KEY TRENDS TO WATCH IN THE MINING SECTOR FOR 2022:

Insights from the

Toronto Stock Exchange

EXPERT OPINION ARTICLE BY:

Dean McPherson,

Head of Global Mining,

Toronto Stock Exchange & TSX Venture Exchange

"There are any number of trends that jump to mind. This year I have picked out four: The COVID-19 recovery; the looming prospect of inflation; climate change; and the buoyant market for new listings."

The long recovery from COVID-19

There are few industries that have escaped the direct impact and lingering aftershocks of COVID-19. The mining industry is no exception; from the doom and gloom of mine closures as the pandemic unfolded, to the robust response from miners globally and the rapid recovery in metals prices. The effects of the pandemic will remain for years to come, and in many instances, those effects will be positive. Take the issue of the health and safety of employees and local communities. This was made a priority very early on in the crisis. Supporting livelihoods and helping to build long-term community resilience to any future crises were two issues brought to the fore as miners, governments and communities collaborated in recovery efforts.

The theme of resilience will take centre stage in another area whose frailties were exposed by the COVID-19 pandemic – that of global supply chains. Mining companies are well acquainted with the challenges associated with supply chains serving often remote mine sites. But those challenges were hugely exacerbated. Operations that were previously optimised for cost and based on just-in-time supply chains simply lacked the resilience to cope with the disruption caused by the pandemic. This will remain a key area of focus for miners in coming years.

Inflation looming large

In mid-November, gold reached a five-month high on the back of US Labor Department data which showed consumer prices surge with October seeing a 6.2% jump from last year, the most since December 1990. Inflation – should it persist – will once again be a boon for the gold sector. Aside from its use in jewellery and electronics, gold’s key value is its inflationary protection.

An emerging asset class is increasingly talked of as an alternative inflationary hedge: Cryptocurrencies. However, it is not obvious that cryptocurrencies should lead to the phasing out of gold. Given the volatility seen in cryptocurrencies and global efforts to effectively regulate that asset class, there are plenty of headwinds that may well see gold remain the inflationary hedge of choice well into the future.

Climate change and the increasing demand for critical minerals

As climate change continues to drive the agenda, the focus has further sharpened on the mining of green and critical metals that are seen as a crucial part of meeting global warming targets. The decarbonisation of the transportation sector, amongst others, is a crucial pillar of carbon reduction, contributing as it does around 20% of global emissions.

According to the International Energy Agency (IEA), in 2020 alone, the global stock of electric cars increased by over 40% to 10 million units.

Wood Mackenzie estimates that even a 2° C global warming pathway will require EVs to account for fully three quarters of all car sales by the end of the next decade. That level of EV supply would place huge demand on the supply of battery metals and indeed other metals that will be needed to produce so many vehicles.

Continued strong demand for new listings

The start of this year saw something of a capital markets renaissance as an increasing number of companies were met with strong investor appetite for their initial public offerings and follow-on equity placements. At TSX, we saw an increase in the number of new listings, number of companies raising capital and the amount of capital raised; helped in no small part by the strong rebound in commodity prices following initial pandemic related declines. And, encouragingly, we saw significant demand and interest in the junior market as well. In fact, on multiple occasions this year, volume on the TSXV exceeded or matched volume on TSX.

In 2022, we will undoubtedly find it hard to escape the long shadow of COVID-19 and its growing number of variants. It seems inevitable that the pandemic and risks such as inflation will continue to give rise to volatility in all markets and across all asset classes. I would expect resiliency to remain top of the agenda for the coming year, particularly amongst the mining community. I am also encouraged by the increasing importance being placed on climate change and the consequent focus on green technologies including electric vehicles. More capital will flow to explorers and producers of input materials required to satisfy rapidly growing demand and, with TSX being the market of choice for many green and critical mineral miners, it is hugely exciting to be at the nexus of this global shift.

About the author: Dean McPherson is head of global mining for Toronto Stock Exchange and TSX Venture Exchange. He is responsible for the development and execution of the global strategy for attracting new listings in the mining sector to the Exchanges. Previously, he worked as an investment banker. Before joining the capital markets, he worked as a civil engineer, managing capital projects for Alcoa's bauxite/alumina operations in Jamaica and Fluor in Canada. In addition to an undergraduate honors degree in civil engineering, he earned an MBA from the Schulich School of Business and is a CFA Charterholder.

Image courtesy of Brian Lundquist on Unsplash