MR. CHAIRMAN: Good morning. I am going to call this morning's session of the Standing Committee on Economic Development to order. I welcome everybody here this morning. I specifically would like to welcome our witness, Mr. Stephen Drake who is President of District 26 of the United Mine Workers of America.
Recently the committee decided that it would like to gain some more information on Devco and the coal industry in Cape Breton and it was decided that we would have a series of at least three hearings and that we would like to hear from representatives of the United Mine Workers as well as representatives of the community and later representatives of Devco. So, we have three meetings scheduled and this is the first of the three.
Mr. Drake, I welcome you here today. I am going to turn the floor over to you and invite you to make a presentation. There will be questions following from the members of the committee.
MR. STEPHEN DRAKE: It is a pleasure to be here, thank you very much. I guess the first thing I would like to say is that I would like to commend the committee for actually digging deeper into this issue. It is a very important issue to not only Cape Breton but to Nova Scotia. The coal mining industry, as you know, puts approximately $1 billion per year into the economy of Nova Scotia. So, any job losses in the coal mining industry are basically a Nova Scotia problem.
As you know, in total over the past four months or so, we have had announcements of 658 job losses plus 57 job losses for a total of 715 job losses in the next five years in the coal mining industry. The reason I am here today is to impress upon the committee that many of these job losses are unnecessary. The basic, bottom line in the coal mining industry is that we have to reduce our cost per ton. If we can reduce our cost per ton effectively enough, we can be competitive on the export market and that is the key to this industry.
We have a domestic customer, Nova Scotia Power, that takes 50 per cent of our product. The other 50 per cent has been sold on the export market many times, as much as 1.8 million tons per year. The original plan by Devco was to reduce that to zero over a four year period and for the past four and one-half months to five months, we have been struggling against that and were successful in getting that tonnage increased to 700,000 tons per year over the next four years. We are suggesting that that tonnage should be further increased to the original 1.8 million tons per year. We should be able to maximize our production. If you maximize your production in the coal mining industry, you maximize your efficiency and you reduce your costs per ton.
I have a slide presentation here to show you today just to basically hit on that fact.
If you look at the chart here, you will see that the mineral production employment in Nova Scotia is 4,300 people total. Of that 4,300, the coal mining industry in 1994 was 2,300. At present we are 2,150 people, before the layoffs. It is a very important part of the economy of Nova Scotia.
In Cape Breton, we have approximately 2,000 direct jobs in the coal mining industry with Devco and conservatively in the economic climate that we have there with 20 per cent unemployment, we have 6,000 spin-off jobs connected to the Cape Breton Development Corporation and more than $200 million per year directly pumped into the economy. Now this is a conservative estimate. In the last six years it has hovered between $216 million and $266 million. So it definitely has a very heavy impact on the economy of Cape Breton Island. Last year, the Cape Breton Development Corporation did a series of economic reports and one of them was done by Mr. George Khattar, who was the Chairman of the Board of Devco at the time, and the numbers suggested that the total economic impact in Nova Scotia was, as I said earlier, $1 billion.
This is just a brief overview of what is going on in Canada in the coal mining industry. These corporations are private corporations in Western Canada: Teck, Fording, Luscar and Smoky River. If you look at any one of them, what they are doing is expanding their productivity, they are increasing the size of their industry. The reason they are doing that is because they can't keep up with market demand for export coal. That is in the Pacific Rim countries and also in Europe.
If you look at Devco, on the other hand, it has been well publicized for the past four months, that Devco is in the process of a cost reduction program for self-sufficiency and no new capital expenditure or expansion. What we are saying is that is a dreadful mistake. The markets are there, we have spent 15 years building an export market and Devco is slowly moving away from it, which will tie us to Nova Scotia Power as the sole customer.
Part of the reason, and you can see in the expansion, in Europe and the Pacific Rim countries, they are experiencing economic expansion right now and they are building coal-fired generating facilities. Billions of dollars are being spent in these countries right now and the reason is that the world reserve estimates of coal are approximately two and one-half times what you have with oil and natural gas. As the reserves for oil and natural gas are depleted, what you will see happening is the price will increase. For the next 15 years, according to the Coal Association of Canada, thermal coal - which is what we are selling - is expected to remain stable. They are not looking at a massive price increase but it is expected to remain stable, which is a good selling point.
On world thermal coal imports, the Coal Association of Canada has done a study and what they are suggesting is that by the year 2000, imports - exports for us - will increase by 100 million tons per year. By the year 2015, you are probably looking at another 100 million ton increase. That is part of the market that we want to be in on. All the Cape Breton Development Corporation needs is 2 million tons per year from this market, which is a very small portion.
Now, the Cape Breton Development Corporation, for the last 15 years, has been actively pursuing export customers. The reason they have been doing that, according to their annual reports for the past 15 years, is that: number one, you can't be tied to a single customer, it doesn't make good business sense; and number two, we have an excellent location for one of our main customers, which is the European market in this area right here. We are the closest port to the European market. Just recently, there has been an announcement that France, which is a customer that we have sold to - all these are customers that we have sold to in the past 15 years - by the year 2005 will be totally out of the coal producing part of the industry, they will be importing exclusively. By the way, these customers have all been very satisfied with the product that we sell. They have been very satisfied with the fact that we have a stable workforce here and every time they come to Cape Breton, they know they are going to get the tonnages that were promised, 50,000 tons or whatever the case might be.
If you get beyond many of the numbers we have seen in the newspapers - there has been a lot of media coverage on what is going on with Devco - if you get beyond all of the numbers that have been put forward, the challenge facing Devco employees is right here: you have to reduce your cost per ton. Our cost per ton is - I won't say excessive - it is high due to the fact that we operate in a submarine mining condition. It is different than operating in the United States where you go into the side of a mountain and each time your travel time gets too far, you just bore another tunnel and you drop your man right down at the coal-producing face. It is a very simple procedure. Submarine mining is different from strip mining and it is something that we have to deal with. However, we have sold every ton of coal that we have produced in 300 years; there is never any coal hanging around down in Cape Breton that we haven't sold.
To do this, what we have suggested as employees, and I don't need to go through this, this is something that has been well publicized, the cost of Joe Shannon's plan and the Boyd Study. The average service time for the UMWA employees who mine the coal at Cape Breton Development Corporation is somewhere around 23 years. Some of our people have 42 years experience in the mines, and I would say that makes them experts. What you see before you is a cost reduction program that can dramatically reduce our costs per ton, and that is the key. Once you get beyond everything else, the key is to reduce your costs per ton, mine effectively and efficiently to be competitive.
A current buzzword in the mining industry is the utilization of coal-bed methane. Whether you want to sell it to a direct market or you want to use it for yourself to reduce your costs, at present Devco pays approximately $8 million a year in electricity costs. We have coal-bed methane there; it is naturally produced as a by-product when you mine coal. There was an agreement with the province in 1988 to utilize that methane and Devco hasn't been doing it. It is an effective way of reducing our cost per ton. There was a project in 1992, Nova Scotia Coal Gas Venture I believe was the name of the organization, a Mr. John Hopkinson, and somehow that project got put on the sidelines.
Standardization of equipment is another project that we have asked Devco, on several occasions, to look into. Standardization of equipment is a big thing at the Cape Breton Development Corporation. We have bought 15 different types of mining equipment, cutting equipment, from 15 different countries, and when we operate them in our mines we have to stock 15 different types of parts. We have warehouses full of spare parts. To standardize those things is something that Toyota, Honda, Ford - Ford is projecting over the next 10 years that they can save $11 billion by standardizing their equipment; something as simple as instead of using 15 different cigarette lighters, they use one now. It is not rocket science, it is basic math.
Energy efficiency audit. This is something that the Cape Breton Development Corporation has suggested they will utilize. There was a company in Halifax, I don't know if they are here now, it is called Global Energy. They suggested that you could save approximately 50 per cent of your energy costs by doing an energy efficiency audit. Mr. Dingwall, in January 1996, announced that there were 50,000 government offices looking at the same idea.
Purchasing. Devco historically has been an easy mark. They have bought a lot of things that were very questionable, the reasons they bought them were questionable, and the success of these pieces of equipment has been documented. The success rate and production rate has been very poor.
Employee empowerment. This is probably the key item. The Cape Breton Development Corporation has attempted this on several occasions; it has been documented historically. There has been a very poor relationship between the unions - the employees - and management at the Cape Breton Development Corporation, for whatever the reasons. What we are suggesting is that if it is going to work, it has to work as a team; it has to be a team project. What we are also suggesting is that if the Cape Breton Development Corporation is serious about this, the employees are ready to go and attempt this. Basically, it has to be a process where you take small steps before you can run. The last three times they put in a major project, it hasn't worked for whatever the reasons might be.
The Cape Breton Development Corporation and CANMET also, every one of these things are aimed at reducing costs. The Cape Breton Development Corporation and CANMET, Smoky River Coal was one of the Western Canadian mining companies that I mentioned earlier and Smoky River Coal is utilizing technology that we developed at the Cape Breton Development Corporation. They are buying it from CANMET. Now that is technology that was developed by the Cape Breton Development Corporation employees. There is no reason in the world that we couldn't do things like the John T. Boyd Study just did. We have the experts to do things like that and John T. Boyd was from the United States and they were paid $500,000. This is another option to cut costs within Devco.
As I mentioned earlier, the key to this industry, we feel, is not to move away from the export market, it is to reduce your cost per ton and stay in the export market. We spent $15 million three years ago on expanding our export facility and we think we should expand our export market. In four and one-half years' time, we are going to be negotiating another contract with Nova Scotia Power and there is no doubt, at that time Nova Scotia Power is probably going to look for a price reduction. Once again, we cannot be tied to a monopoly with Nova Scotia Power. This industry cannot survive that way.
Expanding the export market, Devco, last year, George Khattar, the Chairman of the Board of Directors for Devco, the UMWA and the Boyd Study all said the same thing, expand the export market. The only people who were trying to get away from the export market were present Devco management and we think it is huge mistake.
Devco and the Boyd option for Phalen Colliery to increase the tonnages, we agreed with that. There was a new engineering proposal for Prince Mine. It is a change of direction of mining for Prince Colliery and it is a north/south plan and Devco is doing another study on it. It is going to cost $300,000. We think that is a mistake. This project has been studied by Devco engineering people and we think this project can work. We are mining people, 30 years experience, you have 15 or 20 guys working on a wall face. They say this will work. In conjunction with Devco's engineers, we say, why spend $300,000 for another study?
