PDAC 2024 delivers mixed signals as attendees look for answers to industry challenges


Author(s):
Alan Hutchison, James R. Brown

March 8, 2024

The 2024 Prospectors and Developers Association of Canada convention got off to a strong start, with large crowds and a buzz of optimism as thousands of delegates descended on Toronto to discuss the state of the global mining industry. The recent rally in some commodity prices leading up to the conference certainly helped fuel enthusiasm, but the inherently optimistic nature of the mining industry did not disappoint. However, we can't help but feel that something was missing this year that left many wanting more.

After the initial commotion, the crowd seemed more focused on hosting and socializing than making deals. It seems like we are still looking for the next catalyst for positivity in the space and continue to search for answers to the industry's challenges, as many of the themes from last year continue to resonate. Once again we are pleased to offer our opinion on this year's convention.

Current topics: critical minerals, energy transition and electric mobility

The most consistent theme reiterated by the growing number of lithium and critical mineral issuers continues to be the growth of the sector and optimism for the future. Despite dramatic price declines for key critical minerals in 2024, particularly lithium and nickel, we heard many of those issuers express their views that the market bottom had come and gone, with excitement for growth in 2024. .

Many of these same issuers were optimistic about their ability to bring new producing mines to market in the coming years. Given continued regulatory uncertainty, particularly around federal impact assessments in light of the Supreme Court of Canada's decision to strike down a portion of federal legislation, the timing of the project's development remains questionable. We discuss the impact of this decision on our Osler Legal Perspective end of the year article. It also remains to be seen how promises of a more efficient permitting process can be intertwined with community consultation obligations.

With strong government support in Canada, at both the federal and provincial levels, for the development of critical minerals projects, industry participants are actively seeking ways to leverage government funding and support to accelerate exploration and development. With a variety of financing options, including the Government of Canada's $4 billion Critical Minerals Strategy, the $1.5 billion Critical Minerals Infrastructure Fund and a variety of investment tax credits, as well as a variety of programs provincials, miners hope to speed up access. to the funds. It remains to be seen whether the Canadian government will extend the tax credit for mineral exploration, given its pending expiration.

At the same time, federal Industry Minister François-Philippe Champagne redoubled the focus on investments by Chinese entities in Canadian-owned and controlled companies, publicly criticizing one issuer for proposing a transaction to try to avoid a national security review. . Significant changes to the approach to national security reviews are in the works (as discussed in our Osler Legal Perspective article) and the Canadian government has not been shy about taking steps to deny investments and acquisitions by Chinese state-owned companies.

In addition to government funding, the trend of large-cap original equipment manufacturers (OEMs) and EV materials producers continues to make strategic investments in critical mineral emitters at the exploration and development stage. This has provided several issuers with a strong and stable source of funding in an otherwise challenging funding market. Most recently, as announced on the first day of the PDAC conference, Frontier Lithium revealed a strategic investment and joint venture with Mitsubishi Corporation to support the development of the PAK lithium project in northern Ontario.[1]

Gold Price Disconnect

At a time when gold prices are at all-time highs, it has not gone unnoticed that gold stocks remain persistently low. Although many gold issuers have seen a very recent positive trend, the disconnect between commodities and stocks highlights the significant risk premiums that investors are placing on the mining industry. This is true even for many issuers that generate significant results and strong cash flows.

While large-cap M&A deals in the gold space (and indeed the industry as a whole) have fallen compared to the broader market, we saw and heard a lot of discussion and excitement regarding Newmont Corporation's planned sale of six unlisted companies. -Main operating assets in Canada and Australia. Seeking proceeds to pay down outstanding debt following the successful acquisition of Newcrest Mining, these assets are sure to generate a significant amount of interest and hopefully act as a catalyst for broader deals in the gold space.

Exploration challenges

Low stock valuations prevail across virtually the entire junior segment of the market populated by exploration companies. Much has been made of the shortage of capital in the junior market for more than a decade. For the most part, exploration companies have been resilient in raising exploration funds from sources other than the public equity markets, such as joint venture partners, pass-through shares, royalty sales or other non-public financing transactions. dilutive. Several issuers offered their positions as being of balance sheet strength, confirming their ability to meet short-term needs through strategic investments and spending.

For the rest of the market, it appears that we are approaching the point of desperation as we wait for mainstream investors to return to the space, which is worrying the entire industry. Traditionally, it is junior exploration companies that discover new deposits developed by large producers. As many long-standing production assets approach the end of their useful lives amid rising long-term demand forecasts and as reserves begin to dwindle (especially of copper, which is critical to the energy transition), The industry needs new discoveries for the next generation of mines. .

It is becoming increasingly difficult for exploration companies and even some developers and operators to gain profile and traction in the market. Stock markets remain mostly frozen for mining issuers (despite the recent successful financing of First Quantum). Something will have to change. Either the stock markets will recover and new investments will return, or the long-awaited selection of junior companies will begin to occur. The challenge will be to implement change in a sustainable way that does not decimate the youth space.

IS G?

Discussions on ESG (environmental, social and governance) were definitely quieter at PDAC this year.

Positively, however, many broadcasters were candid and positive about the efforts they have made to build relationships with indigenous groups near their respective projects. Talk of partnerships, consultations and investments provides a positive signal to improve relationships between issuers and First Nations. The Canadian federal government also announced funding and support for Indigenous investments in mining projects during the convention.

Far North Ontario continued to be a topic of popular discussion, with increased interest in continuing to find ways to advance the development of access to challenging projects. The Ontario government, Marten Falls First Nation and Webequie First Nation jointly announced an agreement to develop community infrastructure projects that could support future development opportunities in the area, including the construction of year-round roads to the Ring of Fire region , rich in minerals.

The way to follow

All of the above leaves us wondering what the rest of the year will bring for the mining industry. For every positive event there is an area of ​​concern, mostly outside the control of the companies to which the events relate. We believe there will be more signs to come before we have clarity. Meanwhile, even well-positioned companies with strong balance sheets and cash flows are willing to exercise caution amid uncertainty over future financing. As we wait for the next market windows to open to renew financings and close deals, nothing beats the value-creating power of a discovery, so we're counting on the optimists to deliver.


[1] Osler represented Frontier Lithium in the investment.

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