CPABC in Focus November/December 2014 | Page 13

BC has sustained a strong seafood industry as well, both commercially and in terms of aquaculture, despite a collapse in the Pacific salmon catches in the 1990s, which led to the closure of most of the province’s salmon canneries, and despite the government’s reduction of the fishing fleet in 2004. Activity in BC’s mining industry spans the province. Metal mining is concentrated in the Interior and Northwest BC. Coal mining takes place predominantly in the southeast (east Kootenays) and the northeast (Peace River Region). In the past few years, several major mining investments have been proposed, including the Blackwater Gold project in the Cariboo (with a capital cost of $1.5 billion) and the resumption of operations at the dormant Quintette coal mine near Tumbler Ridge (with a capital cost of $500 million).2 But a downturn in both gold and coal prices in 2013 has delayed capital investment decisions in some cases. Nevertheless, there continue to be many new proposals for metal and coal mines throughout BC. BC’s energy industry offers some of the largest provincial economic opportunities seen in a generation. By early 2014, over 12 liquid natural gas (LNG) and pipeline projects—all at different stages of environmental approval— had been proposed in Northeast and Northwest BC; however, none have received the go-ahead as of yet. Gas prices were low in 2013, but a cold winter in the US in early 2014 renewed demand for Canada’s natural gas, boosting prices; and gas prices are predicted to rise over the next year.3 Taking a longer-term view, the Asian market holds enormous export potential for BC and Alberta producers with the advent of pipelines and shipping facilities on the north coast (Kitimat and Prince Rupert). But this is an opportunity with a finite window—BC lags behind its American and Australian competitors in developing its gas reserves. In addition to its natural gas reserves, there are currently several hydro and wind-power projects either proposed or under way in BC, particularly in the northeast. By far, the largest project would be the $7.9 billion Site C Clean Energy Project, which consists of a third dam and hydroelectric generating station on the Peace River. Finally, we cannot exclude the benefits of the northern Alberta oil sands, which continue to generate a great deal of employment, earnings, and business revenue, not only in Alberta, but also in BC and throughout Canada. In the fall of 2012, a survey of oil sands producers demonstrated that there were at least 322 suppliers to the Canadian oil sands projects located in BC, most of which were located in the Lower Mainland.4 Provincial employment and income effects The employment and income effects of the resource sector extend far beyond the local community level. Resource companies often have offices in the Lower Mainland, where they generate more direct jobs. These companies may also hire workers from other parts of BC who choose to live temporarily in camps or hotel accommodation while they work on site, and spend their earnings elsewhere in the province. Resource companies also outsource to other industries, particularly in the service sector, and do not import a large share of their inputs. Moreover, many workers are employed indirectly throughout BC in businesses that serve the resource sector— primarily in finance, insurance, and real estate; professional, scientific, and technical services; transportation; business services; and the accommodation and food industries. Quintette project was deferred in April 2014. 2  D Bank Economics, “Finally Some Good News for Canadian Natural Gas Producers?” Observation, February 24, 2014. T 3 Canadian Association of Petroleum Producers, BC Suppliers to Canadian Oil Sands, fall 2012. 4 14.RTurnbullChartAd 14-10-03 11:06 AM Page 1 ODLU MB R OWN.CO M Disciplined Value Investing That Works Ross Turnbull, CA, CBV, CFA Vice President, Director, Portfolio Manager T 604 844 5363 or 1 888 886 3586 [email protected] Visit odlumbrown.com/rturnbull for more information. OB Model Portfolio vs S&P/TSX Total Return Index $8,000,000 OB Model Portfolio 15.9%* $4,000,000 S&P/TSX Total Return Index 9.3% $2,000,000 $1,000,000 $500,000 $250,000 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Compound annual returns are from inception December 15, 1994 to September 15, 2014. The Odlum Brown Model Portfolio was established by the Research Department in December 1994, with a hypothetical investment of $250,000. Trades are made using the closing price on the day a change is announced. These are gross figures before fees. Past performance is not indicative of future performance. Member-Canadian Investor Protection Fund. CPABC in Focus • Nov/Dec 2014  13