The Victoria Junction wash plant, the facility was put there to meet Nova Scotia Power's specifications. That is what it was put there for and it is not being utilized. We are selling raw coal to Nova Scotia Power and we think that is a major mistake also. If we can sell raw coal to Nova Scotia Power, we should be able to go right back and sell the washed, blended product to Nova Scotia Power and sell our other coal overseas. That gives us twice as much coal to sell, from 2.2 million tons that Mr. Shannon projected several months back, to approximately 4 million tons is what we are projecting. We think we should be able to do that. We have done it in the past and we have proven that we can sell the product.
This was part of our proposal to save jobs and that is basically what it was based on. They were going to cut 781 jobs and we said, if you are looking for money, we can find money for you. Besides the employee cost reduction proposals, we can be very flexible in our negotiations, if it is tied to saving jobs. Basically, the federal government and the Cape Breton Development Corporation announced that 715 jobs were gone. Maybe they were not interested in this.
What we are looking at is 230 production days right now. If you schedule vacation as production days, that is an increase of 20 production days. With the tonnages at Phalen Colliery and Prince Colliery over a five year period, those extra 20 days at present tonnage rates, $57 or $58 per ton, you are looking at $51 million over a period of five years, the five year plan.
As I mentioned earlier, one of the problems with working in a submarine coal mine is that when you leave the surface, by the time you get to your workplace, it is approximately an hour. So to get to the surface on time, you have to leave an hour early. That means the piece of equipment that you are working on, you are operating, has down time of two hours per shift. That is money. That is increasing your cost per ton. To get away from that, all you have to do is simply do something called a hot seat roster change. If a person goes down on the morning shift at 7:00 a.m., he gets to the surface at 3:00 p.m. Someone on the surface takes that rake, the trip, down to the mine site, gets to the face an hour and one-half after those people left, the original shift. What you would do, instead of leaving the surface at 3:00 p.m., you schedule a rake, a drive, underground, at 1:00 p.m. So the guy who is leaving down at the machine is leaving down below at 2:00 p.m. to get to the surface - I hope you are following this - at 3:00 p.m. This guy on the surface leaves at 1:00 p.m. to get there at 2:00 p.m.
So the person who is coming off the machine - he has a remote control, that is how these machines are operated, the pick and shovel are long gone - takes the remote control and the machine is still hot. That is why they call it a hot seat change. So instantly you start producing coal again. The time that you are wasting isn't wasted any longer. So you are going
to get approximately - we figured this out - 22 per cent increase in face time. So it goes from 108 hours to 132 hours and if you figure it out with all the tonnages - Devco has estimated these numbers - if you figure it out over a five year period, it is approximately $175 million and you can give or take $5 million or $10 million there. Over a five year period, this one simple change is a lot of money. We brought this forward to Devco's engineering people. Bob Cooper was the Vice-President of Engineering and the General Manager at Phalen Colliery and Mr. Cooper agreed, in general, with these numbers. He did not argue with them. As I have said, they are connected to saving jobs in this industry which I think should be the key.
Mr. Shannon had us designated for 2.2 million or 2.3 million tons of coal in his original plan which Mr. Shannon and Mr. Dingwall suggested was the best option for the Cape Breton Development Corporation. We argued against that point, basically on two perspectives. One, if you have a fixed cost in a business and your fixed cost - we will call it the general mining building, and this is an accurate number - just say your total fixed cost for the business is $1.2 million per year. If you produce 1.2 million tons - here is your tonnage - and your fixed cost is $1.2 million, each ton costs you $1.00. If you do one thing, increase your tonnage with the same fixed cost, if you double your tonnage up to 2.4 million tons, you reduce your cost to 50 cents per ton. If you double it again to 4.8 million tons, you reduce your cost to 25 cents per ton.
That is what we are suggesting should be done. It is called the economies of scale and that is what the Cape Breton Development Corporation put forward in their proposals last year under George Khattar and Ernie Boutilier when we were fighting Nova Scotia Power. If you will remember, they said we have to mine more effectively in the mining industry, therefore we have to produce more tonnage with the same fixed cost. So, your cost per unit, basically -whether it is apples or oranges, it doesn't matter - the more you produce with the same fixed cost, your cost per unit is lowered.
At the same time, on the revenue side over here, if you produce 1.2 million tons and the average is $57 per ton - and that is an accurate number - you are somewhere around $68 million, that is your revenue. If you double that once again to 2.4 million tons, you are at $136 million. If you double it again to 4.8 million tons, you are at $270 million. Now, what we are suggesting is the side of the graph that we should be on is where your cost per unit is low and your revenue is high. That means you have a successful business. If you go to the other side, your cost per unit is high, your revenues are low, you cannot pay for your business. This is the area that Mr. Shannon's proposal is putting us in and it is cutting jobs. We say that is wrong.
This is an example of the original proposal that Mr. Shannon put forward. If you look at the first part of the graph, right here, it is $53.52 per ton for, what Mr. Shannon said, was maximum that we could produce and this is Prince Mine on a part-time operation, 2.29 million tons per year. So, if you are running a business, this whole fixed cost right here is $122.7 million. This $53.52 per ton, at this tonnage, pays the whole fixed cost of $122.7 million.
[10:30 a.m.]
If you go to the next one, and assuming - this is Boyd's number - 3.07 million tons per year, Boyd said that is what we should be or could be producing at the Cape Breton Development Corporation, one of his projections, if this fixed cost can pay for this portion of it, it works the same way all the way across. You still have the same fixed cost. Now, if Boyd is going to produce 3.07 million tons - these numbers are in the handouts that were
given out - per year, there is a contingency here of 777,000 tons of coal extra. Now, this portion here, it pays your fixed cost of $122 million; this portion here, the tonnage you produce, you produce that extra 777,000 tons for $43 per ton. So $43 a ton is an excellent rate and we can make money on that. All that is is simply producing more coal, nothing else, changing nothing else, none of the other proposals that we put forward.
This one is basically the same, we are suggesting that this corporation has proven itself and we can produce 4 million tons of coal a year; 3.8 million tons, same fixed cost, our revenues basically to this point cover all your costs. The remainder of this, which is 1.5 million tons, we can produce at $41 per ton. If you take this $41 per ton and plug in the employee proposals and seriously look at them, we are suggesting that you can bring your cost per ton down somewhere around $36 and we can be competitive on the export market. That is as accurate a figure as we can get.
We have had great difficulty getting any financial data from the corporation to prove the numbers that they have given to the media, that they have given to Ottawa, we can't get any financial data. We have been stonewalled on that issue. That is very problematic and it certainly raises some suspicions. We have had a person in Washington in our home office, an accountant, who was ready, willing and able, plane ticket was ready to come down here, and do research on Devco's books and on Devco's numbers and we couldn't get permission from anyone. So what we are saying is, the bottom line of all of this, is that we can reduce our cost per ton effectively enough to be competitive on the export market.
There are two groups involved in this project with the Cape Breton Development Corporation, that is the management people and the employees. If you look at this chart, in the past 10 years - this only goes to 1994 - we had 4,300 people, approximately, in 1984; in 1994 we had approximately 2,200 or 2,300 people, being reduced to 1,400 people all told. If you look at the tonnage at the same time as the employees levels were being reduced, the tonnages were going up. In 1992, at a level of 2,554 employees, we produced 4.2 million tons of coal. That is where we want to be. That is our suggestion as employees and as experts, that we want to be in this range somewhere here to produce around 4 million tons of coal per year. Coincidentally, that tonnage was produced with 2,500 employees. So we are saying that Devco is making a mistake by reducing the level of employees and subsequently, reducing the level of tonnage.
The last chart. This is one of the reasons, I guess, that we are doing this here today. What you have here is what we feel is the future of coal mining in Cape Breton. For the last two and one-half years, we have pushed the Donkin Mine. Basically, the employees of the Cape Breton Development Corporation are willing to do just about anything to ascertain that the Donkin Mine will be developed. You have a lot of controversy about the Donkin Mine, the coal quality, marketability, washability and everything else. The numbers suggest that what you have at Donkin is a huge reserve, it is a highly washable product, the sulphur content in the Donkin Mine coal, the centre portion - and I will explain that in a second - is somewhere around 2 per cent or 1.9 per cent and that is according to CANMET in a study that was done on coal that was extracted right from the seam; when we mined the Donkin Mine, that coal came right from the seam. So what you have is a quality product and a market, as I showed earlier, in European countries.
If you look at the portion of the pie chart where it says, Remaining 278, that is 278 million tons of coal and that coal is Pictou County, Westville, Springhill and upper Nova Scotia. This portion right here is the Other Sydney. What that means is that what we have been mining in the Sydney coalfields for the past 300 years is approximately 850 million tons of
coal. If you look at this portion here, the remaining portion is 1.5 billion to 2 billion, the estimates vary. This is the Donkin block. There is more coal in Donkin right now, and there are three mineable seams there, than what we have been mining in Nova Scotia in total for the past 300 years. That is why Donkin is so important and that is why we have been pushing Donkin for the past two and one-half years.
We feel that that is a resource that belongs to Nova Scotians, it belongs to Canadians and Canadians should benefit from that. By benefitting from that, that means keeping Canadians working. If this industry is privatized, and we feel that part of what is happening right now is pushing towards the privatization of the Cape Breton Development Corporation, we don't want private coal, we have had private coal in Nova Scotia before, we don't need it, we know what happens. We think this resource is ours and this is part of what I am here today for. The Donkin Mine is the future of mining in Nova Scotia and we think it should be for Nova Scotians' benefit. Thank you, if there are any questions, I will try my best.
MR. CHAIRMAN: Thank you very much. I will now entertain questions from members of the committee.
MR. MANNING MACDONALD: Steve, thank you very much for the presentation. I have heard parts of the presentation before, as you and I have met a few times regarding the problems the coal industry has been facing and is continuing to face. I think you have presented what you feel and in the most part, quite rightly so, that the industry has a future in Cape Breton. I have a couple of questions but first I agree 100 per cent about your philosophy about the customer problem in Cape Breton. I am pleased to hear that we are now going to stay in the international market. As you know, I was totally against the one-customer philosophy that was expounded for the future of Devco because I felt that if we were prisoner to Nova Scotia Power as a one-customer facility, then that would be the beginning of the end for the coal industry. So I am happy that you won that day and that we are going to stay in the international market. I think it can be viable in the international market, if some of the things take place as you have been alluding to here today.
