The Québec Investment Scene
The province remains a top investment destination due to its institutional and fiscal incentives
During the opening speech of “THE Event” in Québec City in June 2023, in front of a crowd gathering Canada’s top mining executives, former Yamana Gold CEO Peter Maronne highlighted the capital markets’ role as the backbone of the mining industry in the country, citing Montreal as among the great financial hubs for the country. Highlighting the need for consolidation in the industry, he left with a word of wisdom for future mining investors, advising: “The way to create value is the balance between an open mind and critical due diligence.”
Québec’s welcoming investment environment, supportive institutions, and predictable regulatory landscape make the province an ideal candidate to receive capital. And with vast amounts of cash coming into the industry, the timing is ripe. Investment expenditures in Québec grew by 52% y-o-y in 2021 to US$4,293 million. Preliminary expenditures in 2022 and investment intentions in 2023 showcase that these figures should be sustained, making the case for investment amounts unmatched for over a decade.
Québec’s gold and lithium M&A picture
Mining M&A saw its strongest run in a decade in Q4 2022, and many high-value deals have sustained that trend so far into 2023, and 2024 is expected to herald yet further consolidations. In an environment dictated by lower grades, higher costs, and inflationary impacts, any consolidation will appear like a smart move. And indeed in 2022/2023, Québec witnessed that gold’s role as a hedge against inflation – coupled with a decade of underinvestment in new supply for the commodity – has renewed interest in gold M&As. On the critical minerals side, the green transition incentive for M&As.
The acquisition of Yamana Gold by Agnico Eagle Mines (overseen by Marrone) and Pan American Silver in a cash-for-shares transaction valued at US$4.8 billion was one of the largest deals of 2022. More recently, the US$19 billion acquisition of Newcrest by Newmont created the world’s biggest gold firm. In the gold space, the need for new resources should naturally lead to more partnerships, at least according to Pascal Hamelin, CEO and director of Abcourt Mines, a future gold producer in Matagami: “Majors have assets, but they are mining them, they are not doing much exploration. Eventually, these will phase out, so more exploration is needed, and growing for producers means talking to developers and juniors with assets close to their mills.”
Take a good look at Québec’s Eeyou Istchee James Bay territory, because it will more likely than not be unrecognizable in the next years. The battery-demand boom will supercharge M&A activity in the lithium space, and James Bay already witnessed a deal that could give birth to the third-largest lithium producer globally by 2027: the US$10.6 billion Allkem-Livent merger. That transaction will create a leading global lithium chemicals producer, with combined revenues of approximately US$1.9 billion and an adjusted EBITDA of approximately US$1.2 billion. This should pave the way for more deal-making in James Bay’s crowded lithium scene, where explorers virtually step over each other’s claims. After a record run on lithium prices last year, and with the correction in 2023 which rebalanced valuations, balance sheets across the major producers are solid and there is cash to deploy for growth through acquisitions.
Competing for capital allocation
CEOs of precious metals, critical minerals, and base metals companies all compete intensively for capital allocation. In Québec, the wind seems however to have turned in favor of the “future-facing” commodities. With over US$400 billion in assets under management, Desjardins is deeply involved in supporting Québec’s mining industry, and the majority of the province’s producers and explorers are likely clients of the bank. Maciej Pach, managing director, sees pools of capital being unlocked for future-facing commodities in the near term: “I think we will see good quality projects get financed but with more hype and interest around “future-facing” commodities.”
"Our economic levers are independent of government and are not influenced by the application of aid programs. We maintain a free-market economic environment. There is no interference, only a shared vision."
Maïté Blanchette Vézina, Minister of Natural Resources and Forests, Government of Québec
This forecast was seconded by Pach’s colleague and fellow managing director, Carlo De Girolamo, who pointed towards lithium as the commodity of choice for investors in Québec in the years ahead. With projects advanced beyond permitting and engineering, and with the province now holding the final pieces of the puzzle to create a complete battery value chain in North America (as shown by the arrival of two giants in Bécancour in recent months: GM and BASF), opportunities will be plenty: “We need to connect the chain between the electric vehicles and the rock. The ‘in-between’ is where capital investment opportunities lie in 2023-2024,” De Girolamo assessed.
