ISSN 0542-5492 First Session - Thirty-Second Legislature of the Legislative Assembly of Manitoba STANDING COMMITTEE on ECONOMIC DEVELOPMENT 31 Elizabeth 11 Chairman Mr. D. Scott Constituency of /nkster VOL. XXX No. 3-10:00 a.m., THURSDAY, 3 JUNE, 1982. Printed by the Office of the Queens Printer. Province of Manitoba

MANITOBA LEGISLATIVE ASSEMBLY Thirty-Second Legislature Members, Constituencies and Political Affiliation Name ADAM, Hon. A.R. (Pete) ANSTETT, Andy ASHTON, Steve BANMAN, Robert (Bob) BLAKE, David R: (Dave) BROWN, Arnold BUCKLASCHUK, John M. CARR OLL, Q.C., Henry N. CORRIN , Brian COWAN, Hon. Jay DESJARDIN S, Hon. Laurent DODICK, Doreen DOERN , Russell DOLIN, Mary Beth DOWNE Y, James E. DRIE DGER, Albert ENNS, Harry EVANS, Hon. Leonard S. EYLER, Phil FILMON, Gary FOX, Peter GOU RLAY, D.M. (Doug) GRAHAM, Harry HAMMOND , Gerrie HARAPIAK, Harry M. HARPER, Elijah HEM PHILL, Hon. Mau reen HYDE, Lloyd JOHNSTON, J.

Frank KOSTYRA, Hon. Eugene KOVNATS, Abe LECUYER, Gerard LYON, Q.C., Hon. Sterling MACKLING, Q.C., Hon. AI MALINOWSKI, Donald M. MANNE SS, Clayton McKENZIE, J. Wally MERCIER, Q.C., G.W.J. (Gerry) NORDM AN, Rurik (Ric) OLESON, Charlotte OR CHARD, Donald PAWLEY, Q.C., Hon. Howard R. PARASIUK, Hon. Wilson PENNER, Q.C., Hon. Roland PHILLIP S, Myrna A. PLOHMAN, John RANSOM, A. Brian SANTOS, Conrad SCHRO EDER, Hon. Vie SCOTT, Don SHERMAN, L.R. (Bud) SMITH, Hon. Muriel STEEN, Warren STORIE, Jerry T. URU SKI, Hon. Bill USKIW, Hon. Samuel WALDING, Hon. D. James Constituency Ste .

Rose Sp ringfield Thompson La Verend rye Minnedosa Rhineland Gimli Br andon West Ell ice Chu rch ill St . Boniface Aiel Elm wood Kildonan Ar thu r Eme rson Lakeside Br andon East Rive r East Tuxedo Conco rdia Swan River Virden Ki rkfield Park The Pas Rupe rtsland Logan Po rtage la Pr airie Stu rgeon Creek Seven Oaks Niakwa Radisson Cha rl eswood St. James St. Johns Morr is Roblin-Russell St. Nor be rt Assiniboia Gladstone Pembina Sel kirk Transcona Fort Rouge Wolseley Dauphin Turtle Mountain Bu rrows Rossmer e lnkster Fort Garr y Os bo rne Rive r Heights Flin Flon lnterlake Lac du Bonnet St.

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LEGISLATIVE ASSEMBLY OF MANITOBA THE STANDING COMMITTEE ON ECONOMIC DEVELOPMENT Thur sday, 3 June, 1982 Time -10:00 a.m. CHAIR MAN -Mr. D. Scott. MANITOBA MINERAL RESOURCES MR. CHAIRM AN: I call the meeting to or der . This mo rning we 'r e dealing with Manitoba Mine ral Resou rces. I'll call on Mr . Par asiuk to intr oduce the gentlemen who ar e he re this mo rning and will be ans­ we ring many of the questions of the Opposition and the government members. HON. W. PARASI UK: Mr . Chair man, I indicated in the House that we would be discussing the Annual Repo rt of the Manitoba Mineral Resou rces.

If we get th rough that, we could discuss the Annual Repor t of Manfor. Although Flyer was indicated as a thir d item. I think that was a mistake on my part. it should be MD C, and Flyer is discussed when MDC is discussed, and so that's a mistake on my pa rt and I' ll make the corr ection if we don't get to it which I don't thin k we will at this Committee meeting. I have Mr . Jones he re fr om MDC , who could speak on MD C, and he has staff who could speak on Flye r, but that's just a change I wanted to indicate. So starting off with MMR, I'd like to introduce Mr .

Ande rson, who's the Chair man of the Board, and Mr . Wr ight who's Pr esident. MR. M. ANDER SON: Thank you, Mr . Parasiuk. l' d like to just star t off with some br ief opening remarks, a copy of which we've passed out to the members. I'm pleased to pr esent Manitoba Minerals Annual Repor t to this Committee. I'm awar e that pr evious meetings had been addressed by Mr . Albe rt Koffman who, at the age of 70, retired last July after serving for some 10 years as present Chai rman of the Boar d .

He was a founding member of the company, and guided its affairs fr om its inception as an explo ration gr oup in '71, in a single-room office on Main St reet, to its pr esent status as a mining company with an inter­ est in the Tr out Lake Mine near Flin Flon. I pe rsonally would like to take this oppo rtunity as well, as I'm sur e on behalf of you all, to acknowledge Mr . Koffman's significant cont ribution to mineral resource develop­ ment in Manitoba. On Mr .

Koffman's retirement in July, he was appointed Chair man of the Board, and the curr ent Boar d with the exception of myself is as shown on the first page of the report befo re you. In addition to that, Mr . John Bu rns served as Dir ector for a few months but has since resigned. In addition this year, Malcolm Wr ight, who was also a founding membe r along with Mr . Koffman of MMR and has served as his Vice-President General Man­ ager for a number of year s. has now been appointed Pr esident. I would now like to touch on some of the highlights, and update you a little bit on the ope rations of MMR.

The company's objectives remain the same as those listed in the repo rt. 28

(1) To start explo ration pr ojects that will att ract pa rticipation by pr ivate sector and conve rsely to par ­ ticipate in wo rth while pr ojects pr oposed by othe rs.

(2) To manage the pr ovince's interest in mandatory pa rticipation agreements.

(3) To employ and tr ain Manitoba residents in min­ ing explo ration. Pr esently, the company's main asset is its 27 pe rcent inte rest in the Tr out Lake joint ven­ tu re. Hudson Bay Mining and Smelting is a part of its cont ribu tion to earn a 44 pe rcent interest in the ven­ tu re. it's spending app roximately $28 million to develop the pr ope rty into an ope rating mine. As of March 31st, of this year. Hudson Bay had spent app roximately $23 million. Pr oduction is expected to sta rt next month at 50 pe rcent of designed capacity, two months behind

schedule but within budget. MMR has been autho­ rized to borr ow up to $2.8 million to cover its shar e of work ing capital and additional development costs not covered by Hudson Bay Mining and Smelting's con­ tr ibutions. The mine will be shut down for a five-week pe riod beginning the end of June to coincide with Hudson Bay's announced shutdown of its ope rations. Just as an interjection on that, we may have further information after next week as to whethe r the re would be a further shutdown requi red and we'll discuss that later in the meeting.

The company also holds a small interest in the Pinebay pr operty, south of Flin Flon, which contains a marginal reserve of 660,000 tons gr ading 2.9 pe rcent coppe r pr ope rties under option to Hudson Bay. Hud­ son Bay rece ntly completed two deep holes in an attempt to increase the reserve. Results ar e now being evaluated. In the meantime, Hudson Bay has made a second option payment of some $60,000.00. Sixteen pr ojects under mandator y pa rticipation agreements, including Tr out Lake and Pinebay were active in the per iod cove red by the report.

Curr ently 14 ar e still active, seven with She rr itt in the Lynn Lake ar eas and seven with Hudson Bay in the Flin Flon, Snow Lake and Lynn Lake ar eas. The company con­ tr ibuted $506,000 to pr ojects cove red by mandatory pa rticipations in the year cove red by this report. How­ ever, I'd like to note that this compa res with $403,000 in the fiscal year just ended but not yet reported on; a 20 pe rcent decrease. this reflecting in pa rt reduced explo ration expenditu res as mining companies attempt to cope with dep ressed metal pr ices.

Seventeen of the company's own explo ration pr o­ jects wer e active in the year cove red by the report. Location of these pr ojects is shown on the map at the fr ont of the repo rt. At the time the report was wr itten 14 of these pr ojects we re being worked under joint ventu re agreements while 3 were wholly owned. The wholly-owned pr oject west of Chur chill has been completed and abandoned, while the other two wholly-owned pr ojects ar e now being wo rk ed under joint ventures with Hudson Bay and Selco.

Additional work on the McCiar ty Lake Pr oject south of Snow Lake by Hudson Bay failed to incr ease the marginal coppe r rese rve of 1.3 million tons gr ading 2.1 pe rc ent coppe r, but some furthe r work is planned in that ar ea.

