Resiliency in a world of uncertainty

As originally published in the Spring Edition of Canadian Mining Magazine

It’s hard to imagine a more exciting or extraordinary time in the mining industry.

Canada has abundant, although largely untapped, critical minerals vital for national security and essential for powering modern and clean technologies that will underpin the world’s future economic growth and prosperity.

The mining industry produces more than 60 minerals and metals, employs 694,000 jobs directly and indirectly nationwide, contributes C$161 billion to Canada’s GDP, and accounts for 21 per cent of the country’s total domestic exports. The U.S. is Canada’s biggest buyer, with mineral exports valued at about $84 billion in 2023, including $30-billion worth of critical minerals, according to Natural Resources Canada.

Nearly 60 per cent of Canada’s critical minerals are exported to the U.S. As much as 27 per cent of the U.S. uranium needs come from mines in Saskatchewan, 80 per cent of U.S. potash comes from Canada, and 70 per cent of U.S. aluminum comes from plants in Quebec and B.C. The U.S. also depends on nickel from northern Ontario and zinc and germanium from B.C. for its military needs.

The U.S. needs to source much more – and from secure, dependable sources like Canada – to ramp up its economic engine and meet the growing power demands for data centres and artificial intelligence. As just one example, the U.S. is trying to reduce its dependence on Russia for uranium, although it still imports about 12 per cent of natural uranium and 27 per cent of enriched uranium, according to the U.S. Energy Information Administration (The U.S. banned Russian imports, albeit with waivers through 2027).^1,2 

It is no surprise that U.S. President Donald Trump is fixated on its northern neighbour.

He may well be the catalyst Canada needs to finally tackle the industry’s long-standing concerns.

This is the time to seize the moment, think big and act with urgency.

The biggest barriers to growth for mining companies are well-known: expensive and lengthy permitting and regulatory processes and access to capital.

The consensus among mining leaders is that their ability to develop new mines is becoming almost too steep of an uphill climb, owing to extensive and complex regulatory and compliance requirements, heightened expectations on environmental, social and governance (ESG) performance, rapid technological advances, and the competition to attract and retain talent, our Digging Deep annual survey of global mining executives found. And that’s on top of the inherent challenge and time required to explore for and define the mineral resource!

Permitting remains as live an issue as ever, with the length of time and effort required to secure permits showing little sign of improving. It can take an average of 27 years in Canada to develop a mine, noted a S&P Global Market Intelligence June 2024 report.

To speed mine development and help reduce costs, the industry and all branches of government must work more closely together to align and streamline permitting and related processes. While governments have been working with the industry to eliminate hurdles, certainly in light of recent geopolitical events, this is one area where mining companies would welcome more expeditious action.

The social licence to operate is both a challenge and opportunity, mining executives told KPMG.

First Nations must be at the table at the outset of any projects. Their participation is vital to a project’s success.

Increasingly, miners are focused on sustainability, protecting the environment, implementing state-of-the-art health and safety controls and digital mining technologies, including AI models to find deposits, and reducing their greenhouse gas emissions.

Mining is a complex industry. A breakthrough find is nothing if the minerals can’t be economically and efficiently extracted or brought to market. A successful mining project requires robust infrastructure around it from transportation networks (roads, rail access, and port facilities) and adequate power supply to water management systems.

Access to capital remains a perennial issue for junior mining companies and is prompting one senior stalwart (at least) to consider redomiciling in the U.S., home to the world’s deepest capital markets and under the Trump administration potentially ultra-low corporate tax rates.

While Canada has a long history of using unique tax mechanisms to encourage mineral exploration and development, innovative federal and provincial tax policies will be needed to spur investment and attract new investors.

A tariff war creates uncertainty, increases volatility in commodity prices and stock valuations, and raises overall costs. The impact for each company will vary depending on the commodity and supply chain, and be potentially positive, as higher commodity prices and favourable foreign exchange rates help offset tariffs. For some, it could force them to sell, form strategic alliances, or find joint venture partners. At worst, it could shutter their operations.

But unquestionably, it will create uncertainty and a need to continuously anticipate potential impacts on your business.

I anticipate an increase in mergers and acquisitions and strategic partnerships as companies look to secure the necessary funds to expand and navigate geopolitical turbulence.

Like other exporters, mining companies are currently evaluating their operational strategies to mitigate their exposure to U.S. trade policies and a possible recession. Some companies are also exploring alternative markets to the U.S. to avoid the proposed tariffs, confident in the immense demand from Europe and Asia for critical minerals.

However, there are risks in reconfiguring supply chains and ensuring contractual obligations are thoroughly evaluated. Companies should conduct a dynamic enterprise risk assessment, including auditing the effectiveness of enterprise risk controls on supply chains, cash flow and profitability, and perform ‘what-if’ scenarios with different variables to assess trigger points and dependencies.

The threat of tariffs has also shone a spotlight on the need to bolster capacity for processing metals.

One mining company owned by Australian billionaire Andrew Forrest unveiled plans last year to build Canada’s first processing facility for low-carbon nickel in Sudbury. The facility will process ore mined from northern Ontario’s Ring of Fire mineral belt, and fill a critical gap in Canada’s electric vehicle battery supply chain.

I am confident Canadian mining companies will weather the economic uncertainty caused by tariffs. A weakened Canadian dollar against its U.S. counterpart could act as a buffer against tariffs, potentially also increasing profits for some companies.

Gold prices are reaching fresh highs. Goldman Sachs Group recently raised its year-end target for the precious metal to US$3,100, saying that central-banking buying would be a key driver, as well as expanding exchange-traded funds.

Despite the apparent challenges, hope springs eternal.

The mining industry is resilient. But they will need help: the overwhelming majority (98 per cent) of Canadian mining leaders told KPMG in a survey last spring that more investment, government commitment, and favourable tax policies are needed to support the industry’s growth. While companies will brace for the coming storm, the question is, what place will the industry have in building a stronger, more resilient Canada?

Will mining companies redirect critical minerals to markets outside of the U.S.? Will investments be made in major mining and refining companies? How feasible is it to rapidly build a strategic reserve of critical minerals in Canada? Can Canada contemplate developing strategic reserves without domestic refining and processing capacity? Will Canada and the U.S. jointly invest in North American critical mineral megaprojects?

Time will reveal all.

But the future is ours to command.

^{1. Uranium Marketing Annual Report, U.S. Energy Information Administration, June 6, 2024}

^{2. U.S. Ramps Up Hunt for Uranium to End Reliance on Russia, Ivan Penn and Rebecca F. Elliot, The New York Times, Sept. 30, 2024}