On the other hand, Québec’s gold players have felt frustrated with the direction capital has taken in the past year. The inflationary environment, the cyclical nature of mining, and growing interest in battery metals prompted by the green transition seem to be the origin of their malaise, despite gold prices reaching high marks for most of 2023. Matthew Horner, president and CEO of Maple Gold Mines, shared his thoughts on the financing space: “The financial environment is currently extremely tough and even the best projects are having a hard time attracting investment. The inflationary environment has put a lot of pressure on investors with debt obligations.”
But geological facts and market fundamentals suggest the future will be shinier for gold players. With gold reserves down 40% from their peak, shrinking production, and declining grades, long-term supply-demand fundamentals appear in favor of the commodity. Osisko Mining’s president and CEO Mathieu Savard explained: “Financing has been challenging since the beginning of 2022. 2023 was harder for gold and base metals than for critical minerals, which are clearly in favor. But it does not change the fact that global resources are depleting and not being replaced.”
Envied institutional support
Québec is a province where the institutions and miners speak the same language – at least most of the time. In 2020, Québec adopted the Plan for the Development of Critical and Strategic Minerals 2020-2025, and the province keeps updating the plan to ensure it remains relevant to tomorrow’s mineral needs. The plan is in synergy with new government actions, such as the Québec strategy for the development of the battery industry, the 2030 Sustainable Mobility Policy, and the 2030 Plan for a Green Economy.
In a context of collaboration among all stakeholders in the province, the Québec government’s divisions aimed at attracting investment to the province and financing early-stage and high-risk exploration activity are unique tools. SIDEX, Le Fonds de solidarité (FTQ), Caisse de dépôt et placement du Québec (CDPQ) and Investissement Québec are not just institutions, but shareholders. In Québec, odds are that any explorer investor presentation will have at least one of these institutions among their key shareholders, if not all of them.
Investments in Québec’s exploration projects from institutions and private actors are on a significant growth trajectory, with over US$990 million spent in 2021, an 85% increase from 2020, according to the latest study from the Institute of Statistics of Québec. Jean-Francois Béland, VP of Ressources Québec, explained the support of Québec’s institutions in today’s mining environment: “Ressources Québec has a central role to play from an industrial policy point of view on the critical minerals, the battery strategy, and on new green energy. We are in the middle of all these discussions and are the catalysts between private interests, the state public policy, and different investors.”
"What is important to us is the management team, the project or idea that needs to be financed, and then the commodity. ESG is always part of the equation."
Elian Terner, Managing Director and Head, Global Mining & Metals Investment Banking, National Bank
Incentives to lead investment attractiveness
Québec’s fiscal and tax regime remains a key incentive to encourage mineral exploration in the province. In 2022, a federal proposition was passed regarding a “super flow-through” 30% critical mineral exploration tax credit (CMETC) to increase investment in 15 minerals. The taxation system’s contribution to accelerating the mining industry was remarked on by many new Australian firms coming to explore the province’s lithium and copper potential. Steven Turner, managing director of Pivotal Metals, an ASX-listed firm that in 2020 picked up the Midrim & Laforce exploration package in the Belleterre-Angliers Greenstone Belt (BAGB), explained: “Having a critical metal portfolio in Québec gives you the highest uplift you can get through your flow-through as the market sees it as two to one – every dollar you raise from investors effectively translates to two dollars you can invest in the ground.”
Overall, what makes Québec’s financial ecosystem so strong is the fact that one investor dollar seems to go further in La Belle Province than in other jurisdictions. In the competition to attract capital in the context of the green transition and an ever-so-capital-intensive industry, Québec keeps on adding to its already top-tier incentives. Toronto-based Troilus Gold, currently advancing the Troilus project towards production, recognized this advantage: “The Québec government actively participates in our ventures and provides financial incentives for exploration and development in the region. For every dollar spent, we receive a 36-cent refund, maximizing the effectiveness of our investment and accelerating project advancement” detailed CEO and director Justin Reid.
Image courtesy of Ressources Québec