Along with its global counterparts, the Canadian mining industry has had to weather a few tough years. From volatile and uncertain economic and market factors, through to heightened regulatory burdens and difficult labour issues, mining firms have demonstrated that this is not an environment for the faint-hearted.

Show Me the Money
Prospectors and Developers Association of Canada (PDAC) president Glenn Nolan tells Mining Weekly that access to capital is one of the most significant challenges facing the industry.

“Our members are primarily small- and medium-sized enterprises that rely on equity financing to support early stage, higher-risk exploration activities. The challenge for our industry is to find a way to finance exploration. The fragile state of the global economy is having a negative impact on companies’ share prices and their ability to raise high-risk financing,” says Nolan.

“Further, project costs are rising as a result of exploration, development and production taking place in more complex orebodies and deeper-lying deposits with lower grades, and in more remote locations.”

And as costs rise, financing becomes more critical.

“The PDAC advocates for solutions to reduce the effect of the current financial situation on the mineral industry in Canada and to retain Canada’s leadership position in global exploration.

“With respect to exploration and equity financing, Canada has innovations such as flow-through shares and the Mineral Exploration Tax Credit, which offer individual Canadian investors an additional incentive to support higher-risk ventures. Flow-through enables small exploration companies, which usually don’t have any cash flow, to pass along – or flow-through – eligible expenditures to investors, who use them to reduce and defer their taxes.”

Nolan reports that one way PDAC is meeting this challenge of financing for junior companies, is through mergers of equals – that is, exploration companies joining together to combine human resources, project synergies, and finances to make stronger investment propositions.

“On the mining side, we continue to see strength in operations, but cost containment is key to ensuring construction projects are delivered on time and on budget,” says Nolan.

Diversified resources company Fortune Minerals VP operations Mike Romaniuk agrees that it is a challenging environment for the minerals and exploration sector, with economic uncertainty and capital market volatility causing potential investors to take a wait-and-see approach.

“As a result, financing through the capital markets is becoming increasingly difficult to secure and project development is advancing at a slower pace. The time required to permit a project, the availability of critical infrastructure, reduced support from fiscally challenged governments and the ever-increasing challenge to contain labour and construction costs in remote locations have caused investors to seek greater certainty prior to committing capital. Unfortunately, the long period of time required to bring a project from discovery to production is at odds with the market expectation of solid returns on a quarterly basis,” says Romaniuk.

He says that for projects to reach fruition companies need to recognise and plan to deliver the certainty that the market desires through additional engineering and project planning efforts.

“Governments need to accept a role in developing critical infrastructure and continue to help develop a cost competitive workforce. Lastly, investors need a better appreciation of project timeframes and rewards over the full development cycle,” says Romaniuk.

“The sector will remain challenged, while market uncertainty and volatility persist, and companies will need to seek out alternative sources of capital, such as strategic investors in developing nations, as their comfort allocating capital over a longer period seems in line with their requirement to secure resources for their economies.”

Challenging Times
Mining Association of Canada (MAC) president and CEO Pierre Gratton tells Mining Weekly there are five key issues facing the Canadian mining industry in the near term, namely the state of the global mining economy, the Canadian regulatory burden, trade and investment protectionism, a shortage of skilled workers and the need for critical infrastructure.

“As the mining industry is truly inter- national in nature, we are susceptible to the global market. Continued global economic uncertainty and recent commodity price fluctuations are causing some jitters in the sector,” says Gratton.

“However, we also know that mining is cyclical and that growth in our sector will continue to be supported by emerging market growth, notably China and India who are only at the infancy stages of their urbanisation.”

Gratton notes that although the mining industry raised US$31.7-billion in equity worldwide in 2011, this is less than half the amount seen in 2009.

“This decline mainly reflects the challenges of raising capital in the current global economic environment. Although the effects of the global recession of 2008 to 2009 were relatively short-lived for the mining industry in many respects, it has managed to create lasting nervousness in the investment environ- ment. This is especially true for junior miners, where project financing challenges persist,” says Gratton.

In terms of the regulatory burden faced by Canadian mining firms, Gratton says that, despite the federal government’s recent legis-lative changes in 2012 aimed at streamlining the project review and permitting process, uncertainty remains over how these changes will be implemented, particularly for the Canadian Environmental Assessment Act, the Fisheries Act and the Navigation Protection Act.

“Although the changes are a positive step toward ‘one project, one review’, the industry requires clarity and effective transitioning from the federal government to achieve the intended outcomes and to spur responsible growth in the industry,” says Gratton.

He adds that the industry requires the support of all levels of government to ensure the sector has access to an efficient regulatory framework and operates in a competitive business environment.

“We also rely on government to make strategic investments in a variety of areas to support industry growth. This includes, but is not limited to, education and skills training, immigration, trade, infrastructure, and research and development. Government support helps put Canada in a better position to capitalise on an estimated C$140-billion in new mining investment nationwide over the next decade,” says Gratton.