I think you are absolutely right that we have to get the cost per ton down in the corporation and also the price per ton in order for us to compete on the international market, has to be competitive as you are well aware. What would you consider to be the first step in trying to get a marketing strategy in the international market so that we can sell our product over there competitively and make a dollar doing it? That's the first question.
The second one, the expansion of that market - I will tie the two of them together -how do you feel we can get into the expansion of that market successfully?
MR. DRAKE: The first part of the strategy, I suppose, is staying in the export market. As you know, the Boyd Study suggested that if we get out of the export market now, it is going to be very difficult to get back in. Devco hasn't got a boat scheduled for the next 12 months. We think that is wrong. They are going to be moving away from the export market and then next year they are going to try to get back into the export market? They should be aggressively pursuing customers right now. We have a person with the Cape Breton Development Corporation right now, his name is Tom Fleming, he is in charge of export sales and Tom Fleming should be overseas right now, looking for markets. We have approximately 400,000 tons of coal on the ground right now, Devco says that that is for Nova Scotia Power in case of an emergency. We are in an emergency situation right now with cash. We have people who are not working on the surface operations. We think that if Devco aggressively
started to market right now, that would be one of the key strategies to stay in the export market.
To expand the export market, we have had great success in European countries and European countries, right now, are expanding their imports. What I am suggesting is that, I believe in the next 10 years the European market alone will go from 84 million tons to somewhere around 130 million tons. Devco only needs to sell 2 million tons of coal on that market. Those people have been very satisfied with our product. They like coming to Cape Breton; we are close, we have modern facilities, we have a very stable, expert workforce, very little political instability here and they know they are going to get the coal when they come here. It has been proven in the past.
To expand the market, we don't need to expand the market. What we have to do is keep the market that we have and keep grooming those customers. If we sell them 50,000 tons this year, there is no reason why we can't sell the same customer 150,000 tons next year.
MR. MANNING MACDONALD: One final question from me. Your hot seat roster proposal seems to make sense. Why is it a hard sell?
MR. DRAKE: It isn't a hard sell. The hot seat roster change is common sense; they use it all over the world. Our people, three months ago, were very willing to make whatever changes were necessary to basically reduce our cost per ton, as I said. The hot seat change is a major benefactor to this corporation, as you saw, $175 million over five years. I could never understand why the Cape Breton Development Corporation didn't do that years ago, it is only a common sense switch. If we are travelling two hours per shift, then we are wasting time, the machine availability time is minus two hours every shift, that is money. To run a business that way, I don't understand it. I guess, basically, it is a lack of accountability.
Right now, the problem that we have is that these things were all - I can't call them concessions in contractual negotiations - but what we did say to Devco, and publicly, we said that what we would be doing is negotiating with an unprecedented degree of flexibility in the next contract talks to save jobs in the Cape Breton Development Corporation. When we did that, we thought the federal government would take us very seriously, that we were very serious in becoming a part of the solution. We don't want to be seen as a part of the problem in the Cape Breton Development Corporation; we want to work in Cape Breton, we want to work in Nova Scotia. However, what we were aiming for - and any kind of negotiation is a trade-off - they pulled the rug out from underneath us; they cut 715 jobs.
Like I said, Mr. Shannon put the hot seat roster in his proposal. There are no employee solutions that are in Mr. Shannon's present five year proposal that are aimed at reducing costs or increasing revenues. They are put there as a maybe. We asked Mr. Shannon that question, Devco's financial projections for the next five years don't include any monetary advantages from employee solutions, so it is a negotiable process and that is what we will be doing; we will be negotiating. If we are going to give something, we would certainly like to get something, and I think what people in Cape Breton want is a little bit of job security in an industry that belongs to the people of Canada. That is not too much to ask for.
MR. CHAIRMAN: Robert Chisholm and then Russell MacNeil next.
MR. ROBERT CHISHOLM: Steve, excuse me for being late; I was on the local version of Talkback for the last hour listening to people all over Nova Scotia talking about how much they didn't like the BST. Anyway, sorry for being late.
I guess what I wanted to ask you is, you made a presentation of the proposal to develop Donkin here in the Legislature, downstairs, to the Premier some time ago. What has come out of that?
MR. DRAKE: I don't know, I am at a loss for words.
MR. CHISHOLM: I don't believe that. (Laughter)
MR. DRAKE: We asked the Premier for several things. One was, Donkin was a part of our full proposal and, basically, we couldn't get any numbers. As I said, the financial data for Cape Breton Development Corporation is locked up in the general mining building with the Caramilk secret down there, I suppose, and we can't get any of that information. So what we asked, at that time, was for the Premier to take our whole proposal, including Donkin, and fund a study to basically ascertain that these numbers would actually work. The reason we asked the province to do that was, I would suggest, that it was our feeling that they would have more success in getting the financial data from the Cape Breton Development Corporation. The Premier of the province and the government can put a lot more pressure on Devco than the UMWA possibly could.
That was the whole issue. We spoke to some engineering people and the study was probably going to be somewhere between $70,000 and $90,000 - somewhere in that vicinity -and it would have given more weight to our proposals, only because we couldn't get the financial data. If we could have gotten the financial data, we probably could have got more justification for our numbers. But up until today, basically what the Premier has been saying is that he is waiting until the federal government makes its decisions. It is too late now - well, I hope it is not too late, but the federal government has made a major decision - they have downsized this industry to the tune of 715 people and we say that is a mistake and we suggest that the provincial government could have been a little more forceful, I guess. They are partners, they own the resources and the jobs are in Nova Scotia.
MR. CHISHOLM: When you then went to Ottawa to make your representations to the federal government, to the ministers responsible - our friend here, the member for Cape Breton South, went with you - I am wondering what kind of support, in terms of verbal communication or letters of support, or whatever, did you get from the Government of Nova Scotia, in support of your position that you took to Ottawa?
MR. DRAKE: I have to be very honest. Mr. Manning MacDonald was very helpful when he was there, and it was great to have him with us, but as far as verbal support from the Premier or anyone else, or anything written, there is nothing in my office.
MR. CHISHOLM: We had a presentation a while ago from the Department of Natural Resources about the situation with respect to the coal industry and I guess what I am wondering is - and maybe I should wrap up with this question and pass it on to someone else for now - what I want to know, what I am trying to figure out is what involvement has the province had in either assisting you and the employees of Devco in putting together its package, in putting together its proposals, what role have they played in terms of supporting or, otherwise, being in communication with you on your proposals and, number three, has there been any representation, on your behalf and on behalf of your proposals, by the province to the federal government, that you are aware of?
MR. DRAKE: I guess I am on the spot here. We are looking for the help of the provincial government, but if I have to be honest - and I will be honest - Manning was very helpful, as I said, but other than that, representation has been very minimal, which is unfortunate. We came to the Premier asking him for his assistance, with all good intentions, in saving jobs in Nova Scotia and the representation was very minimal.
MR. CHISHOLM: Even in terms of technical support?
MR. DRAKE: In terms of technical support, it was zero. We didn't get any. I don't think anybody could argue that point.
MR. CHAIRMAN: Russell MacNeil next, followed by Lila O'Connor.
MR. RUSSELL MACNEIL: Thank you, Steve, an excellent presentation. Did I hear you say that the present cost per ton was approximately $57 per ton?
MR. DRAKE: That is the selling price of our coal; that is an average between Nova Scotia Power's price and the export price for thermal coal. It is a basic average and before we put these numbers forward to Devco, we checked them personally with Mr. Bob Cooper, who was the General Manager at Phalen Colliery, and also the Vice-President of Engineering for Devco. So it is an accurate number, about $57, and it fluctuates. It is a market, it fluctuates.
MR. MACNEIL: What is the average price of coal on the export market?
MR. DRAKE: I checked this last week, as a matter of fact, because I knew someone was going to ask that question today. It has been very difficult to get those numbers from the Cape Breton Development Corporation, but for the past six months we put a lot of pressure on them and we have been getting the numbers. Right now, thermal coal, which is one of our main products, is about $41 per ton on the export market, and if we sold metallurgical coal it would be somewhere around $51 per ton on the export market. We do produce some metallurgical coal and the price for Nova Scotia Power, from my understanding, is about $65 per ton.
MR. MACNEIL: That is $65 per ton on the export market?
MR. DRAKE: No, that is for Nova Scotia Power. The export market is $41 and $51, and as with any other spot market, it depends on what is going on in the market place at the time, supply and demand, it will fluctuate. But right now it is between $41 and $51; that is, thermal coal is $41, and metallurgical coal is approximately $51.
MR. MACNEIL: In your presentation you mentioned the possibility of producing at about $36 per ton. How long is that going to take, Steve?
MR. DRAKE: Well, what you have to understand is, the second last chart that I showed with the fixed cost and the graphs for the cost per ton, they are numbers, I suppose -and it is in the handout - that the Cape Breton Development Corporation originated. We have never been able to check their numbers because it has been very secretive. So we are basing our numbers on what they gave us.
The reduction in the cost per ton is totally dependent on what the Cape Breton Development Corporation is willing to do. If they are serious about this, we think they can reduce their cost per ton effectively enough to be competitive on the export market, which
is the key. We already have our key customer, Nova Scotia Power, and a guaranteed price for five years and the rest of our 33 year agreement. What we have to do is to get our cost per ton down. That depends on what Devco is willing to do. If they are willing to implement every single employee proposal that we have put forward - and these are only the tip of the iceberg - we are suggesting that we can be competitive.
The $41 per ton that you saw there, the last portion that we mentioned in the 1.5 million tons that the UMWA projected above Devco's original numbers, that $41 is just for that 1.5 million tons. Overall it is a bit higher, and you also have those numbers in your handout. So what you are looking at is marginal costs for the top portion of it. So, overall, we would probably have to get our cost per ton down to somewhere around $36 or $37, and once again it is dependent on what the Cape Breton Development Corporation is willing to do.
