Tapping into Québec’s Financial Institutions
A quantum of incentive for a quantum of exploration
Flip through any investor presentation from a junior mining company in Québec and odds are the company will list some combination of SIDEX, Le Fonds de solidarité (FTQ), Caisse de dépôt et placement du Québec (CDPQ) and Investissement Québec among their key shareholders. Adroitly tapping Québec’s government backed institutions for investment is a key component of successfully financing a mine in the province, and it is an advantage that makes it stand out as a mining jurisdiction globally and within Canada. When beginning exploration in Québec, companies know that there is a framework in place to assist in the development of their asset. If done successfully, a company can receive financing from cradle to grave, with SIDEX helping to finance the early exploration stage, then CDPQ coming in towards engineering and feasibility phase, and Investissment Québec entering near commercialization.
The logic behind this framework is that it allows mining companies operating in Québec to access capital in good years and bad years via a steady stream of funding. The results speak for themselves. Over the past twenty years, SIDEX has concluded around 350 financings for over 150 companies deploying approximately C$100 million. The fund has also grown from C$50 million to nearly C$90 million under management today, while returning C$16 million to investors over the life of the fund. Paul Carmel, president & CEO of SIDEX, outlined the funds’ philosophy: “For many funds, any investment before a mineral resource is defined or a PEA is completed is deemed too risky. SIDEX is the opposite. When a company gets to that level, it is almost too advanced for us. We are at the front end of the process, which is often a very difficult step for companies to raise capital because it is so high risk that they do not meet the criteria of many funds.”
Outside the Abitibi
Another aspect of SIDEX’s mission is to help open new territories with strong discovery potential to exploration and attract new investments. Carmel continued: “If a company comes to us with a project on the Cadillac trend that has been operating and producing gold for 100 years and they are picking away at old discoveries, that will receive less focus and interest from us than a company that comes in and has a new theory in a new camp. That excites us, because it can create interest in less explored areas and lead to new discoveries.”
Investment from these government sponsored funds can be a catalyst to attract capital to a company for several reasons. First it aligns the government of Québec with a project, which can bring legitimacy when going through the permitting process. Another factor is that these investments come as a result of extensive technical, financial and social due diligence. Therefore, a significant barrier dissuading investors without the capacity to perform in depth due diligence is removed.
When asked about Québec’s ability to tap global investors to finance large scale critical mineral projects in the province, Pascal Lussier Duquette, director of investment banking-metals & mining at BMO Capital Markets underscored: “What outside investors want to see is that the local financial institutions are supportive of mining companies. If a junior comes to London to speak to investors about a battery material project in Québec and they can say that Caisse de dépôt and Investissement Québec are backing them with significant capital, that is comforting to international investors.”
Some may consider an overreliance on government funding to weaken the robustness of the system, but in conversations with juniors and fund managers it is clear that governments’ presence is crucial yet limited, as evinced by the Nemaska Lithium bankruptcy. Jean-Francois Béland, vice president at Ressources Québec, explained: “We are not here to compete with banks. We work with partners in the financial community to offer the best financial options to our clients. Many projects come to us with a special need for some element of financing that is not necessarily met by the market. Since we have the policy goal of economic development, there is a more tolerant approach to risk as well.”
Québec’s formula for building a financial ecosystem may seem simplistic on the surface. It boils down to the fact that government support is essential for building this type of ecosystem, which requires a variation of investment funds that invest at different stages of a project, and financial support for early exploration projects is essential. In reality, however, it is very difficult to implement, and that is why, despite other jurisdictions trying, few, if any have something comparable to incentivize miners.
Image courtesy of Regis-Hari Bouchard on Unsplash