capacity for innovation, boasts a skilled workforce and has earned a reputation for quality. 

Between 2000 and 2014, the share of manufacturing in total EU output fell by 3.5 percentage points in nominal value-added terms, from 18.8% to 15.3%, while 3.5 million jobs were lost in manufacturing only between 2008 and 2014. 

At the beginning of his mandate, European Commission’s President Jean-Claude Juncker identified reindustrialization of Europe as one his top priorities and confirmed the objective of increasing the share of industry in European GDP to 20% by 2020.  Therefore we, the European manufacturing industry, called on the European Commission to reaffirm its commitment to reaching the target of 20% of GDP from industry with a realistic timeline; to propose an Action Plan to tackle the challenges that the industrial sectors are facing in the framework of a Communication that would include concrete steps and milestones; and to commit to implement this Action Plan in a timely manner and regularly report on progress. 

The EU Raw Materials Strategy and the European Innovation Partnership are well under way to address the investment and competitiveness of vital raw material supply for the EU’s manufacturing industry. This is being accomplished not only by trying to raise awareness across Member States and the general public, but also by trying to improve the access to and investments into raw material projects both inside and outside of the EU.

Investments into raw materials in Canada and the EU

Canada and the EU have had a longstanding relationship when it comes to raw materials, be it in terms of policy dialogue, knowledge sharing or companies investing in either side of the Atlantic.  However, as in many other sectors, the economic crisis had its impact on the investment and trade volume and the newly concluded CETA agreement is very welcome.

CETA addresses all aspects of the bilateral trading relationship, including goods, services, investment, government procurement and regulatory cooperation. The agreement, a product of more than five years of negotiations, will further position Canada and the EU to collaborate on many issues including raw materials and related issues.

n Article 25.1 on BILATERAL DIALOGUES AND COOPERATION in the objectives and principles it is clearly stated that both countries want to
c) endeavour to establish and maintain effective cooperation on raw materials issues through the Bilateral Dialogue on Raw Materials; and
(d) encourage enhanced cooperation on science, technology, research and innovation issues.1

Article 25.4
Bilateral Dialogue on Raw Materials
1. Recognising the importance of an open, non-discriminatory and transparent trading environment based on rules and science, the Parties endeavour to establish and maintain effective cooperation on raw materials. For the purposes of this cooperation, raw materials include, but are not limited to, minerals, metals and agricultural products with an industrial use.
2. The Bilateral Dialogue on Raw Materials covers any relevant issue of mutual interest, including:
(a) to provide a forum of discussion on cooperation in the field of raw materials between the Parties, to contribute to market access for raw material goods and related services and investments and to avoid non-tariff barriers to trade for raw materials;
(b) to enhance mutual understanding in the field of raw materials with a view to exchange information on best-practices and on the Parties’ regulatory policies vis-à-vis raw materials;
(c) to encourage activities that support corporate social responsibility in accordance with internationally-recognised standards such as the OECD Guidelines for Multinational Enterprises and the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas; and
(d) to facilitate, as appropriate, consultation on the Parties’ positions in multilateral or plurilateral fora where issues related to raw materials may be raised and discussed.

The EU’s feasibility study on a Minerals investment facility

Attracting finance continues to be an issue for the mining sector

Traditional capital raising continues to be an issue in the sector. In 2015, capital raised was down by about 10% year on year. There was a sharp decline in loan finance to the sector, and most loans were used for refinancing existing facilities rather than going into new projects. Over the past 12 months, as the risk of default has increased, banks are only extending trade and long-term financing at an increased cost to those mining and metals companies with sufficient security to back the debt.

In January 2016, both credit default swap (CDS) spreads and yields peaked, with credit access remaining constrained since. The backdrop of challenging market conditions has led to a number of alternative financing strategies being pursued. There were 11 major streaming deals in 2015 worth US$4.2b, up from US$2.2b two years earlier. There have also been a large number of royalty agreements, offtake and forward sales, as well as asset-backed financing on inventory and trade receivables. Companies are also looking at their portfolios, which may lead to divestment of non-core assets or offering minority positions to joint venture partners to reduce capex requirements and maintain operational flexibility.

This enables financial headroom to cope with volatility and convince lenders of future viability.

Canadian investment baseline in the EU extractive industry

The export of metal and mineral products to the EU is an important economic activity for Canada, with products going to every corner of Europe, from Bulgaria to Spain. Canada exported $20.3 billion worth of metal and mineral products to the EU on an average annual basis between 2011 and 2013. 

During 2011 and 2012, Canadian mining assets were present in Bulgaria, Poland, Romania, Slovakia, Finland, Ireland, Sweden, United Kingdom, Greece, Italy, Portugal, Spain and Germany.

However, in the overall context of Canadian mining assets, the EU accounts for only 1% of both junior and senior assets globally. Positively, there has been some growth of Canadian mining investment in Europe in recent years, partially attributed to major transactions such as First Quantum Minerals’ acquisition of Inmet Mining, and investments on the part of Eldorado Gold in Greece.  Canadian investments in the location EUROPE in 2014 included $12,058 million represented by 70 companies.  Equally, there are considerable investments of European companies in Canada, such as from KHGM and K+S.

Feasibility Study for an EU-Canada mineral investment facility  

Embedded in the Raw Materials Initiative (first and second pillars) and in the Strategic Implementation Plan of the European innovation Partnership on Raw Materials (third pillar) is the agenda to carry out a feasibility study alongside stakeholder dialogue and related events to support the RMI objective of guaranteeing access to a secure and sustainable supply of Raw Materials for the EU.  Against this overarching objective, the project will assess the need for an EU-Canada mineral investment facility (MIF) and conclude whether an EU-Canada MIF would be beneficial. An EU-Canada Mineral Investment Facility (MIF) has the potential to offer mining companies better and cheaper financing in the context of a capital-constrained market. 

Mining companies operating in Europe face challenges obtaining their social license

In 2004, the Leoben Report commissioned by the European Commission found that mining companies struggled to obtain their social license to operate from local communities. This was in part due to a lack of understanding on the importance of the industry to the European economy, as well as a mistrust of the level of impact on the environment of mining operations from a number of major incidents. In some Member States, public opposition to mining projects has resulted in delays or cancellation of mining permits altogether. It is critical that mining companies take the appropriate measures to obtain their social license to operate, which means that, fundamentally, mining companies have as their core values environmental stewardship and benefits-sharing.

Next steps
The study is scheduled for 18 months and started in January 2017.  It includes two stakeholder consultations on 15th June 2017 in Europe, and in November 2017 in Canada and a major conference and representation at the PDAC 2018.

Contact:
Dr. Corina Hebestreit
hebestreit@euromines.be

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1 Comprehensive Economic and Trade Agreement (CETA) between Canada, Of the One Part,
and the European Union and its Member States