Thursday, 3 Ju ne, 1982 We reported that a hole on the Farewell Lake Pr oject south of Snow Lake interesected 2.0 mete rs of miner­ alization gr ading 1.8 pe rcent copper. Eleven holes have been dr illed since but the mineral ization pr oved to be err atic and low gr ade. Further exploration has been done on the remainder of pr ojects active at the end of March, 1981 but no significant mineralization has been outlined. The company pa rticipated in the $1.3 million wo rth of explo ration at a net cost of $640,000 which represents a leve rage of app roximately 1:1.

Although the figures have not yet been compiled for this year a simila r leverage ration is expected. On the oil side, the five wells that we re jointly owned by the Company and Be rry Pet roleum in the Pierson ar ea have continued to ope rate at a loss. Only two of the wells ar e cu rrently pr oducing and pr ovide Mani­ toba Mineral with a monthly income of about $1 00 th rough a 5 pe rcent ove rr iding royalty. The th ree Coppe rhead wells in the Pierson ar ea jointly owned by Manitoba Mineral, Tundra Tr ading and Br osco ope rated at a loss.

The Company sold its interest in the pr oject to Tundr a and Br osco who wished to use the salvaged equipment elsewhe re. Mr . Chai rman, this concludes my opening remarks and am now open to questions fr om the Committee. MR . CHAIRM AN: Okay, gentlemen, are ther e any questions to eithe r Mr . Wr ight or to Mr . Anderson. The Honou rable Member for Turtle Mountain. MR. B. RANSOM: Thank you, Mr. Chairman, first of all I'd like to cong ratulate both Mr . Anderson and Mr . Wright on thei r appointments with Manitoba Mineral Resou rces and also to say a few things about the cont ribution that Mr.

Koffman made to Manitoba Min­ er al Resou rces over the years. I know that the cor po­ ration was well managed under Mr. Koffman and I ce rtainly enjoyed working with him during the pe riod of time that I was Minister of Mines. As everyone knows Mr . Koffman was not only a sh rewd mining man but he was also a ver y colou rful cha racter and one never found thei r meetings with Mr . Koffman to be dull by any means. We ac knowledge the good work that he did and wish him well in his retirement. I suppose leading fr om that is the fact that Mr .

Kof­ fman was and is such a shr ewd mining man, I'd li ke to go back and review some of the arr angements that have been made with respect to the Tr out Lake pr op­ er ty and pe rhaps Mr. Wr ight will have to answer the questions, because he is the pe rson who is most closely involved in the arr angements that we re made. I'd like to ask Mr . Wr ight then who actually ca rried out the negotiations with Gr anges and HBM &S to arr ive at the pr esent arr angements, the pr esent ownership ar rangements? MR. CHAIRMAN: Mr . Wr ight. MR.

Wright: lt was Alber t Koffman, myself and Bob Br ay, a consulting mining engineer. MR. B. RANSOM: So, the consultations or the negotiations we re solely in the hands of Manitoba Mineral Resou rces? 29 MR. WRIGH T: That's corr ect. MR . B. RANSOM: Do you recall, Mr . Wr ight, any con­ st raints that were placed upon Manitoba Mineral Resou rces in negotiating arr angements over Tr out Lake? We re you simply asked to make the best deal that you could for Manitoba Mineral Resou rces and for the people of Manitoba? MR .

WRIGH T: The negotiations were undertaken under an omnibus agreement between Manitoba Min­ er al and the Pr ovince, which gave Manitoba Mineral a fr ee hand to negotiate the deal. The Minister was kept informed but we've got no feedback on that. MR. B. RANSOM: Hudson Bay Mining and Smelting was able to gain a 44 pe rcent, I believe, interest in the mine th rough their commitment to the $28 million of development funds, and then I believe that Granges and Manitoba Mineral Resou rces took pr opo rtional reductions in the ownership positions which they had.

I wonder , for the benefit of myself and the Committee, if Mr . Wr ight could just br iefly go th rough some of the rationale then that led to that kind of arr angement and per haps even deal with any of the othe r options that we re looked at and obviously rejected. MR.

WRI GHT: Well, the basic rationale was that neither Manitoba Mineral nor the Scandanavian M in­ er a Is Syndicate we re pr epared to accept the deal with Hudson Bay, which would have a net result less favou­ rable to them than going on thei r own, and so it came a question of dividing the incr ement and the pie as a result of having Hudson Bay do it.

The bottom-line figure on the metal pr ices we we re using indicated that we would be bette r off on a dis­ counted cash flow basis of reducing our interest fr om 48 pe rcent roughly to 27 pe rcent having Hudson Bay put in app roximately $28 million and cont ributing thei r mill and we would pay for the milling of the or e basically at cost without any conside ration of the capital. MR. B. RANSOM: I believe Mr . Wr ight said that the guiding pr inciple the re was that they did not want to accept any ar rangement that would be less advan­ tageous than having Manitoba Mineral and Gr anges go on thei r own.

Is that a corr ect understanding? MR . C. WRIGH T: That's corr ect. MR . B. RANSOM: Now, with the pr ospect of pr oduc­ tion actually beginning within a couple of months, I wonder now how you view the arr angements that were made, because I think that Mr . Wr ight is pr obably awar e, as I am sure all the Committee membe rs ar e, that it has been alleged that this was a bad deal for Manitoba or for Manitoba Mineral Resou rces, that it involved a needless giveaway of millions of dolla rs wo rth of return to the pr ovince.

I'm just wondering now, even with the benefit of a couple of year s of hindsight, whether you, Mr . Wr ight, whethe r the Mani­ toba Mineral Resou rces still feels that this was a good deal for Manitoba Mineral Resou rces to make fr om a financial point of view. Clearly, at the time that it was negotiated, you felt that it was a good deal to make,

Thursday, 3 June, 1982 that it was bette r to make this deal than to go it on you r own. Would that still be you r feeling? MR. C. WRIG HT: That was at the time of the negotia­ tion and has been right th rough until now, the same feeling that it was a good deal to make. I think that events have pr obably reinforced it in the sense, as you are pr obably all well aware, that the metal pr ices have dep ressed and Hudson Bay has taken the up-front risk of app roximately $28 million to br ing the mine to a 50 per cent level of pr oduction, just as metal markets have gone to hell in a handca rt. MR. B.

RANSOM: Just as a matte r of inte rest , how do the pr ices compa re today? How do the coppe r pr ices compar e today to the pr ices that we re being assumed at the time that the ar rangement was made? MR. C. WRI GHT: At the time the ar rangement was made, we were using a coppe r pr ice of $1.07 a pound; zinc pr ice of 54 cents a pound; gold we we re using at $450 an ounce; and silve r at $1 0.00 an ounce. Now, the curr ent pr ices, and these may be out of whack by a couple of weeks right now, were 82 cents a pound on copper ; 47.5 cents a pound on zinc; $394 an ounce on gold; and $8.60 an ounce on silver . MR.

B. RANSOM: At today's pr ices then, is the mine expected to be making any return at those pr ices or what would be regarded as a br eak-even pr ice in today's situation? MR. C. WRIGH T: At the costs that we wer e forecast­ ing last Novembe r and using cu rrent metal pr ices, it looked that the mine could lose between $200,000 and $300,000 a month. Howeve r, Hudson Bay has gone back, at thei r instigation, and taken a look at the budget for the balance of the year and feel that they can par e their oper ating costs and defer some of the development costs, and it looks now that it could be close to a br eak-even.

Howeve r, the job is not yet complete and when the analysis was made they used ave rage or e gr ades and we ar e now going back and using what we actually anticipate to mine du ring the balance of the year and we expect to have the numbe rs by the middle of the month. MR. B. RAN SOM: Can I take it fr om that, that the or e that they 're going to be mining is going to be better than average gr ade then? Is that one of the facto rs that would allow them to par e the costs? ' MR. C.

WRIGH T: The re will be some better and some worse and I'm not sure, at this point in time, whether the wo rse and bet te r come average, or lowe r, or higher. MR. B. RAN SOM: Ar e the pa ring of costs, is that the sort of thing that can be ongoing; is this going to be a continuing efficiency that has been able to be br ought about , or is it sor t of a short-ter m thing that's done in reaction to a cu rr ent situation? MR. C. WRIG HT: Well, the pa ring of the cost takes place in two ar eas. One is on the st raight ope rating costs and this is a mining system which Hudson Bay 30 was not totally used to.

This mine was designed, as it wer e almost by a committee of Hudson Bay and the Scandinavian Mineral Syndicate, and several of the techniques being used have been applied success­ fully in Sweden and Finland, and so Hudson Bay is a little unsure of what the actual costs we use and we're using a comfor table numbe r. They now feel that they can lowe r those ope rating numbe rs. The other budget ar y reduction is in the develop­ ment costs, the costs of the openings you have to make underg round to get at the or e.

Now you can defer a ce rtain amount of that into the future as long as you don't run out of enough feed for the mill, and rather than have too much or e ready to take out, they'r e going to defer some of those development expenditures. MR. B. RANSOM: How many people ar e expected to be employed ther e in that mine, assuming that it was ope rating at the expected level? MR . C. WRIG HT: Somewhe re between 100 and 105 . MR. B.

