Mining investment crucial amid downturn, industry warns
Mining is more resilient than the Toronto Maple Leafs, but Canada risks being shut out as a top global player as the commodity slump drags on, warns the president of the Mining Association of Canada.
“It’s been tough,” Pierre Gratton told the Economic Club of Canada Wednesday.
He emphasized that the last six months have been “generally dismal” for miners and commodity prices, particularly iron ore and coal, and their near-term prospects aren’t great either, he said.
Mineral exploration financing was also “grim” in 2013 as global budgets to discover new projects dropped by 30 per cent, he noted, adding: “This decline is as worrisome as it is dramatic.”
And last year, after an eight-year reign as the top country for global exploration spending, Canada dropped to second place behind Australia.
“Although mining will continue to be an important part of our economy, we may be at risk of losing our status as a global mining leader if we don’t stay focused,” warned Gratton.
He pointed out that in 2013, the world’s 40 largest mining companies — many of which are based in Canada — booked record write-downs of $57 billion while the senior producers’ net profits fell 72 per cent to their lowest level in 10 years.
“The industry is in the midst of a significant downturn,” he said.
But government and private investors can learn from the past by investing in crucial infrastructure needed to build mines, particularly in remote regions of Canada.
“In the dot.com era, mining was abandoned, dismissed as a sunset industry whose time was over,” he said.
As a result, metal producers weren’t well-positioned in the early 2000s when the tech bubble burst and China’s expanding economy translated into unprecedented demand for resources and metals, Gratton noted.
“Because we weren’t paying attention at the time, policy makers spent a good part of the last decade playing catch-up to capitalize on the resource boom that had arrived,” warned Gratton.
He said the secret is not to chase trends and “not making the same mistake we made a decade ago by abandoning natural resources – whether it’s iron ore, coal, copper or oil – because they’re slumping.”
However, Canada is one of the most expensive places in the world to build and operate a mine, Gratton said, due to increasing rates for diesel and electricity and the dearth of skilled labour.
“We want to be in a position to maximize our return when the cycle changes again – which it will – because unlike the Maple Leafs, mining always bounces back,” he quipped.
“We must make sure Canada remains one of the best places in the world for investment, to find and develop the mines whose products the rest of the world needs,” Gratton said.
He pointed out that despite the bear market in the sector, Canada’s mining industry continues to make enormous contributions to the country’s social and economic well-being.
The Toronto Stock Exchange is the world’s largest equity market for mining, with about 1,500 publicly-traded mining companies listed. Their total market capitalization is valued at $265 billion.
Last year, 62 per cent of global mining equity, or $8.9 billion, was raised on the TSX and the TSX Venture Exchange.
“The industry remains a strong bedrock of the Canadian economy. Our miners, long experienced in the ups and downs of this sector, are focused on controlling costs and preparing for the next upswing,” Gratton added.