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Canadian miners working abroad just aren’t giving up.
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Despite a horrendous bear market in commodities, ongoing political risks and serious struggles to boost capital, these firms still invest vast sums of capital in mineral assets around the globe.
Canadian miners spent more than $69 billion on foreign projects in 2014, based on the latest data from Statistics Canada. That’s roughly using the 2013 figures, and it is generally more than these were spending each year throughout the metal price boom last decade. Mining and metal products consistently constitute about 10 % of Canada’s foreign direct investment, according to the Mining Association of Canada (MAC). And along with energy and financial services, it is a sector where Canada is a clear global leader.
“Mining is the area where Canada excels abroad, and that is not likely to change,” said Pierre Gratton, president of the MAC.
Obviously, some of the capital being invested today pertains to projects which were greenlighted years ago, when the outlook for commodities was far better. And the 2015 totals, which are not yet available, will likely show a decline in overall foreign investment as metal prices weakened significantly during the period of the year. Investment should continue to fall in the future so long as prices are low and capital is scarce.
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But the figures show that Canadians remain a force all over the world within this industry. There is little change indication that companies are bailing out of difficult foreign countries and retrenching back home in Canada, which some investors might expect these to do in this difficult market. More than 800 Canadian miners had interests outside Canada in 2013, based on Natural Resources Canada.
The major reason is just the nature of the business. Mining is really a truly global industry, and companies have no real choice but to visit where the best deposits can be found and where they are able to create the best return. That becomes much more important when prices are down. The incoming chief executive of Goldcorp Inc., for instance, recently mused about purchasing Africa, moving past the company’s traditional footprint within the Americas.
But the numbers also show a natural resilience within the mining business. Very few of these companies are abandoning their projects, even as investors still bail from the sector and capital becomes progressively difficult to come by.
“When the going gets tough, we just have to get tougher,” said Ron Little, chief executive of Orezone Gold Corp., with a project in Burkina Faso.
“We’ve already lived through three bad markets over Two decades, and unfortunately, you kind of get accustomed to it. You cut costs, you keep your very best people, and you hunker down.”
In addition to low metal prices, Canadian miners abroad are facing increasing political and security challenges in many jurisdictions. Lots of governments raised taxes on metal production when prices were high, and now that prices are down, those taxes threaten the viability of projects. Barrick Gold Corp. nearly shuttered an enormous copper mine in Zambia this past year before the government backed off a sizable tax hike.
“When investment decisions were being made and the market was up, there was much more willingness to tolerate (political risk),” said Ben Chalmers, vice-president of sustainable development in the MAC.
As well, security continues to be an issue in lots of countries, notably in areas of Mexico, Africa and Southeast Asia.
Orezone experienced this risk first-hand last Friday, when terrorists murdered a minimum of 29 individuals Ouagadougou, Burkina Faso’s capital. Burkina isn’t a country normally in the headlines, and the world was shocked by what happened.
Like a number of other Canadian mining CEOs in similar positions, Little said his commitment to Burkina has not deterred despite what happened.
He noted the top-performing gold company on the planet has been Randgold Resources Ltd., which are operating in a few of Africa’s most challenging countries. It’s proof so good management teams can invest successfully regardless of country risks.
“It takes you 10 years to develop one of these simple (mines),” he explained. “You can’t get weak in the knees and say, ‘We’re outta here.'”
For now, at least, the vast majority of his industry colleagues would agree.
pkoven@nationalpost.com
Twitter.com/peterkoven