RANSO M: Have you any idea roughly what pr opo rtion of the or e that's pr ocessed by Hudson Bay is going to be coming fr om Tr out Lake, again assum­ ing that they were under normal condition s, if there's such a thing? MR. C. WRIGH T: No, I don't have a numbe r on it. MR. B. RANSOM: What's the expectation on the par ­ ticipation agreements. I just forget the number you said we re left, 16 under mandatory pa rticipation agr eements? Ar e any of those regarded at the moment as being excellent pr ospects, or ar e they ones that ar e being sort of wor ked th rough to conclude a progr am?

Is it possible to make any assessment of that so rt? MR. C. WR IGH T: I think basically we have to look at those as ones that we'r e wor king th rough; the re ar e a few smells he re and the re, but nothing that we can hang our hats on. Unless something is found I expect that they will wind down somewhe re between th ree and four years. MR. B. RANSOM: A question for the Minister , Mr . Chairman. Could the Minister indicate to the Committee whether any decision has been made at the moment about the funding levels for the Manitoba Mineral Resou rces in the future? MR. CHAIRMAN: The Honou rable Minister. MR. W.

PARASI UK: For this year it's ou r intention to basically not incr ease the amount that much and we'll get into this, and it's my intention to spend some time with MMR over the summer. We have received a ve ry la rge number of applica­ tions, I believe, fr om companies in the pr ivate sector who desi re voluntar y joint ventu res with the gove rn­ ment. Rathe r than just setting out in a sense a pot of money as such and feeling some compulsion to spend that pot of money, the app roach I'm taking is that we will go th rough these applications in a ve ry car eful,

Thursday, 3 Ju ne, 1982 thorough manner and make decisions acco rdingly. If we make positive decisions, then that'll be reflected in next year's Estimates and I don 't pr eclude it, I'm not anticipating it, but I'm not pr ecluding that we could go through a Special Warrant pr ocedu re, but at this stage it's ce rtainly our intention to spend some time doing a ver y careful eval uation of the joint venture pr oposals that we have received. MR. CHAIRMAN: Mr . Anderson would like to reply to that as well. Mr . Ransom . MR. M. ANDERSON: Thank you, Mr . Chai rman.

I would just like to add the point that when I took over this year ther e was a number of pr ojects that we had been conside ring at MMR and there have been a sig­ nificant number mo re that came in, given the time cont raints. When the bu dgetar y pr ocess was under way the best we co uld do was to recommend to the government that at a minimum we have at least the sort of status quo bu dget we had last year .

We did then go to the Minister, and it was at my request, and suggest that there we re oppor tunities and we would like to look at fur ther inc reasing the bu dget and we would make some recommendations to the gove rn­ ment, based on MMR's outlook on some of these pr o­ jects, as to what sor t of funding level we thought was appr op riate. So that's wher e we'r e at right now and we've got a lot of wo rk to do in that ar ea. MR. B.

RANSOM: The policy that the pr evious gov­ er nment had been following fr om app roximately 1978 was that the pa rticipation agreements, the compul­ sor y pa rticipation agreements, which the pr evious Schre yer government had entered into, were all tur ned over to Manitoba Mineral Reso urces. They were given the fr eedom to make the decision about which pr o­ jects they would continue to pa rticipate in. which they might tr y and sell an inte rest in or which they might dr op completely, and I think all of those things we re done in some individual cases.

They also we re asked to expend some of their money in tr ying to find new pr ospects that could be used to att ract pr ivate companies that did not have a pr esence in Manitoba or if they had a pr esence in Manitoba we re pe rhaps looking for new oppor t uni­ ties, new places to star t and that thi rdly, the Manitoba Mineral Reso urces might respond to initiatives taken by pr ivate companies as well.

I take it then, fr om the Minister's comments, that is essentially the policy that is being continued by Manitoba Mineral Reso urces at the moment and that it will be a question of the level of funding that is going to be examined then by the government. HON. W. PARASIUK: I know that MMR has received quite an inc rease in applications after I made a speech to the Pr ospec tors' Association. The response seemed good and I believe that we received 21 applications or joint vent ures since that time.

So, we have to do our homewo rk. go through those carefully and when I say we, I'm talking about MMR and the Minister responsi­ ble but I ce rtainly intend to use the advice and accept or reject thei r recommendations as to funding levels. I intend to do that. I'm act ually using MMR in a different capacity with 31 respect to Tantalum. They sit on the Boar d of Tanco. I believe that they have some expe rtise so that's why they are involved the re.

So. that's the app roach that we will continue to take and one thing I think we may be prepar ed to -and this depends on the quality of the applications- we may be pr epared to look at the posi­ tive implications of investment in the mineral resou rce ar ea. I don't know whethe r in fact there was a big uptake of joint vent ure agreements on the pa rt of MMR over the last four year s, but ce rtainly the Gov­ er nment is not disinclined to make what we think ar e good investments and when one talks about the min­ ing field it is a high-risk ar ea.

The futur e implications of Manitoba ar e gr eat, because mining is a ve ry impo rtant industr y within Manitoba. That's one of the reasons why I think MMR has been focusing some of its explo ration activity or would like to focus some of its exploration activity in the general Lynn Lake ar ea, because that ar ea at pr es­ ent is expe riencing some difficulty with respect to the existing mines and we'r e not quite sur e how long Fox Lake will continue. I think that MMR can be a positive instrum ent in ter ms of new types of exploration and focusing explo ration activity into ce rtain geographi­ cal ar eas.

One of the things that I think we have to look at is the extent to which MMR might be an instrument to have some explo ration take place in ar eas that hadn't been explo red too much he retofo re. As the technology develops with respect to the geotechnical wor k that may in fact be a possibility, but I ce rtainly expect to spend some time this summer with MMR. They 're doing their analysis of the applications right now and I expect we'll spend some time looking over thei r recommendations. MR. B. RANSOM: Then it sounds to me, Mr .

Chair ­ man, as if pe rhaps the Minister then is conside ring giving mo re direction to Manitoba Mineral Resou rces in te rms of whe re they should make thei r investments. I believe it's fair to say that over the past four years. at least, that Manitoba Mineral Reso urces has been given their own head to make the decisions that wer e in the best economic interests of the corpor ation. Now, the first objective of the company, of co urse, says that the company will carr y out its wor k within the same fr amework of rules, regulations and nor mal pr actice governing the pr ivate sector.

Normal pr actice gove rning the pr ivate secto r I would take to be want­ ing to make a pr ofit fo r the co rporation, to make the best investments that they can. Ar e those objectives still going to hold or is the Minister considering using the co rporation to di rect investment into ar eas for reasons othe r than st rictly economic ones related to mineral explo ration? HON . W.

PARAS IUK: Not at all, in fact, I have received some tentative indication, early indication, that MMR was se rio usly looking at applications for joint ven­ tur es fr om ar eas that possibly hadn't been explo red that much to date, and I was going to give serious conside ration to that. Certainly, it would be the objec­ tive of the Gove rnment of Manitoba to ensur e that MMR ce rtainly is a positive investment vehicle and would like to make a pr ofit. We ce rtainly don't intend to be spending money in this ar ea or that ar ea fo r

Thursday, 3 Jun e, 1982 "political purposes." Obviously, you explore where you think that there are some interesting possibilities in relation to the possible location of minerals . MR. B. RANSOM: Well, that's reassuring, Mr . Chair­ man. The Minister I believe has said, at least has been quoted as saying, that the government doesn't con­ template returning to compulsory participation in the mining sector and I believe that he is quoted as saying, "for now or for the time being." Could the Minister clarify for the committee just precisely what his policy intentions are in that respect? HON . W.

PARASI UK: I think I was quite clear when I explained that to the mining industry a few times. I said that I believed that it is possible for the Govern­ ment and the private sector to work together and that in the 1980's there probably is a greater disposition on the part of the private sector to voluntarily, indeed sometimes aggressively, seek out joint ventures with government. I don't think that was the case in the 60's and the 70's there as much. I felt that as our economy evolves that this is pro bably, and I used this term when I spoke at a session with Mr.

David Thomas, who is the President of the Mining Association of Canada, and I've heard no groups really disagreeing with me that we're prob­ ably entering into an increased era of joint ventures between government and private companies where people try and share risks; share benefits. I think that possibly was more of an alien concept two or three decades ago, but I think that's changed and my response to date in my discussions in a general way with big and small mining companies, when we just talk about the mining activity generally, has tended to reinforce that feeling.

I don't get involved in the spe­ cific negotiations with respect to joint ventures, that's left to MM R to do. So, we believe that it is possible to pursue a very constructive relationship between gov­ ernment and the private sector with respect to invest­ ment and mining. I said that we'd sit down from time to time and see how things are progressing. Certainly, if things pro­ gress well, if there's a good level of mining investment in Manito ba, then obv iously I would continue with this policy.

If I felt that in instances there was an attempt to cream, then I'd have to reassess, but I don't think that is the intention of the private sector. I say that and I've said that to them very openly and candidly. They have been candid, I think, and have been speaking in good faith when they've said to me that wasn't their inten­ tion. So, on that basis we are going to try and act very co-operatively in this manner over the course of the next four, to eight, to twelve years . MR. B. RANSOM: Mr.

Chairman, I'm pleased to hear that the Minister is not contemplating going back into compulsory participation agreements, because I think they were bad from the point of view of what it did for exploration, generally for investment in the province, and I think they were bad from the point of view of investment of the taxpayers dollars.