We have had our cost per ton down that low at the Prince Colliery, according to Mr. Freddie Howard; he is the General Manager at Prince Colliery. So it is not something that we haven't done and it is not something if we work together as a group, as a team - and that includes the province and that includes the federal government. This is a very important issue, I can't stress that enough; we need teamwork here - and I feel that we can reduce our cost per ton effectively to be competitive on the export market. That is the key to Devco and that is the key to Donkin.
MR. MACNEIL: The fixed costs that you mentioned, Steve, does that take in all of the pensions and the compensation and all of the other things?
MR. DRAKE: That is a question that you will have to ask Mr. Joe Shannon, because Mr. Joe Shannon put those fixed costs in his report and they are numbers that we can't verify. You will have to ask Mr. Shannon that.
MR. MACNEIL: So when you say the fixed costs will remain the same, if they remain the same, and the cost of production comes down, then we can . . .
MR. DRAKE: If you look at the handout, what it says in the handout - I don't know what page it is on, but just for verification - this is an example, for illustrative purposes only, and the numbers can't be verified, basically because they are Devco's numbers. We know the cost per ton; we don't know our fixed cost, because it is something that Devco says, no, we won't give you the financial data to prove that our numbers are accurate. So those questions would probably be better saved for Mr. Shannon.
MR. MACNEIL: Last question so that somebody else can get it. Could you explain, Steve, what happened to the methane procedure that started and then stopped? What was the problem?
MR. DRAKE: The agreement by the province in 1988 said that Devco had, I believe, five years to start utilizing the methane gas. There was a study done way back in 1984, I believe, where it suggested that the methane gas coming out of Lingan Colliery, alone, could heat a town the size of New Waterford, which at that time was about 8,000 people. So the federal government did a project at Lingan Colliery and put a methane extraction plant there, and they had potential customers.
The technology - I think it was the first one in North America - was developed at the Cape Breton Development Corporation by the federal government and Devco employees - us -and as soon as the technology was developed the technology went elsewhere and the methane
went up into the atmosphere. They didn't utilize the methane from day one after we developed the technology. I don't know why that happened, I think it was a major mistake.
MR. MACNEIL: Was it a private company in there?
MR. DRAKE: There were private contractors, yes, but it was Devco running the operation. All they had to do was cap that and either sell it straight or even use it to heat our own plants or something like that, it would reduce the cost per ton. Then in 1988, when the province came with the agreement, there was a project put forward by a man named John Hopkinson and I believe they are pursuing legal avenues right now. Lingan Colliery was the key to this, it was Lingan and Phalen Collieries. As you know, a mine doesn't produce methane gas when it is flooded and Lingan Colliery was flooded and the circumstances surrounding that have also been very secretive. There is a good story there if someone really wanted to dig into why Lingan Colliery flooded. But once it did flood, the project was scrapped by Mr. Ernie Boutilier, at the time. Like I said, there are legal proceedings going on right now with that issue.
Also, at the Donkin Mine, several years back, the same person, John Hopkinson, did a study on the Donkin Mine and the availability of methane gas at Donkin to keep the tunnels open. He and his engineering people suggested that they could start an experimental methane project over there and do an experimental gas hole to see if the methane was sufficient enough to either sell directly or to a small power production project or something like that. Incidentally, the methane project at Lingan that Mr. Hopkinson was involved in, he had a contract signed with Nova Scotia Power for a small power producing project, I think it was 4 megawatts and Devco stood to make approximately $20 million over a 20 year period in royalties on the gas. So it is a very lucrative project. Nova Scotia Power is doing it right now in the Cumberland gas fields. They are doing it all over the world, I watched a story with Eric Malling the other night and they are doing it in New Zealand with garbage. They are doing it everywhere and we can't do it? It will reduce your cost per ton and it is a viable option.
MRS. LILA O'CONNOR: I found the presentation very interesting. I would like to ask a few questions. Out West in the coal operations, I heard you mention Smoky River Coal in Alberta, is that owned by the province, the federal government or is that private?
MR. DRAKE: Every one of the other coal mining companies were private. Smoky River Coal is a private organization.
MRS. O'CONNOR: Apparently, they haven't got the debt that Devco has so that is why they are able to be so successful and come out ahead?
MR. DRAKE: I wouldn't say that, no. I would say that even with Devco's unfunded liability, the pension debt and the environmental debt, if you remember a few weeks back, Mr. Steve Farrell put together a package - and Steve Farrell is a mining engineer with a very high reputation in Cape Breton in the mining industry - completely engineered that showed that the Cape Breton Development Corporation would be making money in five years' time, even with the massive debt that they have right now.
What I would suggest is that what has been done in the Cape Breton Development Corporation right now as far as financial data and the number crunching and everything else goes, I think that was scratching the surface. I think that there should be a full investigation into exactly what Devco did in these numbers. I don't believe any of the numbers. There are a lot of people around that don't believe any of these numbers also. No one has held these
people accountable. They have locked the doors over there, the financial doors are locked. So on that question, I would suggest that Devco can be a profitable organization, even with the debt that they have from the liabilities.
MRS. O'CONNOR: On the 2,000 direct jobs, how many are miners and how many administration staff?
MR. DRAKE: That's a good question, I hope I have a good answer. You have approximately 1,500 coal miners, who are actual employees that are mining coal and the rest is support staff, if you could call them that, and that is not derogatory . . .
MRS. O'CONNOR: No, no.
MR. DRAKE: Many of these people are key to the industry as supervisors, underground managers, engineering people, secretaries, financial people at the general mining building, so it is basically 2 to 1. We did some research on that and most mining industries, it is 5 to 1. So Devco's overhead in administrative services is almost triple what it is in any other competitive mining industry like Smoky River Coal. We went to Luscar two years ago, and Luscar is one of the mining industries that I mentioned in the charts, they were very surprised to hear that Devco had 700 people above and beyond the actual miners that were mining the coal. They were very surprised. We asked what their numbers were and there numbers were 5 to 1, five coal miners to one support person. So, Devco is very high.
[11:00 a.m.]
I have to make something very clear here. We have been pushing two items, reduce our cost per ton and maintain 2,200 people in this industry. This is something that is owned by the taxpayers of Canada. If it doesn't have to cost the taxpayers any money and we can make a profit or break even, there is no reason why 2,200 people can't support their families through the Cape Breton Development Corporation. So we are not suggesting that anyone should lose their jobs. We have made that perfectly clear from day one. This isn't just a UMWA thing, this is a working Nova Scotian thing.
MRS. O'CONNOR: I support that, I don't want to see anyone lose their job either. I understand that the federal government is not willing at this time for Donkin Mine to go forward. Yet, Devco has taken out a 20 year lease on the Donkin Mine. You sort of contradicted yourself, at the very end you said, you don't want to see coal mining privatized, you want to see it stay federal but yet you are using Smoky River Coal as an example of a coal mine, which is private. What do you have against a private industry coming in and taking over the Donkin Mine and getting it going so that you people, the miners, can work?
MR. DRAKE: Number one, that wasn't a contradiction. I would like to straighten that out. I didn't contradict myself. There are no other Crown Corporations mining coal in Canada that we could compare ourselves to.
MRS. O'CONNOR: No, but you are asking that this industry not be privatized and yet you are using a private industry as an example.
MR. DRAKE: The reason I used the private industries as an example is to show what the private industries are doing. Private industries are expanding their export markets, so if they are expanding their export markets to make more profits, why can't a Crown Corporation
expand their export markets to make more profits, also. That is why the private industries were used as an example.
On the second part of the question, the 20 year lease, we have asked questions on the 20 year lease for Devco on the Donkin reserve and, basically, the Sydney coalfields, and we haven't gotten an answer back yet as to whether or not that lease has been re-agreed upon.
On private coal; private coal created Westray, that's one thing. Private coal has a long history of high fatality rates, high accident rates, absentee ownership and everything else that you could put along with private coal. We have had the private coal here in Nova Scotia and it didn't work very well. I think that one of the key things that anybody can learn from is their history, and the history in the coal mining industry has been very tumultuous with private coal. If we can stay away from private coal, at no cost to the taxpayers, I say, Hear! Hear! Let's go for it.
MRS. O'CONNOR: All right but if the taxpayer at this time doesn't have the funding to go forward with the Donkin Mine - in Smoky River Coal, what's the history on that? Has there been a history of accidents out there? We all understand Westray and we certainly don't want to ever see that happen again, but that could have happened even if it had been owned by the federal government. I don't want to see that happen again and I don't want to expand on that. But I would like to see why you are not promoting - private industry can be run just as successfully and safely as any other industry as it does in other businesses besides coal. If it does its job, it will happen. I am surprised that if the coal is out there and it will get people working, why is your union not supporting trying to find that to happen if the federal government is not able to do it at this time?
MR. DRAKE: Pardon me, the Westray situation, private coal operators don't operate coal mines like the federal government. The federal government has strict and stringent regulations that we follow. That is why we have the safest coal mines in the world in Cape Breton, under federal ownership. That's the first thing.
The second thing is that safety costs a whole lot of money. Safety adds to your cost per ton dramatically and private coal operators, historically, have not paid that type of attention to safety issues and Westray is a prime example but in China, in private coal mining industries, 10,000 coal miners die every single year. In the United States, there were 41 fatalities last year in privately owned corporations. Now those industries, where the 41 fatalities were, were mines that the UMWA has jurisdiction over and the UMWA has very well trained safety people and if they cannot keep the fatality rate at zero in these private mines, I don't think we are going to do it in Cape Breton either.
One of the reasons that during the last four years our fatality rate has been zero is because we are federally mandated. We are not under provincial jurisdiction, we are not run by a private operator and I say, once again, and I will stress it, if this industry can work, and I believe it can, under Crown ownership without a cost to the taxpayer, and I certainly believe it can and some of these numbers will justify that, I suggest that we should keep it as a Crown Corporation and maintain the level of safety that we have. We don't need another Westray and we don't need private owners who live somewhere else and take their money out of this province.
MRS. O'CONNOR: I will agree with what you are saying on that.
MR. DRAKE: Thank you.
MRS. O'CONNOR: How far do you think the government can keep putting money into it without it starting to make a profit? Sooner or later, the company has to make a profit and it is not going to happen overnight. I am not an economist but these figures, to me, you haven't convinced me that your figures are right and I am not convinced that the other figures are right either.
