Introduction to Mining in Ontario

Evolving mining practices

During this volatile time, the agility of the Ontario mining sector has allowed it to retain a strong position through high levels of managerial discipline and caution. Rising commodity prices have allowed for greater production cashflows and balance sheets have become stronger. Majors have amassed capital reserves and have liquidity to continue exploring, developing and producing. However, the junior sector has continued to face challenges with a highly scrutinous investor base and supply-chain delays.

In the past 20 months, the industry has remained remarkably active, with many exciting transactions taking place. Perhaps the most notable is the merger of Agnico Eagle and Kirkland Lake Gold. On February 8th, 2022, the merger was completed, and the company now has approximately US$2.3 billion of available liquidity, with a mineral reserve base of 48 million ounces of gold (oz Au). With a large exploration and development pipeline, Agnico Eagle Mines is primed for continued and sustainable growth, as is the Ontario mining sector as a whole.

The Ring of Fire has come back into the spotlight with a thrilling bidding war for Noront Resources between industry giant BHP Billiton and Wyloo Metals, now owned by one of Australia’s largest private companies, Tattarang. It was only after several months of discussions that the winner from down-under was announced, with BHP withdrawing from the race.

The victory of Australian billionaire, Andrew “Twiggy” Forrest, over the world’s largest mining company, BHP, may have been seen as a surprise in some quarters. However, Wyloo’s previous foothold in the shares of Noront, combined with its determination to expand its portfolio of nickel properties, caused BHP to walk away from the deal.

“The sector is positioning itself to address increasing demand from rising urbanization and population growth, along with the crucial contribution of materials needed for the low carbon economy transition.”

Louise Pearce, Global Mining Director, ERM

Equinox and Orion Mine Finance Group’s Greenstone mine has started construction and will be one of the largest in Canada, costing about US$1.23 billion. It is expected to produce more than 5 million oz Au, with 400,000 oz/y for the first five years, and have a 14-year mine life. Construction at Argonaut’s Magino is on-going and IAMGOLD’s Cotê project construction is on-schedule, with commercial production expected H2 2023.

M&A has been on the rise throughout 2021, with companies looking to consolidate whole mining regions. Single-asset companies that have struggled to replenish reserves through the last mining cycle given low commodity prices and capital strains are now keen to partner with stronger players. Lessons from previous M&A deals and retaining shareholder interest, given many distractions such as cryptocurrencies and new technologies, will be more important than ever to avoid high premiums and debt, which stifled the industry in years past. The Agnico/Kirkland and Wyloo/Noront deals could be the first in a wave of M&A activity necessary to consolidate projects.

Toronto’s financial markets have witnessed mining take a prominent place in the TSX30 – a ranking of the top 30 performers on the Toronto Stock Exchange over a three-year period based on dividend-adjusted share price appreciation. TSXV to TSX graduation rates have also risen in 2021, and mining finance firms including PearTree Securities, Triple Flag Precious Metals, Haywood Securities, Stifel GMP, IBK Capital and Roth Canada have had their hands full with transactions, continuously finding innovative ways for Canadian mining companies to access larger pools of capital.

"A key driver for gold is inflation and with the current inflationary pressures around the world, we expect gold to attract more attention alongside base metals, the building blocks of industrial society, which will be required to develop resilient infrastructure. Copper and nickel get the best of both worlds as base and Future Metals."

Keith Spence, CEO & Partner, Global Mining Capital Corp.

The rapid printing of money throughout the pandemic and increased demand have led to challenges regarding inflationary costs. The hardest hit companies in the sector have been those in the midst of building new projects, with companies witnessing steep cost increases to their operations also due to the Canadian dollar gaining strength. "You see projects that have been inflated by up to 40%,” said Renaud Adams, president and CEO, New Gold.

With mining sitting at the core of the planet’s future, low-carbon targets have rippled across the value chain. PwC’s 2021 CEO Survey saw 76% of global mining and metals executives raise concerns regarding the environment, up 5% from 2020. The importance of investing in ESG and sustainability has given rise to new and innovative ESG platforms looking to support the sector through simplifying information and streamlining international requirements. There has never been a more important time to highlight the positive impact of the mining industry on all businesses across the globe. “Funds are much more rigorous on their ESG measurements and demands, and it is a trend that will only continue,” said Alex Pernin, CEO, Star Royalties.

A critical acceleration on the importance of Industry 4.0 processes fuelled by Covid has been observed in the past few years. Digital and technological transformation is a key priority for mining CEOs to become more efficient, with a strong interest in collaborating across industry sectors to find innovative solutions. As a swift response to the pandemic, new communications processes and protective gear entered the market, with mining companies taking a leading role in supporting rural communities through Covid. The Ontario mining sector continues paving the way globally for protocols, community relations, safety and efficiency.

Image courtesy of Jan Weber on Unsplash