If one goes back and examines the actions of Manitoba Mineral Resources when they assumed responsi bility for the 79 mandatory participation agreements in 1978, and examined what they did with those 79 mandatory 32 agreements, you'll find that some of them were dropped rather quickly because they were assessed as being very poor investments for the corporation. The government, I believe, funded some very bad risks under the compulsory program because they weren't assessed from the point of view, is it likely to be a good investment? They simply went ahead and funded them.

So, I hope that the Minister doesn't return to that level. I think his other comment, that he intends to con­ tinue the present arrangements: I believe he said if there is an adequate level of activity in the province. Well, I would suggest, Mr. Chairman, that there will continue to be an adequate level of activity in the province providing that the Government maintains a competitive taxation system, and an attractive climate for investment. That was not the case in the latter years of the Schreyer administration.

There was a taxation regime brought in at that time which was noncompetitive with other jurisdictions in Canada. There was, of course, the compulsory participation aspect which was quite foreign to the private sector. Consequently, the private sector initiative was fal­ ling off, and the government was then in a position to say, well, clearly the private sector is failing in what they were expected to do and the Government is going to have to step in.

When we assumed Govern­ ment in 1977, I believe that approximately 43 percent of all the exploration dollars that wer e being expended in the province were in fact taxpayers' dollars. If my recollection is correct the total site specific explora­ tion expenditures at that time were in the range of $9 million, and today they are many times that. The Min­ ister may know the figure, but certainly far, far higher than $9 million and the percentage of the taxpayers ' dollars involved was much lower.

I'm sure that if the competitive climate is maintained, and assuming that mineral prices return to some sort of reasona ble level for profit making, then we'll see Manitoba continue to have a reasona bly bright long-term future in the min­ eral resource area. HON. W. PARASIUK: I just wanted to add one com­ ment to that. I think in the 1970's, I think it's happened in

part in the oil area as well, that companies that had, I think, done quite well in Canada looked outside of Canada for possi bilities thinking that maybe the tax regimes were too difficult here, that may be there was a better opportunity elsewhere and as a result com­ panies like lnco, for example, invested heavily in Indonesia and Guatemala and places like that, because they believed that lateritic ores were a better alterna­ tive in the long run than sulphide ores.

But lateritic ores require tremendous amounts of energy and these investments have proved to be uneconomic outside of Canada, outside of Manito ba, so there seems to be a greater tendency now for these com­ panies, who had been in a sense burned outside of Canada, to return back to Canada despite concerns that they've expressed in the past regarding taxes and royalties and uncertainty, that the grass wasn't greener on the other side of the fence, in fact, the grass was greener in Canada and I'm pleased to see that. That seems to be happening in

part in the oil indus­ try if I only look at the experience of Hiram Walker when they moved into the United States and I think

Thur sday, 3 Ju ne, 1982 purchased something in the order of $600 million of leases from Mr. Davies in Colorado and found that within a year they had to write off $200 million of that as a loss and they don't know what the future will be there. In my discussions with the oil industry I found that isn't a unique case. and so the oil industry is, again I think. taking a better look at Canada in order to deal with an area that they're better ac quainted with. where they have some experience and I think that' II be an added feature.

I certainly concur with the member when he says that a major factor influencing exploration over the course of this year and next year will of course be the price of metals and minerals. If the price of minerals is low. obviously that impacts on cash flow; if the inter­ est rates are very high, as they are right now. that impacts on the financial viability of borrowing large sums of money to conduct exploration. so right across the board I'm finding that many firms are trying to trim their sails in a sense to deal with the quite severe economic conditions that we find ourselves in right now. MR. B.

RANSOM: I take it the sails he refers to are the kind that fly from a mast. Mr. Chairman. I can only agree to some extent with what the Minister has said about external factors. it has to be borne in mind that in the late 19 70s it wasn't just the Manitoba Govern­ ment that was moving to impose very high taxes in the mining industry. it was some of the other governments across Canada as well. lt just happened that Manitoba had moved further than some and I would remind the Minister that in 1977 and 1978 mineral prices were very low as well.

I recall the very day that we were sworn into Gov­ ernment in 1977. that it was announced that day that there were going to be reductions of mining employees of some 650 people as a consequence of low mineral prices.

Nevertheless. virtually from that day onward mineral exploration picked up in Manitoba .. and I say it picked up largely as a consequence of the commit­ ment to make the royalty structure competitive and to go back to systems of holding land that gave the company some security and that the compulsory par­ ticipation agreements were ended to re-establish an attractive climate for investment. and I think that has paid off handsomely in terms of the amount of explo­ ration that's taking place in the province.

We all know that if exploration doesn't take place that we're not going to find the ore reserves that are necessary to maintain the industry over the long period of time. Mr. Chairman. maybe we could move on to deal with the oil situation. First of all. it was my understanding that in the past Manitoba Mineral Resources did oper­ ate both on its own and on a joint-venture basis in the field of oil exploration in Manitoba. Is that a correct assumption. Mr. Wright? MR. CHAIRMAN: Mr. Wright. MR. C. WRI GHT: No. that is not correct and I'm par­ ticularly sensitive about this one.

Manitoba Mineral simply acted as an agent for the department. The department put together agreements and funded Manitoba Mineral to monitor them. At no time was Manitoba Mineral actively engaged under its own flag 33 in oil exploration. MR. B. RANSOM: So all of that work. the deals were actually struck by the Department of Mines at the time and Manitoba Mineral Resources were simply used as the vehicle to administer the funds? MR . C. WR IGH T: That is correct. MR. B. RANSOM: Is it within the powers of Manitoba Mineral Resources to become involved in the oil exploration area as it is in mineral exploration? MR.

C. WRIGH T: I believe it was. and this goes back several years. when this policy began to evolve. the department getting involved in oil exploration. We tried to get some clarification of the policy and sug­ gested that if the province wanted to get involved in oil and gas exploration that a budget be set aside for Manitoba Mineral to do it. but that never came about. MR. B. RANSOM: Then previously. were some of the funds for oil exploration taken from the budget of Manitoba Mineral Resources as such or did they flow directly from the government? MR. C.

WR IG HT: There was one case with Asamera Oil and I think that over a period of two years or so there was $106,000 of Manitoba Mineral's budget went into that first oil deal; but with all subsequent oil deals we were simply the agency of the department . MR. B. RANSOM: But presumably then. if there was an amount of money budgeted. Manitoba Mineral Resources would have the authority and the scope to hire people and get into the oil business? MR . C. WRI GHT: I think that is correct. I'd have to go back and check the Letters Patent. I guess. MR. CHAIRMAN: Mr. Anderson. MR. M. ANDERSON: Mr.

Ransom. at this time. as Chairman of the Corporation, we have discussed whether MMR should be in oil. Their expertise. how­ ever, lies in the mineral side and it's not felt at this time that it would be practical. lt is not felt that it would be practical for MMR to be without new staff. if we were going to look at it. to be involved in that game. I don't know if you have any comments on that Mr. Wright. MR. C. WRIGH T: I think it's better to keep them both separated. MR. B. RANSOM: I accept what the Chairman says.

My statement was that if there were funds available and staff were hired, that Manitoba Mineral Resources has the scope. has the authority to get into that area of work without a new Act being introduced into the Legislature. for example. MR. M. ANDERSON: Could we take that under advisement and bring that back? MR. B. RANSOM: Certainly. Mr. Anderson or Mr. Wright. the oil wells that the government had an inter-

est in that were held by Manitoba Mineral Resources, I believe there were three of them that were sold; all the others are losing money I gather and that the only way the Government is making a return from them at the moment is through the overriding royalty, which really doesn't derive from an equity position in the well. Has the Government, the Corporation, made any decision as to whether they're going to try and sell their interests in those wells also? MR. C. WRI GHT: No, there's no decision been made to do that.

We only have a 20 percent interest in those particular five wells that you're speaking of, Berry Petroleum, and they have now been abandoning, so we that we're down to only two producers now, and whether or not they'll break even and make a few dollars, we'll just have to wait to see. MR . B. RANSOM: I'd just like to make one further comment that related back to some of things the Min­ ister said about the greener pastures abroad.

I used on a number of occasions an example in terms of the oil exploration in Manitoba as opposed to North Dakota, where in an area in the southwestern part of Manitoba if one mapped the number of wells that had been drilled in an area about 36 miles long and seven miles wide on the border in the southwest part of Manitoba up against Saskatchewan, and took a same area in North Dakota on the other side of the border, one would find that there were about five times as many wells drilled in North Dakota as there were in Mani­ toba and that there were about five times as many producing oil wells in North Dakota as there were in Manitoba.

The former Minister of Mines, the Member for lnkster, used to argue that oil companies went where the oil was and that it really didn't have much to do with the climate of investment. Under those circumstances, one had to come to the conclusion that either the formation ended right along the 49th parallel or else there was some reason why exploration had taken place in North Dakota and not in Manitoba.

When the previous government changed the structures of royalties and leaseholding we began to see exploration take place and I'm pleased to say that right at the moment there are at least three wells being drilled within a few miles of the area where I happen to live at the moment. it's very encouraging -(Interjection)- No, I don't.