MR. DRAKE: That is good.
MRS. O'CONNOR: I don't know where the answer is but I do feel that there has to be some cutback. It is great to say, let's save 2,200 jobs but I am not sure, at this point, you can save 2,200 jobs. Maybe you need to get the people there, 700 people, working and then gradually you will get the 2,200 people back. I realize it is your place to have everyone working who belongs to your union but I think you also need, at this time, to start fighting, let's get going and maybe in three years or four years we will work back and get the jobs back. Somewhere the federal government and the people of Nova Scotia are going to say, no, we cannot continue going the way we are going. If this is the option for now, then this is what we have to do and hopefully in the future it will work out better.
MR. DRAKE: Three things, I suppose. One, if you cut 700 jobs out of this industry right now, like the federal government has mandated, those jobs will never come back because this industry will be heading for privatization and they will be trying to cut as many jobs as they possibly can. That is the first thing. The second thing, you said that I have to worry about my people working. Sure I have to worry about my people working in the UMWA, however, what my statements have been for the past two years is that we feel everybody can remain working and that is every union and that is every confidential person in the Cape Breton Development Corporation. The third thing, no more dollars from the federal government or the taxpayers. We agree with that. We are not disagreeing with that.
What we are suggesting is that Devco and the federal government should have taken every single avenue to try to cut our cost per ton, to try to reduce our cost before they came along and simply did what every other major corporation in Canada and the United States is doing, throwing people out of work and out on the street. They should have tried every other single option first and they didn't and that is why we fought them and that is why we are still fighting them and that is why we are going to continue fighting them from now until doomsday. It doesn't matter. There is an issue here. We don't have to bend over backwards because the federal government says this is what is going to happen. The federal government works for the Canadian taxpayer and if this isn't going to cost the Canadian taxpayer any money, I will stand here and swear that I don't think it will if they start listening to Canadian taxpayers instead of big business and the banks. We are tired of that. I am a taxpayer and I am tired of what the government is doing right now and that is part of the reason I am here, to impress that upon the legislative committee.
MRS. O'CONNOR: I just have one other question and that is on the hot seat roster. My understanding is that you would like to see it leave from the ground to take the people down and then the miners would get on and come back on top so that you don't have that two hour downtime which certainly makes sense. The problem I have is, do you want the hot seat - and I don't know if that is what it is called or not . . .
MR. DRAKE: Yes, it is.
MRS. O'CONNOR: . . . in the mine? I can see where they would want it left in the mine. Is that the only way out?
MR. DRAKE: I think maybe you are confused. I think you are bit confused. Let me straighten it out for you. A hot seat roster, that is just the nickname, that is just the name that they put on it. It is a label that they put on it. What it is, is your productivity is tied to your machine availability time. So, if your machine is available for 24 hours a day to cut coal, that is maximum, that is 100 per cent. Every hour that you take away from that machine availability time reduces your production level and increases your cost per ton.
So, what you have to do, and you can use one shift as an example, you have to get that person who is leaving that machine, he has a remote control in his hand, when he leaves it, he puts the remote control on top of the machine and he goes to the surface. That takes an hour. When he gets to the surface, the drive - a rake we call it, or a trip, whatever you want to call it - leaves the surface and drives the next guy underground back to that machine. The time period, from the time the guy leaves the machine and gets to the surface and a new guy, the replacement, leaves the surface and gets down to the machine again, is approximately two hours. We say that is a waste of time.
We are suggesting that in the negotiation portion of our contract - actually, we are in negotiations right now - that we could negotiate that and the person who leaves that machine, when he shuts the machine off and gets ready to leave, the other person on the surface is leaving an hour earlier, at 1:00 p.m. so he gets to the machine at 2:00 p.m. and when this guy shuts the machine off, the person who is on the machine on the day shift, the guy on the night shift takes the remote control from his hand, checks the machine over, makes sure that everything is safe, and then starts the machine back up. So, your machine availability time is increased dramatically, and these numbers are accurate. We know that for a fact. They are easily accessible. Approximately $175 million, give or take a few million dollars over a five year period on hot seat rostering change. Is that a little more clear?
MRS. O'CONNOR: Yes, I was thinking, when you said hot seat, that you were referring to piece of equipment going down that carried the people back and forth. So I understand.
MR. DRAKE: That is just a label.
MRS. O'CONNOR: I will go on, thank you kindly.
MR. CHAIRMAN: Let's move on to the next questioner. Dr. Hamm followed by Mr. Fogarty.
DR. JOHN HAMM: Thank you, Steve, for a good presentation. You have spent countless hours on behalf of your union members over the last number of months in getting your arguments across. One of the issues that has not been addressed yet is worker empowerment. You did make brief mention of it. I think it is a very important issue because those of us who are somewhat distant from the Cape Breton coalfields look in and we see what is going on between Devco and the union itself. I think there is a dismay that there isn't a stronger sense of cooperation. I sense that there is a strong resolve on both sides to come to a working solution and the working solution, of course, is a profitable coal industry in Cape Breton. I think that is achievable. The only question, I think, that has to be determined is how large the industry can be over the next three years, during the transition phase, to profitability.
I certainly support your activities to include worker empowerment in the next contract. I think that is absolutely essential for the long-term viability of the industry. The suggestions that you have made on behalf of the workforce will be, in the long run, I think, the solution to the profitability of the industry because of the falling price of coal in recent years, in essence in real value, real dollars, the industry has to become more efficient to survive. I am making a comment about worker empowerment. I think that is an essential key to the survival of the industry, a sense of cooperation between management and labour, that I don't sense is there at this point. It has to be addressed.
The other thing, too, in relation to the Donkin Mine. I was always impressed when I heard your presentation before at the vast reserve of coal that becomes available with the Donkin Mine. As well, the members have not had the opportunity to hear your presentation about the particular problem in mining the harbour seam and taking out that central section which is key to the success of the Donkin Mine. In your mind, has the technology for selective horizon mining been developed to a point that today we could guarantee that that technology would allow a profitable removal of the central section of that seam or are we looking at, perhaps, further development of that process before, in fact, it could be put to work successfully in the Donkin Mine? I would like your comment on that.
MR. DRAKE: Okay, the first thing is, in coal mining, as in any other industry, whatever type of technology you are using, there is no guarantee that what you are going to try is actually going to work. That's a given. At Lingan, Phalen and Prince Collieries, we have done selective mining for, well, Prince Colliery has been there for 22 years, we have done selective mining on a small scale at every one of these collieries. Our people are used to the process.
At the Donkin Mine, when they mined Donkin they mined 5,500 tons of coal at one time. After they did the two tunnels, they took a side tunnel and they took this coal for sampling purposes and when they were in this tunnel, they tried five different types of selective mining. There is a 12 foot seam of coal there, what they would do is leave four feet on the top and take eight feet of coal, or leave four feet on the bottom and take eight feet of upper coal, or leave two and two and take the centre portion. They tried every one of those and every one of them worked. Six years after the project was finished, they went in and took pictures and the roof and the walls of this particular tunnel were still very stable, which indicates a good geology.
Now, on the second part of your question, the technology that is available today. Some of the technology that is available today, you are dealing with laser optics, infra-red, you are dealing with some technologies that I can't even pronounce the names, they are that technical. It has been developed right now, one of them is a radio imaging sensor system where you would put a radio transmitter on each drum of the shear, that is the cutting machine, and on each roof support all the way down the wall face there are receivers there, and those receivers get the signal back from the drums where they are at in relation to the coal seam and they adjust the drums automatically. That is all done by computer.
Now, that technology, according to my information is in an advanced state of development. A report was done for Public Works Canada, Mr. Dingwall's department at the time, and the Cape Breton Development Corporation has that report and I have the report, it suggests that by 1996 these technologies should be being utilized somewhere else in the corporation, so that we can fully develop them and make absolutely certain that when we do get to Donkin, we have the technology developed. I don't see anybody working on that right now and I think that is a grave mistake if the Donkin Colliery is to be developed. The key to
the Donkin Mine, and you are right about this, is that we have to selectively mine the coal at the Donkin Mine. The upper portion of the Donkin seam, and it is a 12 foot seam, there is a lot of coal there, the upper portion is high in sulphur, the bottom portion is high in sulphur but the centre portion of the Donkin block, 8 to 10 feet of coal, is as sweet as any coal we have sold in the last 300 years and that's a fact.
I would suggest that if the Cape Breton Development Corporation were serious about developing Donkin, they would start refining this technology right away. Donkin isn't going to be a project that will be opened next year. If they start Donkin right now, we are looking at two and one-half years before you will be mass producing coal, you'll get some small tonnages for the first two and one-half years but after that, probably in year three, you can produce somewhere around 1 million tons per year, on a small scale operation.
DR. HAMM: The best coal that is being produced right now is Phalen coal.
MR. DRAKE: Yes, that's right.
DR. HAMM: In your estimation with washing, could the central eight feet of the harbour seam be washed to metallurgical standards?
MR. DRAKE: Yes, in my estimation it could. Prince Colliery coal is a product that we are having difficulty washing, although it is washable, it is a little more expensive to get the materials to wash Prince coal down to a lower sulphur content. But Donkin coal, according to the information in the CANMET study that was done back around 1988 or 1989, the study was done in Western Canada at a lab, they took the coal from Donkin and they assessed it all for floatability and washability and all the other numbers that they have to plug into it. They are suggesting in that study that the product is a highly washable coal. It is on the harbour seam. The harbour seam is the most exploited seam in the Sydney coal fields. We have been mining it for centuries. It is the same coal. It is the same coal and the centre portion is just as good or better than anything we have mined. The evidence is there, historically; you have to look at history if you are going to look at this coal because, basically, it is $1 million to do a core hole, to get a drilling ship out there and we just can't spend another $1 million. There are 11 holes already, that's enough information. We have been in the mine, we have taken 5,500 tons of coal and checked it out in laboratories and it is a quality product. I would say it could be metallurgical coal. Yes, that is my estimation from the information that has been given to me.
DR. HAMM: The question is and you did make reference to support you have had on the MLA level, which I am sure was helpful. What can the provincial government do to help all of this issue and is there any role right now at this stage of the game for the provincial government to have a positive impact as to what is happening in the particular situation?
