Rebounding commodity prices see Canadian mining firms boost exploration 31%

16 July 2018

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."



Canadian cannabis firms have attractive international opportunities, MNP reports

18 April 2019

Accounting and consulting firm MNP has released a report examining the comparative favourability of international cannabis markets.

As the first G7 country to legalize recreational cannabis, Canadian businesses are in an advantageous position to steer the emerging sector. However, Canada’s market is still a small one in the global scale of things. As in the case of other industries like manufacturing or natural resources, Canada’s cannabis firms need to pursue opportunities abroad in order to compete globally and unlock true growth potential.

"Canadian cannabis firms have the financial capital, intellectual capital, human capital, and a supportive policy framework to germinate the seeds of international success," Glenn Fraser, MNP's national cannabis co-leader, said. "Whether opportunities blossom depends on how effectively they leverage those advantages to get in on the ground floor of new markets. The time is now for Canadian cannabis companies to take a leadership role and replicate the Canadian model in new environments."

For now, only Canada and Uruguay have legalized recreational cannabis sales on a national level. However, numerous countries have legalized medical marijuana, and more still are contemplating recreational legalization, encouraged by Canada’s example as well as the changing attitudes of citizens.

MNP, a nationwide accounting and consulting firm with a strong cannabis advisory practice, recently released an illuminating report on the comparative attractiveness of international cannabis markets. The firm analyzed 16 international markets with dynamic cannabis sectors, considering factors like available financing, taxes and fee structures, and policy maturity. Though no markets received top marks across all categories, several still showed great promise.

Financing opportunities

Accessing capital, banking, and financial services can be a challenge in some markets, but remains an important part of market viability and business success. As such, MNP’s report analyzed the relative ease of accessing capital through public or private markets, as well as the availability of banking services.

Israel, Switzerland, Australia, and Malta emerged as the markets with the best financing opportunities. Israel’s cannabis sector, which has seen strong investment from Canadian firms, has also been buoyed by the anticipated legalization of exports. The Israeli market is largely supported by private equity firm iCan, which represent firms from more than 40 countries.

Switzerland’s cannabis market has also seen heavy investment from Canada, while the SIX Swiss Exchange and Bern exchange provide ample access to further capital. Venture capital is also expanding rapidly.

Australia, meanwhile, has the Australian Stock Exchange, which is already home to more than 20 cannabis stocks, including AusCan, Bod Australia, and Atlas Pearls.

Malta has strong access to capital though the Malta Stock exchange, as well as investment from banks. The small island nation has a particularly vibrant emerging medical cannabis sector, which has largely been built from international investment. "If Canadian businesses want to build eminence in new countries, they need to involve themselves in cannabis' continued integration into healthcare," David Danziger, senior vice president, assurance, MNP, said. 

"Companies who are already active in regions with a burgeoning medical market will have a clear advantage – both in terms of brand awareness, infrastructure, and international relationships – if and when those areas transition to recreational legalization," Danziger added.

Colombia, Jamaica, Denmark, Germany, and the UK were tagged as mid-level markets for financing opportunity, while Uruguay, Mexico, Netherlands, Portugal, Italy, Africa, and Asia were on the low-end.

Taxation and fees

Another central factor is the level of taxation and fees, which determine overall profitability, but also cannabis sector viability – set taxes and fees too high, and consumers will flock to the black market instead of buying overpriced legal pot. Uruguay (corporate tax rate 25%), Portugal (21%), and Jamaica (25%) were deemed as having the most favourable tax and fee burdens. Asia also entered the top tier, with China holding a corporate tax rate of 25%, and Thailand carrying a favourable 20% rate.

The UK, Netherlands, Australia, and Mexico were in the middle range, while Colombia, Israel, Switzerland, Malta, Italy, Denmark, Germany, and Africa were in the high-taxation range. All of the countries in the mid and high tier for taxation were hampered by either higher corporate tax rates, value added taxes (usually in 20% range), or a combination of both.

Policy maturity

Colombia, Jamaica, Australia, Malta, and Germany have the most mature and open cannabis policy environments, according to the MNP report. Jamaica is setting itself up as a premier legal cannabis producer, with progressive cannabis laws and dispensaries that allow tourists to purchase medical cannabis.

Colombia is creating a strong export market, with 80 companies producing cannabis products, many with international investment. The sale of dried cannabis for medicinal purposes, is, however, still barred.

Australia has a strong amount of domestic production underway with investment from Canadian firms, and recently permitted cannabis exports. There is also the belief that the government will start reimbursing medical marijuana in the years to come.

Though it has a miniscule population, Malta’s cannabis industry has attracted heavy international investment. The country’s high cost-per-gram paid by patients, as well as its liberal medical cannabis importation policies, make the country an attractive target.

Finally, Germany has perhaps the most advanced medical cannabis market, with its own government agency and costs coverage by the national health plan. The number of insured patients and medical cannabis imports are both on the rise, and some executives believe recreational legalization is on the horizon.

Uruguay, Israel, Italy, the UK, and Mexico were deemed to have mid-level policy favourability, while the Netherlands, Switzerland, Portugal, Denmark, Africa, and Asia had low-end policies. The Netherlands, despite its image as a pot haven of sorts – especially in Amsterdam – is actually just lax on enforcement, as the drug is still federally illegal. Many of the countries on the list have decriminalized personal possession and consumption of marijuana, but its sale and production remains illegal (outside of medical parameters). 

Overall, Jamaica and Australia emerged as perhaps the most attractive cannabis markets, with Australia in the high tier for financing and policy, and mid tier for taxation. Jamaica, meanwhile, has high-tier policy, mid-level financing, and a low-tax environment.

Looking forward, MNP advises Canadian firms to double down on their competitive advantages, while building a strong brand at home as opportunities open up abroad. "It's important for local cannabis companies to consider their areas of expertise and invest heavily in owning that position in the market," Fraser said. "The most valuable international opportunities will go to those companies who have developed a sustainable (and transferable) competitive advantage in conjunction with a recognizable brand in their home market."