Unfortunately, I don't have the mineral rights, but I think it's very encourag­ ing to see that when the oil industry in Saskatchewan and Alberta and elsewhere in North America is in such a depressed situation, we are actually experiencing, I think it's fair to say, record levels of oil exploration in Manitoba and activity here. Mr. Chairman, again I believe that it primarily comes about because of the changes in the royalty structure and the leasing and the attitude towards investment in the province and I hope that the Minister will continue with the policies that are in place.

He's indicated that he will continue to put Crown lands up for lease and that he won't give them on a captive basis to any new corporation that might be establis hed . I think if those things are maintained and, perhaps, even if the Minis­ ter moved to make some further adjustments in royal­ ties dealing with wells that produced very low amounts of oil, he'd do even more to encourage activity 3 Jun e, 1982 34 in the province. HON. W. PARASIUK: I want to surprise the member and say that I think the simplified royalty system is a better system.

I said that I believe that people are coming in to make investments that they want to have some longer term idea; they're looking for longer term stability. I've told the industry that. I felt that's a legiti­ mate concern on the part of the industry. I felt that the industry had a legitimate concern about what I would call back-door participation. The response from the industry has been very positive.

One reason why I'm not proceeding with Manoil legislation at this Session is that although many peo­ ple in the industry have said that they would like to see a catalyst and indeed are interested in joint ventures, I believe that communication's very important and that it's important for me to talk to more of the industry . I believe that more people will come to Manitoba in the future and I intend and I've made arrangements already to spend some time talking to some of the oil companies, especially the junior oil companies in Alberta this year.

One of the attractions for Manitoba isn't just the royalty system, but increased pricing has had some impact there, but secondly, there's a greater probabil­ ity that companies, drilling in Alberta especially, will strike gas rather than oil. They have a greater proba­ bility of striking oil in Manitoba. They haven't found really any real amounts of gas and that oil's the valua­ ble commodity, oil's the one they're looking for, there's a lot of shut-in gas at present, and that's another attractive feature. So I hope to go into Alberta this year.

I'll try and rent or buy a Stetson and go and speak to some of the people, and that's being set up because I think a lot of companies possibly are just looking at the Alberta situation or the Saskatchewan situation and don't have a good enough appreciation of Manitoba. I've already spoken with a Mr. Hall of Omega in this respect. I've spoken to people in Chevron.

They're very positive about that idea and I hope that I'll have a good positive response by other companies in Alberta and tell them that Manitoba indeed is a good oil pros­ pect and does offer very good potential and we'll see what happens as a result of those particular efforts . it's a different type of in a sense trade mission, but I'm hoping that it'll have a good effect on Manitoba in the future. MR. CHAIR MAN: Mr. Downey. MR . J. DOWNEY: Mr. Chairman, the comments just echoed by the Member for Turtle Mountain I would like to add to those comments that were made by him .

The development that has taken place in the last probably two years in the southwest corner in the oil fields has certainly been encouraging to residents of that community. I think it's been demonstrated to No. 1, I would think it's very difficult now in the small town of Waskada or the home town that I came from, or in fact vacated farm homes to even get a farm home or a place to live, that the people who are working in those oil fields have added to the local economy, and in fact it is very true that there is virtually no accommodation to rent for that type of people who are now living

Thu rsday, 3 June, 1982 in the area. I think that the fact that we're seeing that kind of activity can only auger well for the previous govern­ ment's changes in taxation policies and auger very well with the people in that particular community far greater, Mr. Chairman, than the announcements that were heard by those people during the election cam­ paign that there would be a Manoil Company set up to get into the oil activity. They really, Mr.

Chairman, were quite satisfied with the speed and the process of the development that was taking place through the private sector and as I indicated not too long ago really weren't standing up demanding of any govern­ ment to bring in a corporation that would get into the oil business. I can also identify at least one new local business that was set up in the area to service those oil wells. I think that it only would be advisable for the Minister, if he hasn't done so to this point, to travel into that area. it's totally changed the countryside.

The amount of nodding donkeys that are immediately southwest of Waskada; the fact that recently talking to one of the private oil developers in the -(Interjection)- for those who are not familiar with that, but it's pretty evident that the whole taxation policies that are in place have encouraged the development that's taking place. Another point that has to be made as tar as the oil that is being produced in Manitoba is the fact that it is probably the highest crude oil that is being produced anywhere in this country.

Not only is it free of gas or natural gas, but it is a fact that the oil is of the highest or the sweetest type crude. I think it's important that when we're looking at the value of it, that it's that much more important to draw the top quality crude and put it on the market at a fair price. I have a specific question dealing with the opera­ tions. The government or the corporation are down to two wells that are currently operating.

With the activ­ ity that we've seen in other companies and the work that is being done, would it not be advisable for the government or the mineral corporation to assess the wells that have been closed down? Have they assessed them or are they just leaving them idle, saying that there are no more producers or is there no activity that could be put in place to enhance the production? I ask the question strictly as a layman and not truly under­ standing why there wouldn't be some work that could bring them back into production or there has to be some information available. MR. M.

WRIGH T: These particular wells in the Pier­ son area which are operated by Berry Petroleum have now been losing money for somewhere around two or three years and various things have been done to them to try to increase their productivity without any success. The Berry Petroleum that has the 80 percent interest has been holding on.

They should have been closed down actually a couple of years ago, but they've held on in the hope that there would be breaks to the operator under the National Energy Policy and it's only recently that Berry has made a decision that those wells should be closed down permanently, because they don't feel there'll be any more breaks coming out of the National Energy Policy. 35 MR. CHAIRM AN: Mr. Downey; just before that, if Mr. Anderson could add a comment as well. MR. M. ANDERSON: Mr.

Downey, I just wanted to point out that those wells do not qualify for the new oil reference price which is making some of the new development that we've got attractive to producers and if some of the abandoned wells come in after a period of time, they will qualify for the new oil refer­ ence price and then they'll be reassessed at that point in time. I don't remember the number of years, I think it's three. After three years of abandonment, you can reassess them. MR. J.

DOWNEY: The Minister wasn't here when I made my comments about suggesting that it would be a good idea if he maybe did make a tour down into the oil fields of southwest Manitoba. He doesn't have to wear a Stetson. However, I'm sure he would be wel­ come in that particular area, but it would be important -as I indicated the activity with the housing, the activ­ ity with the new companies that have developed -to service some of the oil setups that are there.

There's one other point that I want to make with the Minister, and I think I've corresponded with the Minis­ ter of Highways and Transportation, that because of the increased oil activity, one has to remember that with all the oil development that is taking place that the heavy loads that are now going over the highways and the roads in that particular area, we have to remember that the oil has to be hauled by tank truck from the Waskada Field, which is something like three, or four, or five miles to the south and west of Waskada, up 83 Highway, down the provincial road 283 Highway, up to 256 and up through Cromer.

I live right adjacent to 83 Highway, right along it, and it's quite evident to see the numbers of trucks that are hauling, not only on a 12-hour basis but 24 hours a day, to keep the oil pulled away from it. lt is playing pretty heavy havoc with particularly Road 256 that does not have an overlay of pavement or the kind of structure that can support this heavy, heavy haulage.

I think it is a responsibility of the Government, if we want to continually see the development take place, to in fact have a major upgrading of the road system in that community, because it is in fact not only danger­ ous with the types of roads but the fact that the road base is not built to carry those kinds of heavy loads. So, I think my general comments are to ask the Minister to support that kind of thing that will support the oil industry and I'm satisfied with that, Mr. Chairman. HON. W. PARASIUK: If I could just comment quickly.

I've made some tentative arrangements with regional staff of the Petroleum Branch. I've also had some discussions with some of the oil companies. Different oil companies are doing different things with respect to enhancement of recovery. Obviously, different companies have been doing some new and different things over the course of the last three or four years with respect to new techniques of getting oil out and drilling at different levels. Again, I think that when you do have more activity you get people drilling at different levels and some-

times I don't call these flukes, but sometimes some of the finds are rather unexpected and then everyone zeros in on that unexpected find and they find a lot more potential than they ever thought might have existed. So it's my intention to spend some time there, I would hope over the summer. One of the limiting factors, of course, is the duties in the House. MR. CHAI RM AN: Mr. Filmon. MR. G. FILM ON: Well, Mr.

Chairman, I want to assure the Minister that we'll try and make his duties in the House end fairly soon with the co-operation of the Government, of course, so that he can get out into the fields and in fact was going to suggest that if he is seriously looking for a stetson to rent that my col­ league, the Member for Arthur, has quite a fine collec­ tion and -(Interjection)- well, that's what I was going to say. There is a limiting factor in terms of size. Actually, after he reads the report card in today's newspaper it might be his proper size. I'm not sure, but he can judge that for himself.

On the other hand, he might prefer rathe rt han con­ sidering a stetson, I happen to know that his Leader has a slightly used hard hat that he could borrow for the occasion of wandering through the fields; it has Manoil on it, so it's only been used once, I think, for a newspaper ad. -(Interjection)- He can sing it. Actu­ ally you'd probably find that when they're drilling they also use the symbol that you used occasionally. Sometimes they do it this way and sometimes this way. There's quite a lot of symbolism that might fit in with the Minister's visit to the oil fields.