MR. DRAKE: I suppose, to answer that question, I have to pose a question of my own. What is the provincial government willing to do? The provincial government is, supposedly, interested in creating jobs in Nova Scotia. We are suggesting that there are jobs in the coal mining industry that will support further jobs in the spinoff industries in Cape Breton, which is part of Nova Scotia. If the provincial government is serious about that job creation activity, what I would suggest is that they could put pressure - we are an entity of our own, the provincial government can put pressure - on the federal government to move on the Donkin Mine. That's one thing right there.
The second thing the provincial government can do, is put pressure on the Cape Breton Development Corporation, the provincial government, the province owns the coal resources. Are you people doing the right thing? I don't think that the provincial government should be taking Mr. Shannon directly at his word without doing their own investigation into these numbers that Mr. Shannon has put forward. We are saying that the numbers are flawed, we have said it from day one. We have asked the provincial government for that type of assistance and it hasn't been forthcoming. We are suggesting that the provincial government can still do that and still help us.
If Mr. Shannon's numbers are wrong, in two or three years' time, we are going to be in the same position that we are in right now and what you are going to see, and I will predict this here today, is the privatization of this industry. Why? The chart I showed earlier with the numbers on it, both sides of the graph, high cost per ton and low revenues, that is what you are going to see in my opinion in three or four years' time if someone doesn't get to the bottom of this right now. That is what the provincial government can do for us, starting today.
They can start a full investigation. Ask Mr. Shannon and George White, can we see the financial data as to where you derived your numbers from. That is all we ask for. If they are accurate, then we can work with the Cape Breton Development Corporation towards a positive future for this industry. But someone has to take that bull by the horns, and we have tried, desperately, and it hasn't worked, because they have basically stonewalled us on every issue.
DR. HAMM: Are you prepared to guarantee a total commitment of yourself and the workforce to implement all of the suggestions you have made to guarantee the survival of the coal industry in Cape Breton?
MR. DRAKE: I am prepared to guarantee that if the provincial and federal governments are serious about maintaining jobs in Cape Breton in the coal mining industry, not 1,400 jobs, if it has to be 1,900 jobs realistically or something, we don't have to cut 715 jobs out of this industry, if they are prepared to maintain a stable workforce in this industry of somewhere around 2,000 people, I am prepared to guarantee that everything I have put on this board here today will be brought back to my membership for a democratic vote. I can't promise anything or guarantee anything, but I guarantee that these things will be on the negotiating table and seriously negotiated with the Cape Breton Development Corporation to ensure the future of this industry.
MR. GERALD FOGARTY: Mr. Drake, I would like to ask you a few more questions with regard to the potential and the possible development of the Donkin coal block. There have been estimates that it would be very capital cost-intensive and those estimates run from $200 million to $400 million to get it up and running. Do you agree with those figures?
MR. DRAKE: No.
MR. FOGARTY: How much?
MR. DRAKE: How much do I disagree, or how much money?
MR. FOGARTY: How much money is acceptable to you then, if it is not $200 million to $400 million?
MR. DRAKE: Realistically, you have to understand two things. One, you have $80 million spent at Donkin and the number varies; they say between $80 million and $91 million spent at Donkin already. You have the main capital expenditure, your tunnels, there right now. You have to realize that although Westray wasn't a safe mine, the mine development cost $100 million. So we have spent $80 million on Donkin. You also have to realize that, fully 50 per cent of the equipment is already owned by the Cape Breton Development Corporation; that is electronic equipment, belt drives. We have a surface fan at Lingan Colliery, we have the operating hoists at Lingan Colliery. There is a full operation at Lingan Colliery right now that can reduce your cost at Donkin Mine.
What we are suggesting - and we did a study on this two years ago and made it public - is that the Donkin Colliery can be opened for something in the vicinity of $100 million. I don't think that is a huge capital expenditure to guarantee that many jobs in Nova Scotia and guarantee the spin-off benefits that we are going to get from it. These numbers are very realistic. The study that we did, we plugged some funding in there for expenditures such as a fan; a fan costs approximately $1 million. We have one, but we put it in there anyway because, at the time, we were, I suppose, at odds with Devco management over some of the issues and some of the numbers they were throwing out to the public. One of the numbers was $450 million, which is ludicrous. That is 1970's coal mining, that is not 1996 coal mining; 1996 coal mining, you have to be less capital intensive, and we are suggesting $100 million.
MR. FOGARTY: You said the tunnels are there in place, but would you agree that the location is remote? There is very little, if any, infrastructure; there is no railway; there is no 100-Series Highways; an access road would go through the Towns of Donkin and Glace Bay. Are all of these factors that would make it prohibitive in the minds of some people?
MR. DRAKE: It depends on who the person is, I suppose. The 100-Series Highway isn't necessary because we wouldn't be trucking coal from Donkin. It is too long a distance. The infrastructure for the railroad is approximately 3.5 kilometres that we don't have. What you have over there right now is a complete rail system over to the end of Brookside Street in Glace Bay, which is approximately 6 kilometres from the Donkin area, where the block of coal is. If you followed the rail line there, there is a bed that Devco owns, and it extends out to another mine - I can't remember if it is the No. 2 colliery or the No. 6 colliery, but it extends out - 3 kilometres from the Brookside Street Junction.
So what you have is a complete bed that Devco owns and a rail line that would probably have to be refurbished, and we have built that into the numbers, the $100 million. From that point - I am not absolutely certain it is the No. 6 colliery, but whatever - it is about 3.5 kilometres to Donkin and it is approximately $1 million a kilometre to put in a rail bed and a rail line. So we have all the other infrastructure, all the other equipment that we need. Devco has their own railroad; it is complete and it is very cost-effective, as far as we know, from the numbers that we have been given from the Cape Breton Development Corporation. So what we would have to do is basically refurbish 3 kilometres of track and put in 3.5 new kilometres.
MR. FOGARTY: So those factors are an exaggeration, then, in your estimation, the ones I just mentioned?
MR. DRAKE: No, I am not saying they are an exaggeration; I am saying they are accurate, but I don't think they are prohibitive in putting a coal mine at Donkin. Let's be very serious about it, someone way back when put a coal mine at Donkin already, so they must have looked at those factors, every single one of them. You have 1.5 billion tons of coal over
there and it is a product you can sell, so I wouldn't think a rail line at $3.5 million would be a huge obstacle to actually start that mine again.
MR. FOGARTY: With regard to the quality of coal at Donkin, I think you said a moment ago that it would be suitable for metallurgical purposes, and yet we have information to the effect that it would not be suitable for metallurgical purposes because of the excessive sulphur content.
MR. DRAKE: Where did you get the information, if I may ask?
MR. FOGARTY: The Department of Natural Resources.
MR. DRAKE: There were five or six studies done on Donkin, and this is a bone of contention. I would like to make it perfectly clear here today that the Donkin coal is as good a quality of coal - the centre portion of that seam - as anything that we have had in the Cape Breton Development Corporation or in the mining industry for the past 300 years. However, if you take the Natural Resources numbers and the numbers that were given to Devco by the engineering teams that were at the Donkin block - and there are about seven graphs that I have and I can send them up if you wanted them; I could send you copies of them to show you exactly how it works - if you take the full 12 feet of coal at Donkin, what you have at the very top of it is very high sulphur coal and it shows up on a graph, and the graph is out here in never-never land, in left field.
[11:30 a.m.]
As soon as you get to the 10 foot portion of the coal in the harbour seam at Donkin, this graph comes way down here to this point, and this point is between one and zero. That is the sulphur content for probably 6.5 feet of coal at Donkin Colliery. Above that for 1.5 feet and below that 1.5 feet, if you blend all that in, you have somewhere around 2 per cent sulphur. If you take the uppermost portion and the lowermost portion of the coal seam and blend it all in, you would be somewhere around 4 per cent sulphur. So depending on who is doing the numbers and the end result that they want, you can have sulphur at Donkin Mine anywhere from 4.5 per cent for the full seam to somewhere around 1.6 per cent to 1.9 per cent for the 8 foot to 10 foot centre portion. So those numbers are highly arguable.
What we are talking about is selective mining at Donkin. So I wouldn't put a whole lot of credence into those numbers that you looked at, unless you are talking about mining the whole seam at Donkin Colliery. If you are, I will remind you - and I don't know how this fits in - Alastair Gillespie suggested that the Synfuels project can take Donkin Mine coal as it is, with the high sulphur content, and it is a perfect product for the Synfuels project, with the high sulphur content. So it is a quality coal, that is a definite, and I will argue that with any engineering firm that wants to argue the point.
MR. FOGARTY: Just one other point, Mr. Chairman, if I could get a reaction from Mr. Drake. You said earlier in your presentation that you could understand that the federal government is extremely hesitant about asking the taxpayers of Canada to pour more money into the development of Donkin. You also said that you don't like the idea of private industry involvement and if your estimate of $100 million is closer than the $200 million to $400 million, and hypothetically if we accept that, where is the money going to come from? It is going to have to come from the federal government, is it not?
MR. DRAKE: The estimate of $100 million is not my estimate. It is an engineering firm that we hired to do a project for us on Donkin, a reputable . . .
MR. FOGARTY: I am just trying to get an idea as to how much it is going to cost to get Donkin going.
MR. DRAKE: Yes, I understand that. I just wanted to straighten that portion out, to make it perfectly clear that it isn't my estimate. It is an estimate that was done by a qualified engineering firm, and it is approximately $100 million.
The first year at the Donkin project is approximately $3 million; you have to do some surface clean-up and put a pumping facility in the Donkin area to pump that water. I don't know, there is 120 million to 130 million gallons of water in the Donkin Colliery. What we were suggesting - and this is just a suggestion; we made it to Devco and Devco's engineering people - if the corporation can move in this direction that we suggested today, towards reducing their cost per ton and increasing their revenues, and if we do make a profit - and these are all ifs - of $10 million next year, there is no reason in the world why Devco can't spend $3 million and put 26 people to work over at the Donkin site and start pumping that facility. That is year one.
Year two, the expenditure was somewhere around $21 million, and I can get you the exact figures on these. This is a four year project at Donkin and over four years the $100 million is spent, it is capitalized over four years. So you are not looking at a $100 million expenditure, day one. It is the same as Devco's numbers that they are putting out now; it is spread over a period of time. If the federal government was willing to spend $80 million to basically cut 715 jobs out of the Cape Breton Development Corporation, I don't see any reason why they wouldn't be able to spend $100 million and open Donkin. It is keeping Canadians working.