With regards to trade and investment protectionism, Gratton says that many national governments have recently attempted to gain more mining revenues by suspending the issuance of permits and freezing licences.

“These forms of resource nationalism are a major risk to mining companies operating within Canada and abroad. The Canadian government can mitigate political risks like these by negotiating bilateral investment and trade agreements. Businesses, for their part, need to invest in legal and financial protectionism to manage international operations in turbulent times,” says Gratton.

Another often cited problem in most mining countries is the shortage of skilled workers.

“This continues to be a major concern nationwide across the full spectrum of mining positions. For example, an estimated 65% of geoscientists will reach retirement age in the next decade. Addressing this challenge will take a large and coordinated effort by the industry, educational institutions and all levels of government,” states Gratton.

He also raises the issue of the need for critical infrastructure, with mines often located in remote areas and requiring roads, marine access and power grids to operate.

“This issue is particularly acute in Canada’s North where little-to-no infrastructure exists to support proposed mining projects. A long-term strategic approach to infrastructure investment, supported by government, will be required to overcome current challenges,” says Gratton.

Looking Ahead
However, Gratton states that despite some worries over the global economy, the Canadian mining sector’s economic prospects remain bright.

“Given the growth projections for China, India and other emerging markets, and assuming that a positive investment environment continues, the demand for minerals and metals is likely to remain strong over the medium to long term.

“The Canadian mining industry’s eco-nomic prospects are still bright and the fundamentals are in place for long-term growth. Regardless of recent concerns over the growth rates of China and other emerging markets, it is widely held that growth, even if at a moderately reduced pace, is likely to remain strong over the long term,” says Gratton.

Domestically, the sector shines as a key driver of Canada’s economic strength, contributing C$35.6-billion to the nation’s gross domestic product in 2011 and employing more than 320 000 people across the country. Nearly 3 200 additional companies supplied engineering, geotechnical, environmental, financial and other services to mining operations – the second-largest mining supply sector in the world.

In 2011, the value of Canadian mineral production rose by 21% to a record C$50.3-billion, and mineral exploration increased by 41% to a record C$3.9-billion. The industry exported a record C$101.9-billion worth of metals, non-metals and coal in 2011, accounting for 22.8% of Canada’s total exports.

“Canada is a prospector’s dream and continues to attract world attention. In 2011, Canada was once again the top destination for exploration investment and spending increased to a record C$3.9-billion,” says Gratton.

“From coast-to-coast there are immense opportunities for mining development. MAC estimates that C$140-billion-worth of mining development could take place over the next decade, with investments to be made in almost all areas of Canada.”

He reports that a region where tremendous growth is likely to occur is Canada’s North, often considered the new frontier for new mining investment.

“Canada’s three territories are rich in untapped resources, but development will require significant collaboration with Aboriginal communities, as well as infrastructural investment,” he says.

A Global Leader
Gratton reports that Canada remains one of the world’s top mining jurisdictions by a variety of measures.

“We are the leading mining finance centre on the planet,” he says.

The Toronto Stock Exchange (TSX) and the TSX-Venture Exchange (TSX-V) represent the top exchanges for public mining companies, and together handled 90% of the world’s public mining financings in 2011, making up nearly 40% of the world’s mining equity capital.

He adds that recent data also shows Canada to be the world’s top destination for exploration spending, hosting 18% of global investment in 2011.

In terms of mineral production, Canada ranks among the top five countries in global production of potash, uranium, cobalt, aluminum, titanium, platinum, tungsten, sulphur, diamonds, nickel and chrysolite.

“These figures showcase Canada’s strength as a mining powerhouse and demonstrate the importance of keeping the industry competitive. If we lose our competitive edge, we risk falling behind other leading mining jurisdictions,” says Gratton.

TSX and TSX-V head of business develop- ment global mining Orlee Wertheim tells Mining Weekly that while 2012 was a difficult year for equity markets globally, companies on the TSX and TSX-V still succeeded in raising capital. Both are subsidiaries of the TMX Group, which Wertheim reports ranked third in the world for equity capital raised.

In 2012 the TSX and TSX-V raised C$56.3-billion, which Wertheim says represents their third-highest year ever – with C$64.9-billion raised in 2009 and C$58.8-billion raised in 2007.

For the fourth consecutive year TMX ranked first for new listings, with a total of 293 new listings in 2012; it ranked third in the world for new international listings, with 31 (compared to 33 at London Stock Exchange Group and 32 at NYSE Euronext); and ranked seventh by total market capitalisation.

Wertheim adds that, while 2012 was a difficult year for junior mining issuers, it is still seeing activity in the mining sector and companies that are at the more advanced exploration/development stage are still able to get financed.

“While the total equity dollars raised for our TSX-V companies was down from 2011