My question to the gentleman from Manitoba Min­ eral Resources has to do with the Report and unfortu­ nately the pages aren't numbered, so, I'll say under the Oil and Gas Section. Am I correct in saying that the Manitoba Mineral's share of production from the oil and gas wells in which it had an interest last year was $1 .403, that there's no zeros deleted from that, like we do in the Estimates, have three zeros after that? MR. M. ANDERSON: That's correct. it's $1.4 03.00. MR. G. FILMON: $1.403. Okay.

Am I also correct in saying that over the years, since it commenced partic­ ipation in various oil and gas exploration projects, that there were approximately 50 odd wells in which the corporation had an interest over the years or 50 odd wells that were drilled? I shouldn't say wells. I guess they're not wells until they start having something come up, but holes that were drilled? MR. C. WRI GHT: I don't have the number precisely. it's of that order of magnitude. Again though I would emphasize that Manitoba Minerals did not participate in these wells, they simply managed participation in these wells. MR. G.

FILMON: They managed the participation in these wells. MR. M. ANDER SON: Mr. Filmon, maybe I could enlighten you on that. The discussion that was held between Mr. Wright and Mr. Ransom concerning how 36 the department had entered into these particular arrangements and Manitoba Mineral Resources just picked them up as managers; Manitoba Mineral Resources did not make the commitment to go into these particular projects. MR. G. FILMON: Who made the commitment? MR. M. ANDER SON: Commitments were made by the department. MR. G. FILMON: By the department?

But it was the government. it's just MMR took it over from the gov­ ernment as well. I know a number of these shifts in terms of responsibility were made. I'm trying to get at the fact that these were ones in which the government initiated a participation. So there were some 50-odd wells or holes that were drilled that resulted in five wells that did have some production, of which two produced an income of $1.403 and the other three produced a loss for which MMR is not responsible but presumably would be written off against the income of the Berry Petroleum Limited ifthey did produce some­ thing in the future.

Okay, and that the total investment on MM R's part, if we can refer to Exhibit B, Page 1 on Oil and Gas Exploration Expenditures was $761,364 to March 31st, but as I understand it, that doesn't include all the expenditures of the department over the years in its involvement in the oil and gas exploration. Is that right? MR. C. WR IGHT: I don't know what the department has spent on it. This was the projects which Manitoba Mineral assumed management for and that's how much money was spent under those projects. Whether there were other expenditures by the department, I don't know. MR. G.

FILMO N: Which projects then are covered under this $761 ,364? Just the five wells or others? MR. C. WRIG HT: No, there were several others which are not listed here. There were perhaps half a dozen or more oil and gas agreements resulting in a total of about 50 wells. MR. M. ANDERSON: We could take that under advisement and bring you the details if you'd like? We'll send them to you. MR. G. FILMON: Well, I guess I can understand why the Minister isn't anxious to proceed with Man oil as an exploration entity given the past records of success and return on investment or lack of same. I just wanted to ask Mr.

Anderson regarding his opening remarks in which, on Page 2, he indicates with respect to the Trout Lake joint venture that pro­ duction is expected to start next month and then later on he says at the end of June that the mine will be shut down for a five-week period. I assume that this was written for May and that he was expecting production to start this month in June and then be shut down at the end of June for the five-week period coincident with the Hudson Bay Mining and Smelting shutdown. Has that Trout Lake operation commenced produc-

Thursday, 3 June, 1982 tion then as was projected in his remarks which were obviously written for an earlier time frame? MR. M. ANDERSON: Yes it is expect ed it will start production and that it will close coincidental with the Hudson Bay Mining shutdown. MR. G. FILM ON: Okay. So then is Mr. Anderson say­ ing that it hasn't started yet, but it is still expected to start product ion sometime this month? MR. M. ANDERSON: lt has started. What you have to understand is a figure was picked of 50 percent of designed capacit y and I would say that is the point in time at whic h we deem product ion to have started.

Prior to that there was other produ ction coming out of the mine, but it was not deemed that the mine had been in production. MR. G. FILM ON: Okay. Thank you. There's no further questions on that. MR. W. PARASIUK: I just wanted to clarify one com­ ment made by the Member for Tuxedo. I certainly am anxious to proceed with a provincial oil and gas company.

I want to proceed though with the fullest communicat ion with the industry, which I think is a fair way of proceeding, and I think that I'm surprised that the Opposition wouldn't appreciate my wanting to undertake a full pro cess of consultation with the industry. But, if in fact , they'd either want me to proceed percipit ously or abandon it entirely, I guess those are two different options, but the option we are taking is that we'll proceed and we'll proceed after the fullest consultation with the industry. MR. G.

FILMON: Well, I hope that the Minister will communicate to the fullest extent to the public just how beneficial the public dollars have been spent on oil and gas explora tion in the past in Manitoba before he proceeds, so that people are familiar with the potential that might occ ur. MR. CHAIRMAN: Mr. Storie do you have a question? MR. J. STOR IE: I don't have any questions. I'd just like to make a couple of general comments a:nd the Minister can respond if he wishes.

First of all, I'd like to say that I have no disagreement with what the Minister has said or what the Member for Turtle Mountain has said with regard to making Manitoba's taxation and royalty rates competitive. We certainly need the involvement of companies inter­ ested in exploring and developing our resources in Manitoba and certainly in Northern Manitoba. We need the jobs that they create and we certainly need the ec onomic act ivity as I said in Northern Manitoba.

However, I feel that the interest and the commit­ ment of the government to joint ventures is something that all Manitobans should be pleased to see. I think that right now the willingness of different companies to get involved in joint ventures is no acc ident. In fact, I feel that despite the drawbacks of the mandatory participation agreements, I think that the mandatory participa tion agreements served some purpose. They served notice to those involved in resource develop- 37 ment that Manitobans were serious about recouping some of the wealth that is here in terms of our resources.

I think in terms of the Trout Lake Mine we have an interest in what will be despite the low metal prices that we're faced with right now, an asset to Manitoba. I think that the Mandatory Participat ion Agreement means that we have an interest in a mine and we will be acc umulating wealth from a resource that we would not otherwise have had. So it has served its purpose. I think right now we have other factors which are creating an interest on the part of resource develo p­ ment companies on joint ventures or in joint ventures.

Obviously, the low mineral prices right now are creat­ ing an interest in having other sources of capital to share the risk in development costs and exploration costs so that is an impetus to resource devel0pment companies to seek out other venture capital from other sources and if MMR can fill that role, then we'd certainly like to continue with that.

I think in terms of the future, if the willingness on the part of those companies to share in joint ventures with the province is there, that we would like to continue with that. 1t makes the most sense for Manitobans not only to have the jobs that resource development can create, it makes sense for Manitobans to share in the profits that those resources can create too. MR. CHAI RMAN: I believe if all the questions are fin­ ished with the Manitoba Mineral Resources .. Mr. Harapiak do you move acc eptance of the entire report? (Agreed) Before closing, I would like to thank both Messrs.

Wright and Anderson for their partic ipation this morn­ ing. lt certainly was most beneficial to the Committee and if the members are willing, I believe we are ready to move on to Manfor as well and Mr. Parasiuk would like to ask permission I believe of the members Assembly. MR. W. PARASIUK: I apologize to the Committee and the House, through an oversight on my part, I have not tabled the Annual Report of Manfor. I was going to distribute it -(Int erje ction)- That's right, I was going to distribute it now. With the leave of the Committee, we can distribute it here, go over it, and Mr.

Hallgrimson can make his opening statement. Or if you wish, given my mistake, then I would table it this afternoon in the House. If you wish, we can not proceer l this way and I could table it in the House today or distribute it now, and we could come back on Tuesday on it, but I leave it up to the Committee. MR. CHAIRMAN: Mr. Ransom, would you like to comment on that? MR . B. RANSOM: Well, I think, Mr. Chairman, the Minister should distribute it now and he should table it this afternoon and we'll hear the introductory com­ ments and if we feel we ca n proceed through, we will; if we don't, it'll be held over.

MR. W. PARASIUK: I'll ask Mr. Hallgrimson and his staff to come forward.

Thursday, 3 Jun e, 1982 MR . CHAIRMAN: Mr. Hallgrimson and staff. would you please come forward? MANITOBA FORESTRY RESOURCES MR. CHAIRMAN: I'd like to proceed. I would call Mr. Parsiuk to introduce Mr. Hallgrimson. please. MR. W. PARASIUK: Yes. Mr. Hallgrimson's the Chairman of the Board of Manitoba Forestry Resour­ ces Ltd. He will be making the presentation. I believe Mr. Torbiak, his assistant. is here as well. We've gone over the general longer term. The study aspects of Manfor and its future are really being looked at by Crown Investments. We went over that in the Estimates yesterday, but I've asked Mr.

Anderson. the Deputy Minister of Crown Investments, who's the lead person on that. to remain here in the Committee area and with that I'd like to ask Mr. Hallgrimson to proceed with his report. MR. L HALLGRIMSON: Thank you. Mr. Minister. Members of the Committee. as in past years we have prepared a report. The main item included in the report. of course. are the financial statements certified to by Dunwoody and Company. our auditors for the last fiscal year. I would point out that the report includes a clear certification by the auditors; also included is a short report by myself as Chairman of the Board .

