Canadian miners optimistic as commodity prices rebound
Canadian mining companies are optimistic about their growth prospects coming out of the pandemic, according to a recent report from KPMG. The consulting firm’s “Risks and opportunities for mining” report surveyed 225 companies globally, of which 89 (39%) were headquartered in Canada.
Forty-three percent of Canadian mining companies are optimistic about industry prospects compared to 31% of global respondents. The pandemic initially hit most commodity prices hard – except for gold – but prices have subsequently rebounded and are continuing to rise as the global economy picks up steam.
There is also growing demand for “green metals” like lithium, cobalt, and nickel due to green technology acceleration. The World Bank projects demand for the above minerals will increase nearly 500% by 2050 as more wind, solar, geothermal, and energy storage applications go online to combat the climate crisis.
"The outlook for the mining industry is extremely positive," said Heather Cheeseman, partner and Toronto mining leader, KPMG Canada. "The year-long rally in commodity prices, even with the recent volatility sparked by inflationary concerns, is driven not only by pandemic-induced supply chain issues, but also climate-action demand for green metals and the massive spending expected on infrastructure."
Though approximately 40% of Canadian and global miners said access to capital has been a challenge in the last three years, that situation has abated with the commodity price rebound and green metals demand increase. Thirty-nine percent of Canadian miners and 27% globally reported improved ability to access capital. Echoing perceived easier access to capital than their global peers, 24% of Canadian companies are significantly more optimistic about their company growth prospects compared to 12% of firms globally.
Respondents identified commodity price risk and the global pandemic as the top two risks in the mining industry. The third-greatest risk for global respondents was economic downturn, while Canadian firms identified “community relations and social licence to operate” as their third-greatest risk. Community relations ranked fourth globally, while environmental risks ranked fifth. Environmental risks, including regulations, ranked tenth for Canadian firms.
According to the above findings, Canadian miners are especially concerned with how credible, reliable, and accepted their projects are in local communities where they operate – including remote Indigenous communities.
Ninety percent of Canadian respondents also said they need a clear, measurable ESG strategy versus 79% globally. With institutional investors increasingly adopting ESG-minded investment strategies, mining companies need to ensure their environmental, social, and governance plans and metrics are in presentable condition.
“The days of considering ESG factors as 'soft' secondary risks are long gone," Cheeseman said. "Investors are demanding miners have clear and measurable strategies in place. ESG now dominate boardroom conversations in every mining company, and mining leaders overwhelmingly agree this is a top priority."
Canadian and global miners expect innovation and technology transformation to drive future growth. Though nearly half of respondents expect major technological disruption in the industry in the next three years, only one-third of Canadian firms say they are disrupting the sector compared to more than half of global respondents.
With many small- and medium-sized miners headquartered in the country, 44% of Canadian miners pointed to M&A as important for growth, versus 22% globally. Smaller firms – a prime M&A target – would also have a tougher time meeting increasing demands in ESG and innovation.
“Consolidation may provide the opportunity for many players to address these as well as drive efficiencies and lower costs," Cheeseman concluded.