MR. FOGARTY: Thank you for that clarification, Mr. Drake.
MR. DRAKE: You are welcome.
MR. CHAIRMAN: Mr. MacLeod, followed by Mr. Chisholm.
MR. ALFRED MACLEOD: Steve, I want to congratulate you, again, on your presentation. I have seen it a number of times and you must just get better at it.
MR. DRAKE: Thanks.
MR. MACLEOD: I think we will all agree that it is good news that we are getting away from one customer, that being Nova Scotia Power Inc., and I think it is also good news in the new plan that Prince Mine is going to be a 12 month operation, even though it is only going to be two shifts rather than three, but I still think that is a plus.
MR. DRAKE: It is a partial win.
MR. MACLEOD: I think your union and yourself, with your leadership, have brought that about and you should be congratulated. In the North Road option, I know they are talking about it. At least it is a start, but that is not where we want to be.
One of the things that seems to keep coming up is about the Donkin Coal Mine and what is going on there but I think we should go back and look at the current plan. Right now one of the bases that this current plan has been put forward by the board of directors and the president is based on the fact that Phalen is and does remain a viable operation. Now Phalen has had the poorest history of any of the pits of the Cape Breton Development Corporation, at least since it has been formed, and I wonder what you know, through your safety committee people, as to how things are going in Phalen right now, are we having any more rock outbursts and how things are generally progressing there.
MR. DRAKE: That is a key point to this whole plan and I am really glad you brought that up. Devco's plan puts the majority of our mining eggs - if I can say that - in Phalen's basket. If you sit down and talk to a coal miner who works at Phalen, any one of them, they will tell you that is a dreadful mistake because right now, although Phalen is operating safely, Phalen Colliery is, at best, a week to week operation. The rock outburst potential is still there. That will not go away. The heavy weighting conditions that we have at Phalen Colliery will not go away. They are there. The flooded mine workings, we have three collieries above Phalen Colliery that are flooded and causing massive problems with water and productivity reductions and things like that.
So what you have at Phalen is a lot of factors that suggest that we have to be very careful with this and what the Shannon plan basically puts forward is that our whole industry depends on Phalen Colliery and we are suggesting that Mr. Shannon is making a dreadful mistake by doing that.
The second part of your question, what is Phalen Colliery doing right now? We just finished the cutting out of a wall face called 2 East. We are finished there now. They are just screening and bolting at the final portion of that wall face and then we are going down to 7 East where we had the huge rock fall several months back. What they have been successful in doing, very labour intensive, a lot of people should be congratulated for what happened at Phalen Colliery during the 1970's problem, management and unions both, what you have right now at 7 East, they have cleaned up all the rock problems that are there and they have been successful in taking some small portions, slices of coal, off that wall face and actually getting the roof supports under the lip of coal.
So now what you have is the problem is above you, above your roof supports and in back of the roof supports, which is where you want it. Now what happens in the next few weeks, they are refurbishing the roof supports. Many of them were damaged during the rock fall. Once that is finished, they are going to start slowly taking coal from the 7 East block again. Once they get fully underneath the lip, they are going to go and they are going to try to operate on a seven day basis, straight through, until that place is finished. That is my understanding and that makes common sense because the longer you are stopped, the more roof problems and weighting problems you are going to have.
As far as the safety issue on Phalen Colliery, coal mines are coal mines. We are federally regulated, as I said earlier, which makes it much more positive for safety issues and we have, in the UMWA, some of the finest trained safety experts in the world in the coal mining industry. So I would say that Phalen Colliery is as good as Phalen Colliery can get.
Once again, just in closing, I would like to say that it is a mistake to put all your mining eggs in Phalen's basket. That is why Donkin is very important for the future of coal mining in Cape Breton. If something happens to Phalen right now, we have no coal whatsoever to blend with Prince Mine and we cannot sell Prince Mine coal direct because the
sulphur content is very high. We can sell small portions of it but not enough to keep this industry going. That is a question that Mr. Shannon has to answer. What happens, if something happens to your plan for Phalen Colliery? That is basically where we are at with the colliery. It is a very good question.
MR. MACLEOD: Moving on, I guess, back to talking about Donkin, would you not say that the most profitable years for submarine mining are its initial stages?
MR. DRAKE: That is definite. You are closer to surface, less travelling time, less infrastructure, less cost, less belt lines. Everything works better. As you go further, your capital costs increase. Basically your fixed costs go up. You cannot get away from it. You cannot drive another tunnel, you are under the ocean.
MR. MACLEOD: So would it be fair to say then, that of the money that we talked about earlier, the $100 million was invested in Donkin, the shareholders, in this case, the people of Canada, would be able to see their money returned at a quicker rate and probably help reduce the overhead and the pension liabilities that we already have in place?
MR. DRAKE: I would have to agree with that. Just on the earlier question, we have a repayable loan of $79 million right now. I don't see any reason in the world why that $79 million could not have been $100 million, or an extra $20 million to start the project at Donkin. Donkin has been studied to death. You are right, if we get at Donkin, the initial portion of Donkin Mine will be very profitable. That goes without saying. Every coal mine that we have been in so far, and we have been in 165, I think, in Cape Breton, or in Nova Scotia, total, they have been profitable from day one. As you increase your distance under the ocean, profits start to decrease.
MR. MACLEOD: Wouldn't it be fair to say that the history in Cape Breton has been that once the profitability narrowed and got smaller, that is when the private operators got out and that is why Devco was formed to begin with?
MR. DRAKE: That is why the private operators got out initially, yes, because the profits disappeared and, if you remember back in the 1960's, the government was subsidizing private coal. The government subsidized Westray. That was a private industry. If you look at the history with Devco, what happened with No. 26 colliery, they were looking at phasing out No. 26 colliery as it got deeper and the cost started to go up. Lingan Colliery, they said the same thing. Prince Colliery, they said the same thing. So, as you are getting deeper, both private and Crown Corporations start moving away from that particular mine.
MR. MACLEOD: But if there is a chance to help Devco become a stable industry, it will be by developing Donkin and using that money to help pay off the liabilities that are already incurred and keep the development up. Would that be a fair statement?
MR. DRAKE: Yes, just the production potential at Donkin Mine, on a small scale operation, you could probably produce somewhere in the vicinity of 1 million tons per year. On a full scale operation, you have the potential at Donkin to go somewhere between 4 million tons and 4.5 million tons per year. They were projections that were done during the original engineering programs by Golder Engineering, Montreal Engineering, Kilborn Engineering. Donkin has been engineered to death. You could take 50 coal miners right now and take the information that Devco has at the general mining building and open Donkin. That engineering data does not go out of date. It takes 300 million years to put the coal block there. It is only
15 years since Donkin has been developed. That engineering data is exactly the same today as it was back then, just as viable. Brush it up a little bit, that is all you would have to do.
MR. MACLEOD: Moving on a little bit, Steve, to talk about the Victoria Junction coal preparation plant. I know that right now it is not being utilized the way that we were accustomed to in the past. You talked earlier and you mentioned that Donkin coal is very washable coal and we talked about the different types of technology that might be needed to use horizon mining but I wonder if, indeed, we ended up taking out the whole block of coal, transferring it to the VJ plant and let the VJ plant do some of what it was designed to do, would that not also be an option without . . .
MR. DRAKE: Yes, the difficulty with that is that when you take the full seam at Donkin, you have a very high sulphur content. It is 4.5 per cent, if you take the full 12 foot seam. I am not an expert on what goes on at the VJ plant, how they wash the product but I think it would be very expensive to wash the full 12 foot portion of the seam. Another important thing when you are washing coal is that your yield has to be good. If you take 1 million tons of coal and put it all through the VJ plant and your yield is 90 per cent, you will get 900,000 tons. As your yield goes down, your costs go up. You are washing more coal, you are using more of the fluids and the materials and the chemicals that they use in the washing process so that is something that would have to be probably dealt with with the engineering people and the chemists at the VJ plant. I could not be absolutely certain on that but I do know that it would be expensive to do that; not saying it cannot be done.
MR. MACLEOD: I am not so sure that it would be that expensive. I had a little history at the VJ plant and I kind of believe that using it, and it is done through specific gravities and it is a matter of the weight of the coal, the good stuff rises and the bad stuff falls and so on. I think that we could probably use it very effectively and at the same time we could put more people back to work, which is an option. I think with the fixed cost added on to the price of coal would be minimal when you put it over 100 million tons, if that is what we are talking about.
MR. DRAKE: I will have to check into that because I really don't know. But right now the VJ plant is shut down and I think that is a tragedy. What we are looking at with Nova Scotia Power, and this is somewhere else where maybe the province could flex a little bit of muscle and tell Nova Scotia Power that listen, we put a huge piece of capital investment at the VJ plant to provide you people, Nova Scotia Power, with a product and now you are telling us you don't want that product. We have $70 million or $80 million invested into the Victoria Junction wash plant. We, the province, are telling you that we are going to sell you the product that meets your specifications and that is exactly what the VJ plant was put there for and that would put the people at the VJ plant back to work. But the province has to flex a little bit of muscle. They can't say they have no input. They have input and this is going to put people back to work. We are selling a product right now to Nova Scotia Power that they shouldn't be getting and it is hurting jobs and hurting the economy in Cape Breton.
MR. MACLEOD: It is also hurting, probably, the price that they get because Nova Scotia Power actually buys BTUs, they don't buy tons of coal.
MR. DRAKE: Yes.
MR. MACLEOD: So, the poorer the quality of the BTU, the less they are actually paying out.
The other thing, too, that maybe the province could have some effect on, is the emissions out of a power plant, right now there is no emission on one plant, it is an overall emissions of all the plants across the province. If the Department of the Environment would look at a situation like that, that may change what they are allowed to push off at one plant compared to what they are doing at another plant. Again, the quality of the coal would have an effect on what was happening there.
MR. DRAKE: Every time you sit down and talk to a few people, you get some ideas on what the province can actually do to help us here in the Cape Breton Development Corporation and that is another one right there.