With your permission I' ll perhaps read at least some of the pertinent parts of the report. I am pleased to report that for the year ended the 30th of September. 19 81. sales dollars have continued to rise from $72.042,000 in 1980 to $78,556,000 in the year under review. This was not enough, however, to offset increased costs of production. with the end result being a decrease in profit from $2.6 million to $670,000.00. On a cash basis, the operating profit of $9.5 million was sufficient to meet our depreciation of $5.4 million and pay some $3.1 million in interest to the Government of Manitoba.

The decrease in the net profit for the past year can be largely attributed to two problems in our Lumber Division. The first is that the lumber market continued weak throughout the year. The situation worsened as the year progressed and as a result our inventory of lumber rose to unprecedented levels at the year end. In fact. our inventory levels rose to a point that made it necessary to shut the sawmill down for a period of four weeks commencing February 1, 1982. Thereafter the operation will operate on a four day week for a period up to 28 weeks under a federal work sharing agreement.

The fall in lumber prices was mainly due to high interest rates both in Canada and the United States which has brought the housing industry in both countries virtually to a standstill . In my view. this situa­ tion will continue until interest rates fall to what the market considers to be a reasonable level and some stability is attained at that level. The second reason for the decrease in net profit is our high cost of production in the sawmill. This comes about due to the small saw logs we have to put through our sawlines.

To bring these costs down requires the installation of new sawlines which are capable of pro­ cessing our small sawlogs at a faster rate. We cur­ rently have this matter under study and hopefully this 38 problem will be overcome in the current year. The impact of the recession did not materially affect the performance of the Pulp and Paper Division until the end of the calendar year.

In the last two months there has been a considerable fall off in demand for both unbleached pulp and paper and unless there is an improvement in the near future we may very well face the question of some downtime to stop the growth of our inventories. We may take some comfort in the fact that a possibility of downtime is not something unique to Manfor but common in the industry as most com­ panies are taking such action. During the year foreign exchange moved signifi­ cantly against pulp and paper sales in the offshore market. With respect to many European currencies. the Canadian dollar exhibited great strength.

For example. the Canadian dollar gained 20.3 percent as against the British pound. Of particular concern to us is the movement of the Swedish Kroner; the currency of the major supplier in our offshore markets. The Swedish Kroner dropped in value. as against the Can­ adian dollar. by 17 percent during the year. At present the only relief in sight in this market would appear to be a reduction in Canadian interest rates and hence a reduction in the value of the Canadian dollar.

Lumber. being a high weight/bulk product. must be sold within an economic freight area; that is. domesti­ cally or the upper Mid-Western United States. In the U.S. the 4.4 percent drop in the value of the Canadian dollar versus the U.S. dollar should have been of sig­ nificant value. However. during the year there has been such a surplus of lumber production, due to the low level of housing starts. that prices have steadily softened; negating totally the 4.4 percent gain due to the drop in the value of the Canadian dollar as against the U.S. dollar. A major cost element which warrants comment is freight.

In dealing with lumber. paper, and pulp which are high bulk/ weight products with relatively low value, a major cost component in the end selling price is freight. During the year freight costs rose on aver­ age 14.6 percent on lumber shipments and 18.2 per­ cent on pulp and paper. As a percentage of the net selling price freight costs are presently running at 29.2 percent for lumber and 8.7 percent for domestic sales of pulp and paper. Needless to say we are constantly attempting to concentrate our sales to close in areas and seeking alternative methods of transporting our products.

During the current year-to-date market conditions have continued to deteriorate. We have. however, except for the aforementioned four week shutdown in the lumber division. followed by the shortened work week. which affected 180 workers been able to main­ tain full employment for our average 1 ,000 employees. The financial results from operations have shown some deterioration. For the first five months our oper­ ating profit was $2.8 million vs $4.4 million a year earlier. After depreciation of $2.08 million and interest expense of $1.4 million the result is a loss of $746,000.00.

As our ability to provide full employment and show satisfactory financial results is largely dependant on general economic conditions. we can­ not at this time make a realistic estimate of the future. Now. since that time. since that report was written. we did in fact take further downtime commencing May

Thursday, 3 June, 1982 11th and vi rtually the whole complex was shut down for th ree weeks com mencing on that date and they've just started back to wor k this current week , this last Mo nday, I think that was at the end of per iod four or five, and we have further updated financial results. This is for the pe riod ended May 8th, 32 weeks; ou r net pr ofit for that pe riod of time has dete riorated and is now a loss of $3.4 millio n. That completes the wr itte n report, I would be pleased to answer any questions. MR. CHAIRMAN: The Honou rable Member for Tur tle Mountain. MR. B.

RANSOM: What would be the actual date of the opening statement, Mr . Hallgr imson? MR. L. HALLG RI MSON: Unfortu nately, I noticed this just this morning that the re wasn't a date. To the best of my recollectio n, it would be in mid-March. MR . B. RANSOM: Have ther e been any changes in the Boar d of the co rporation? MR . L. HALL GRIM SON: No, not really, Mr . Chair ­ man, except that Mr . Burns and Mr . Ducharme, who hadn't attended a meeting for a considerable pe riod of time, wer e removed fr om the Boar d last Ap ril. MR. B. RANSOM: Could you just name the pr esent members of the Board? MR.

HALLGR IMSON: The pr esent direc tor s ar e Mr . E.J. Friesen, Mr . B. Garth Chambe rs, Mr . M.K. Pr ofit, J.D . Riley, J.R . Wr ight, Hugh Jones and myself. MR . B. RANSOM: Perh aps, Mr . Chairman, Mr. Hall­ gr imso n or Mr . Parasiuk could pr ovide us with some of the details that have been wo rked out with respect to the wor k sharing arr angement that's now in place. HON. W. PARASI UK: We had or iginally established a plan for a four-month work sharing arr angement, but we indicated that would have to be reviewed in the light of ou r co ntinued financial situatio n.

Two mo nths into the wor k sharing pr ogram, we felt that for finan­ cial reaso ns we had to shut down the plant, which we have done, and what we ar e looking at now is a differ­ ent alternative. We'r e having some discussio ns with the Federal Government for a pr og ram whe reby peo­ ple who are laid off could get somethi ng mo re than UIC , but not what they would be paid if they wer e working full time, to under take a forest ry manage­ ment activity la rgely in The Pas ar ea, it will cer tainly be in the bush camps.

There ar e some pr oblems being encou ntered in tr y­ ing to develop specific pr ojects under the ge neral pr og ram. We'r e br eaking new gr ound in this ar ea. I believe that the Department of Natural Resources is taking the lead in this respect in that they ar e tr ying to develop a pr oject, specifically in Moose Lake. We think that ther e pr obably would be a better possibility of getting a pr oject started in Moose Lake because the people who are laid off ther e ar e woodcu tter s in the first instance ge nerally .

They have some of the equipment, they have the clothes, they' re living in that 39 ar ea generally and it wouldn't be that gr eat a disincen­ tive for them to get involved in this type of pr oject. In The Pas, it's a somewhat different sto ry. You have people who wer e sawmill operators or people who ar e working in the pulp ... well, basically the sawmill, who would be asked then to become tr ee thi nner s and things like that. We think that if we can get one pr oject going so that people can actually see how it's going then possibly they will take up and develop other pr ojects as well.

But that is still in the pr ocess of negotiations. The Department of Natural Resources is the lead department in that.

We, of cou rse , have an ongoing inte rest because of the fact that these are workers fr om Manfor or related to Manfor and our hope is that we can develop these types of pr og rams to take into account the down cycle that takes place with respect to mining or lumber , especially, so that we ca n tr y and pr ovide ongoing wo rk of some sor t to keep people in these single enterpr ise communities, so that when eco nomic conditions cha nge with respect to the high inter est rates and the rece ssion that we would still have a wor kforce on hand that is skilled, that is expe­ rienced, that knows that ar ea, to wor k for us pr oduc­ tively whe n the upswing takes place.

MR. B. RANSOM: Mr . Hallgrimson made reference to installatio n of the new sawlines, and when we we re discussing the possibility of upg rading of the mill or the ope ration in Estimates, the Cr ow n Investments Department, ther e was reference made to a $5 millio n to $10 millio n cost related to upg rading the sawmill. Would that be the app roximate cost the n of putting in new sawlines, $5-$10 millio n? MR. l. HALLGRIMSON: Yes, I think that would be fair. 1t depends upon whether you'r e talki ng about repl acing both sawlines or just one.

We have, in the past, I think, used the figure of about $4 millio n for one sawline. If the sawlines wer e completely replaced it would be around $1 0 millio n or so. MR. B. RANSOM: What sor t of impact would that have, then, on the costs in the sawmill ar ea in terms of reducing, I assume, the costs of pr oductio n? MR. L. HALLGR IMSON: I don't have the exact figure with me but what sticks in my mind is 15 to 20 percent. MR. B. RANSOM: Mr .

