Rebounding commodity prices see Canadian mining firms boost exploration 31%

16 July 2018 4 min. read
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A new report finds that resurging commodity prices are spurring on higher mining exploration spending, especially in Canada. Canada’s top mining firms increased their exploration spend 31% to $620 million last year, while also remaining focused on key areas like digital transformation, safety, partnerships, and diversity.

Last year was a good one for the world’s 40 largest mining companies, largely due to recovering commodity prices driven by general global economic growth. According to accounting and consulting firm PwC, the revenues of the top 40 rose 23% to $600 billion in 2017. Furthermore, cost-saving strategies from the past years of downturn, as well as improved margin and cash generation, led to a sharp increase in profits. Capital expenditures, however, remained flat – reflecting the typical lag between financial performance and capex in cyclical industries.

PwC’s Mine 2018 report saw six Canada-based mining firms stay in the global Top 40 – with three rising, two falling, and one standing pat in relation to the 2017 ranking. Potash Corporation of Saskatchewan remained the top Canadian firm at 13, while Barrick Gold fell three spots in the ranking to 14. Teck Resources (diversified) also fell three spots, to 16, while Goldcorp fell 7 places to 25. Meanwhile, Agnico-Eagle Mines (gold) rose one position to 26, and First Quantum Minerals (copper) rose 4 spots to reach 30.

The report expects the top Canadian firms to continue growing amid the continued upswing in the mining cycle. Indeed, Canadian mining companies increased their mining exploration spending from $473 million in 2016 to $620 million in 2017 – more than double the average increase in the Top 40. Other major trends – and keys to long-term success – identified by the PwC report include digital transformation, safety, partnerships, tax impacts, and diversity.Top 40 performance trendsPwC relates that the Canadian miners in the Top 40 continue to be leaders in digital transformation – improving efficiency and safety, while mitigating cyber risks. Partnering with tech companies has been a big part of this: Teck Resources, for example, teamed up with LlamaZOO to create MineLifeVR – a virtual reality program which converts data into an immersive visualization of a mine’s entire lifecycle, speeding up planning. Mines are also exploring the use of AI in new digital pilot projects, and the market upswing will allow them to test efficiency-boosting test programs before scaling up.

Rising shareholder expectations and growing global labour costs are pushing Canadian firms to seek value in partnerships in order to reduce costs, realize synergies, and increase sustainability. To this end, Quebec miners have been allying with government, private equity, and capital markets to find new financing sources. According to PwC, the partnerships help the firms not only in terms of cash, but also with access to leadership and experience from outside the mining industry.

Canadian firms also stayed committed to safety – accounting for over a third of the Top 40 companies that had decreased or steady injury frequency rates in 2017. Firms also started leveraging predictive analytics to identify hazards, as well as autonomous technology to remove humans from high-risk activities like blasting and drilling. A number of Canadian firms have also been studying operator fatigue to build guidelines and processes to maximize safety.The global Top 40 mining companiesAnother trend identified in the report was that of international tax impacts. Canadian mining firms with US operations saw some relief from US tax reforms, which reduced tax burden by 15% and the effective tax rate by about 5%. However, there are rumblings that African governments may increase tax rates in the future to adjust their share of revenues from operations.

PwC reports that Canadian mining firms continued to show leadership in the diversity of their boardrooms, with women accounting for 25% of directors as opposed to 19% globally. While the Top 40 firms nearly matched Canada’s year-over-year increase in female boardroom representation, Canadian firms still slightly led the global group as a whole.

"Last year was a remarkable year for Canadian miners with significant increases in exploration spending,” commented Liam Fitzgerald, National Mining Leader, PwC Canada. “Overall, the sector continues to prioritize digital transformation efforts, focusing on increasing efficiency, enhancing safety, and mitigating cybersecurity risks. A heightened focus on innovation, technology, and efficiencies shows we're moving toward the goal of creating sustainable, long-term value."