MR. MACLEOD: I will try to keep it short, Mr. Chairman, but there are just a few more things that I would like to touch on with you, Steve. In 1995, Ernie Boutilier, who was then the President of the Cape Breton Development Corporation made a statement, it was in January, that they could sell every ounce of coal that they could produce. Based on that, there was a major investment made at the International Piers. Now, we have a situation there, again, where there are a number of people who aren't working and I talked to some people on the weekend who felt that they were in the process of mothballing the International Piers. That disturbs me if indeed that is accurate because we are supposed to be going into international markets, so why would we be doing something like and have any of your people sensed that in their operations?
MR. DRAKE: Yes, we have been at odds with Devco for the last six months on the International Piers issue. We have been trying to get the export market expanded. We are suggesting that if we produce the amount of coal that we are capable of producing, which is somewhere in the vicinity of 4 million tons, that we can put 2 million tons of that or 1.8 million tons of that over the coal piers into the export market. Now, if you remember back in January, Mr. Shannon made a statement that they were moving away from the export market temporarily. Now, temporarily turned out, according to his numbers that he gave us, to be four and one-half years, no boats for four and one-half years. The Boyd Study said, if you get out of the export market, it is going to be very difficult to get back into it, period. Mr. Shannon would not defend that statement. He said, we have to get away from it, it is costing us too much money and we said, baloney. So we fought it.
All of a sudden, four months later, after going through this massive struggle with these people, Mr. Shannon says, well, it is okay now to get back into the export market for 700,000 tons. So if it is okay to get back in for 700,000 tons, I would say that his first statement was not correct and I would say that this one isn't correct either. What you have to get at is 1.8 million tons on the export market. The International Coal Piers right now is going to be shut down for one year. There are no boats scheduled. That is a grave mistake, and the following year, we are depending on Mr. Shannon and the Cape Breton Development Corporation management team and the federal government and the province to make certain that that 700,000 tons of coal goes on the export market.
We have listened to these promises for a long time and what has happened to our export market over the past five or six years, it has gone like this, to where it is now zero, at a high of 1.8 million tons, it is now zero. I don't think that is a fair way to run a business, based on promises. You have to show us some solid evidence that that 700,000 tons is going to be guaranteed for the export market and they are not showing us that. We are a year out of the export market and we have to go out and aggressively pursue markets next year. We are having great difficulty with this whole plan as we have mentioned in the past four months.
MR. MACLEOD: The Premier has been away on a number of junkets, looking for industry. Has anybody from your union or anybody from the Cape Breton Development Corporation, to your knowledge, ever been asked to go along on these junkets and help promote Nova Scotian coal?
MR. DRAKE: Not that I am aware of. Well, I know for a fact that he hasn't approached anyone from the UMW to go and try to get some export, and I understand that's what it is, he wants to export product from Nova Scotia to these other countries. I am of the understanding that some of these countries are coal importing countries. I don't know if coal was even mentioned. I don't have any transcripts or any information whatsoever on that issue. I don't know if Devco was invited to go on any of these junkets either. Mr. Shannon could probably answer that question. To my knowledge, Devco wasn't invited to go to any of these countries. It is unfortunate.
MR. MACLEOD: If you had an opportunity right now to put a wish list forward of what the provincial government could do, keeping in mind the fact that the Deputy Premier of this province stood in this very Chamber and said that this was a federal matter, what, indeed, would it be that the provincial government - I will go one step further - what would it be that this Legislature as a whole, all Parties, could do to help the Cape Breton mining industry?
MR. DRAKE: Well, the first thing I would have to say is that when the Deputy Premier made that statement, I was very upset. We are Nova Scotians. Nova Scotia owns the resource. That makes it a Nova Scotia problem and we made that perfectly clear when we met with the Premier here several months ago. The first thing is to say that this is a provincial problem, this is jobs in Nova Scotia, Cape Breton is a part of Nova Scotia. We need someone to say that, straight out, that's the first thing.
The second thing is, we need, as I said earlier, for the provincial government to flex some muscle with Nova Scotia Power and with the federal government and the Cape Breton Development Corporation on behalf of the miners and the workers in Cape Breton, in Nova Scotia, to push for an expanded export market and to push for the opening of the Donkin Mine.
Beyond that, I really don't know what I can say, because we have said it all in the past four months. We met with the Premier and basically, the reaction to that was, I would have to say, nonchalant, because we didn't get any positive recommendations or any positive feedback from the Premier that anything was going to happen. I will look at it, he said, and he did look at it, I suppose, and we still have 715 job losses in the industry. So, I would say that, basically, admit that this is a provincial problem because it is jobs in Nova Scotia and push the Nova Scotia Power people to maintain our contract and move towards the Donkin Mine.
MR. CHISHOLM: Steve, you were talking about Shannon's plan, about the plan that has been approved by the federal government. You don't seem to be convinced that it means that there is going to be a future beyond the five years and maybe if you would just comment on that. Also, I think what you were saying, is that it is going to take an investment in the future of the coal industry by beginning to work on opening Donkin and that not only is that an investment in the future but it is an investment that can be returned very quickly. Would you comment on those two points?
MR. DRAKE: The first one, as for the future, if the future is going to be positive and the future is going to be solid, what we need is complete openness from the Cape Breton Development Corporation and that means access to everything they have. If they want us to work with them, they had better give us the tools to do it or we can't do it. That's the bottom line. We have been looking to Mr. Shannon and Ernie Boutilier and the board of directors on several occasions to give us the information we need. The financial numbers that they have put forward, no one has ever seen where they came from. Mr. Shannon, once again, said that he found $20 million that was misappropriated or missing - he used several words, in the space of four months - from Ernie Boutilier's numbers and Ernie Boutilier and the board of directors and it was signed by the Auditor General of Canada, Devco's yearly financial statement, said that that $20 million was in the right place. All of a sudden Mr. Shannon comes and says, it is not. We say, well, give us the information that you have to prove that and then we can work with you. We haven't been able to get that. That's the first thing. If we don't get the tools to do the job, we can't have a positive working future with Devco management.
The second thing, on developing the Donkin Mine. If the Donkin Mine, and I will say it here definitively, is not started as soon as possible the future of the Cape Breton Development Corporation is in jeopardy due to the fact that we are operating two old coal mines right now. Our guys are working as hard as they possibly can to make those mines as productive as possible.
I suppose, at some point in time, I guess, I get a little bit angry over some of the media coverage, most of the media coverage is pretty positive and it is pretty accurate, but when they start blaming coal miners that just grates me the wrong way. I have only got one nerve left for that. Those guys do what they have to do to make this industry work. If they had a bit of cooperation from the federal government and Devco management, this industry would be a lot better off.
MR. CHISHOLM: Your concern with respect to a private operator, is that because if at the end of five years the graphs show, as you indicated, that the operation is just not profitable that a private operator would come in and pick out the one part of it that is profitable and let the rest of it go?
MR. DRAKE: It has happened before. Listen, everybody said that Nova Scotia Power was a white elephant for the province. We had 2,500 people working for Nova Scotia Power. Now, we have 1,600 or something like that or 1,700 people working for Nova Scotia Power and all of a sudden, lo and behold, somebody waves a magic wand and Nova Scotia Power is making $94 million profit. Nova Scotia Power could have been profitable before. Donald Trump didn't come down here and start running Nova Scotia Power, we still have, basically, the same people running Nova Scotia Power and it is making $94 million right now.
I will use Joe Shannon as an example because he is in with Devco right now. In three or four years' time, if you have coal on the ground, 700,000 tons of coal on the ground in reserves for whoever it might be, Nova Scotia Power or whoever. All of a sudden we see the numbers here, the cost per unit or cost per ton is too high and our revenues are too low, we have to sell the industry. So we sell the industry like we did with the steel plant, for $30 million, Mr. Shannon or whoever it might be, it could be anyone, buys Devco. He has got 700,000 tons of coal on the ground, you sell that off for $30 million, it is already paid for, you get the industry for nothing. Then you pick out the pieces you want. The big apple in the sky is the Donkin Mine.
That should not be allowed to happen. Here is something very important, I am glad you brought this up because it reminded me of something. Devco has given us their word and the federal government has given us their word that we will have quarterly reports and they will be made public. Well, I will tell you something, I have seen Devco's annual reports, and I have looked at every one of them since 1968 and every one of those was made public and every one of them were questioned by people in political positions, different union people, different business people, they were all questioned. They were all made public and some of them were, I guess, the ethical - I am trying to think of a word here, I don't want to get myself into too much trouble - I will just use questionable - some of the numbers were highly questionable in all of those things.
Now, what we are suggesting and we said it to Mr. Shannon and Mr. Dingwall, if you are going to do quarterly reports and you are going to allow Devco management, the same people that have been producing these numbers for 30 years, they are going to be the people responsible for doing these reports, are we going to get accurate information or are we going to get information that shows that their plan is working, whether it is working or not? What we suggested and we will be making it known to the federal government, the Honourable Anne McLellan, the Minister responsible for Devco, we think that if those quarterly reports are going to be accurate and honest and represent exactly what is happening, that it should be an outside consultant agency not connected with Devco in any way, shape or form. We don't think that is a whole lot to ask.
Get an engineering firm in every four months, do a report, pay them whatever the fee might be for a week's work or two weeks' work or whatever the case may be, and then make it public. Then if we are not on the right track, whether it be in development or reducing our cost per ton, someone has to be held accountable as to why we are not. That is the only way this industry is going to work under this plan. If they are allowed to have free rein again for five years, in three to four years time you will see this industry in the shape it is in right now. That's not fair to the taxpayers of Canada. Historically, there has been a lack of accountability in the Cape Breton Development Corporation and if that doesn't stop, this is a useless exercise.
MR. CHAIRMAN: I think we will wind up with that. Just a couple of comments. First, I would like to thank Mr. Drake very much for appearing before us. It has been very informative and helpful. This is the first part of three hearings we hope to have and I think the members have a schedule of the future hearings. The next one is June 6th in which we hope to hear from the municipality, Mr. Coady and hopefully somebody from the Industrial Cape Breton Board of Trade and on June 27th we are going to have representation from Devco.
Unless there is anything further before the committee, I would like to thank Mr. Drake again and we will stand adjourned.
MR. DRAKE: I would just like to thank the committee for their initiative in this. I appreciate it.
[The committee adjourned at 12:01 p.m.]