Chair man, the former Membe r for The Pas used to fr equently ask us if we would not give some co nsideratio n to appo inting some of the employe es, some of the union people, to the Board of Directo rs of Manfor. They thought that this would be a place to begin an expe riment in eco nomic demo­ cr acy. Has the Minister any intention of doing that at the moment? HON. W. PARASIUK: Yes, over the long run, I hope to do so.

We have established a committee of workers, of management and people from Cr ow n Investments, who have been looking at the various options regard­ ing layoffs , who have indeed bee n looking at the var­ ious options regarding the long-ter m development of the Pulp and Paper Complex and the Sawmill. I think the re was surp rise on the par t of all par ties at the

Thursday, 3 Jun e, 1982 various options regarding all parties, I think, in a very responsible manner, to date, in these very difficult times of lack of demand for product, layoffs, etc., and at the same time people have been forward-looking to try and establish the best long-term prospects for that complex. Today, I think that the experience at a work­ ing level, not a board level but at a working group level, has been very good from my vantage point. I believe that often these things are matters of commun­ ication and that the communication process has improved as a result of this.

I want to monitor how the working group proceeds. I'm aware that there are pluses and minuses to having appointments to the Board, in a sense, people who are employees but at the same time I think that we want to give this matter a bit more thought, that the pluses will outweigh the minuses and that people who have some very detailed knowledge and experience of the operation can indeed make very valuable contributions on the Board. MR. B. RANSOM: Mr. Chairman, because we on this side, when we were in Government, were actively involved in looking to the future of Manfor, as I know the Minister is presently.

I don't see the necessity of getting into some of the details of that here, especially since we have had an opportunity to discuss it in the Estimates of Crown Investments Department, so my colleagues may have some additional questions. I basically have no further questions to ask here. MR. DEPUTY CHAIRMAN, G. Lecuyer: Mr. Brown. MR. A. BROWN: I would like to ask a few questions regarding the lumber industry and maybe we can get some answers on this from Mr. Hallgrimson. First of all, I would like to know how much inventory do you have in stock at the present time as far as lumber is concerned? Have you any idea?

MR. L. HALLGRIM SON: I think after taking into account what we have sold that the net figure of fin­ ished lumber in inventory is around 5 million, plus around 2 million unfinished or unplaned lumber, so it would total about 7 million. MR. A. BROWN: Where would this be stored? Is most of it stored at the plant over there or is some of it stored in Winnipeg? MR. L HALLGRIMSON: Yes, we have some lumber here in Winnipeg. We have a storage facility where we trans-ship lumber into the U.S. and, of course, other areas in Canada. We also have lumber in the mill at The Pas. MR. A.

BROWN: Do you ever do a quality comparison be tween the lumber from Manfor as let's say for instance Saskfor and lumber coming from the Gran de Prairie area? The reason why I'm asking this is we use a fair amount of lumber in the industry that I'm involved with. I was wondering why we didn't use more Manfor lumber. I saw that as only the odd ship­ ment that we get of Manfor lumber, and most of it is lumber from Grande Prairie and Saskfor. My general manager tells me the Manfor lumber is quite an infe­ rior qual ity, I believe that the price is the same as the 40 other, but it's inferior quality to the others.

In other words, if they don't use the Manfor lumber imme­ diately, it's going to twist and warp out of shape so that they cannot use it at all.

Whereas, the other lumber seems to not have that particular characteristic, at least not nearly as bad as what the Man for lumber has. Now, first of all, I would like to ask, are you kiln drying your lumber or why should we have this partic­ ular problem? MR. L. HALLGRIMSON: Well, I wouldn't accept those statements as being valid. Our lumber is kiln dried. I'm sure it's as good a quality as any other lumber in Western Canada and in Northern Canada particularly. As far as its inferiority or that it's inferior to, that I do not accept either. Everything I've heard is that it's fairly standard quality.

I don't think we have to take a back seat to anybody in that respect. lt 's a very competitive market. There's lumber that flows through Winnipeg from the coast and other pla­ ces. There's no way that we could just capture the whole local market. That is, as long as we're compe­ tive, we should get a fair share of it; I think we do. There's no way that we could necessarily insure that all lumber bought in Winnipeg came from Manfor. HON. W. PARASIUK: Maybe I could just add one point here and maybe ask for a bit of clarifica tion from Mr.

Hallgrimson, because I've had the same concerns that you've had, especially about seeing lumber from other provinces or other places in Manitoba. When I asked about this I was told that often some of the large operations, the large retailers or even some of the large wholesalers in a sense, look for a complete line of lumber. Even our saw logs -we don't offer the same wide line of lumber that other sawmills can offer, so it's difficult capturing the entire market when these people I guess want to protect their ability to get a wider line of p roduct.

I believe that is one of the constraint s that we in Manitoba operate under, largely because of the size of our logs. Is that correct? MR. L HALLGRI MSON: That's correct, Mr. Minister. Yes, that's quite true. We make certain sizes and then this doesn't necessarily represent the full spectrum of sizes that are required. MR . A. BROWN: I realize that, Mr. Hallgrimson and I know that you're not manufacturing plywood and there's all kinds of materials which you do not manu­ facture at Manfor.

I would like to be in a position though where I would like to tell my fellows in the industry that we're in and with all the studding that we are using it in our industry, I would like to use Man for lumber. I cannot do this unless my people are happy that the quality compares as well as what it does with Grande Prairie and with Saskfor . Now, my question to you is, have you ever done a comparison in your own way in trying to determine what the cause would be, because my fellows very definitely say that unless we process Manfor lumber immediately, as soon as it was taken out of the bundle, we can't use it;

whereas the other lumber doesn't have those charact eristics to the same extent. Now, some of the problem may be because the logs are thinner

Thur sday, 3 June, 1982 than what we'r e us ing over her e than certainly what they ar e in Gr ande Pr airie. That maybe would be one of the causes for the twisting and the warpi ng. I don't know. I would like you, if you could, to address you rselves to that particular pr oblem and see if the re is some­ thing that you can come up with wh ich would imp rove the quality of the lumbe r. MR. L. HALLGRIMSON: Well, if you would be pr e­ pared to give me the name of the individual, I' d be pleased to have our salespeople contact hi m and look into this matter .

As I say, we sell a lot of lumber and maybe not as much as we would like, but we certa inly sell a lot of lumbe r locally and there ar e ver y satisfied custome rs. But. it may be that your company or the company that you' re refe rring to or the yard received some lumber, and occasionally there ar e reasons for var iance, but I would suggest that the way that I would li ke to have handle this would be for ou r salespeople to speak to them. MR. A.

BROWN: Well, I'd be ve ry glad to give you the names of these people so that they could come out there and take a look at the pr oblems that they 're experiencing with this particu lar lumbe r. HON . W. PARASIUK: I just wanted to add, what I'll try and do fr ankly, and I can't give a definite date but certa inly I intend to do so this year, maybe in the winter or maybe next year, I think it would be of some value to give the member s an opportunity to go up and take a look at the complex out there.

I have ce rtainly found it ver y interesting fr om the perspective of the Minister and I think that the Legislatu re itself would find that interesting. I can reflect to a comment made by the Member for Vir den whe re he said that the Legislatu re should try and make the Cr own Corporations mor e accountable. What helps in that respect is better knowledge. I think that often what's useful is fir sthand knowledge. The kilns ar e there, they 'r e ver y moder n kilns.

I think it would be good to take a look at that and again, given pr essures of time and everything, I can't make a spe­ cific commitment as to date, but it certainly would be my intention that within a year that I'd li ke :o give Member s of the Legislature the opportunity of seeing that complex. MR. A. BROWN: Well, that ce rtainly would be appr e­ ciated, Mr . Cha irman. lt's one complex that I never have visited. I've never really been at the complex. I don't know what you r pr ocesses ar e over there and I certainly would enjoy going out there to see the complex. I have no mo re further quest ions.

I think that under the ci rcumstances Manfor is doing pr obably just about as well as it poss ibly could. We realize that sales are ver y slow in all ar eas. I have no mo re questions. MR. B. RANSOM: I just wanted to ask, Mr . Cha irman, what's this date of the collective bargaining agree­ ments, when do they terminat e, ba rgaining under way, etc.? 41 MR. L. HALLGRIMSON: Yes, our agreements ar e for two year s and we have a full year to go on our agreements. MR. B. RANSOM: Ar e the agreements with both unions, is the timing the same? MR. L.

HALLGRIMSON: The Pulp and Paper Division agreement with the CFU exp ires on the 30th of November, 1983 and the Woodlands and Lumbe r Di­ vision agreement expir es on the 31st of August, 1983. MR. DEPUTY CHAIRMAN: Any furthe r questions? MR. H. HARAPIAK: I move that we accept the entir e repo rt. MR. DEPUTY CHAIRMAN: Is that agreed? (Ag reed) HON. W.

PARASIUK: Befor e Comm ittee rise, I'd just li ke to inform the Commi ttee that we'll be meeting on Tuesday to co nsider the reports of MDC and Flye r's report just came out, we didn't have enough copies , I'll be tabling it tomorr ow in the Legislatu re so that member s will have a copy to look it over the weekend befo re we meet on Tuesday. MR. DEPUTY CHAIRMAN: Committee rise.