May 2009

Eye on Business

Canada: a global mining centre of excellence

By R.L. Shirriff, assisted by A.E. Derksen

Why Canadian mining retains its leadership position despite the global economic crisis

The ongoing global economic crisis has hit the mining industry hard. Most commodity prices are down significantly from historic peaks and many mining companies are scrambling for financing or seeking mergers to stay alive. Canadian companies have not been spared, with numerous bankruptcy and CCAA filings highlighting cash flow and financing problems.

The Canadian mining industry has been through many booms and busts in the past, always emerging strong and resilient. While it is premature to declare an imminent end to the crisis, conditions will improve eventually. When they do, any mining industry upswing is certain to have a large Canadian stamp on it.

Canada remains among the world’s foremost mining nations. The Canadian mining industry — with its concentration of knowledge, services, capital, effective policy and research and development centres — forms what Michael Porter, in his groundbreaking study in The Competitive Advantage of Nations, would call a “cluster” or a “centre of excellence.”

While global mining financings have all but dried up since the economic crisis escalated in the fall of 2008, in Canada, gold financings have recently begun to sprout and multiply. In January and February 2009, over $2 billion was raised through financings in Canada, primarily, but not exclusively, by gold companies. For example, Kinross Gold recently completed a US$415 million public equity offering, Rubicon Minerals raised C$40 million through a bought deal, and IAMGOLD announced a C$300 million financing in March.

Clearly, investor appetite for gold has been a key reason. Canada is a jurisdiction of choice to raise financing because of investor confidence in its capital markets, largely due to Canada’s securities regulatory framework, which favours relevant, transparent disclosure. The driver for this was the implementation of National Instrument 43-101 in 2001, which governs disclosure standards for mineral projects. The Instrument has raised the bar on mining technical disclosure requirements globally, boosting investor confidence in Canadian capital markets.

To maintain Canada’s edge, the Canadian Securities Administrators launched an initiative to review the Instrument, inviting minerals industry comments on possible changes to it so as to keep technical disclosure requirements relevant and effective with regard to mineral industry development.

Professional services and mining technology companies also form a key part of the Canadian mining centre of excellence. Canada has a significant concentration of the corporate and technical intellectual talent required by mining. Canadian-based companies have captured significant world market shares for geophysical equipment and software and are key providers of drilling and other critical services.1 Much of this is created or refined at Canadian universities, providing the industry the further advantage of highly skilled people.

Canadian-based mining companies carry out more international mineral exploration, and more mining finance is raised in here than anywhere else in the world. Canadian-based companies carry out over 40 per cent of global exploration, with over 8,000 projects in various states of development in over 100 countries.2 Canadian government mining policy sets global standards. The Fraser Institute Annual Survey of Mining Companies for 2008-2009 ranked seven Canadian jurisdictions in the world’s top ten for attractiveness of mining policy, with Quebec ranking number one in the world.3 This has helped make Canada the world’s largest recipient of mining investment, with a 20 per cent share of the total.

Canada is a one-stop mining shop: it has the human resources, the technology and the capital to fund exploration leading to the discovery and development of economic ore bodies. While Canadian and non-Canadian miners are currently being hit hard by the economic crisis, the global mining industry will survive. We can be confident that, with its centre of mining excellence, Canada will continue to play a major role within it.

1 Canada in the World of Mineral Exploration: A Growing Industry with a Rock Solid Foundation, Department of Foreign Affairs and International Trade, Trade Commissioner Service (March, 2003).

2 Facts & Figures 2008, a Report on the State of the Canadian Mining Industry, the Mining Association of Canada.

3 Seven Canadian Provinces remain in the top 10: Ontario (10), Saskatchewan (9), Manitoba (8), New Brunswick (6), Nfld. Labrador (5), Alberta (4), and Québec ranked (1) in the top spot overall.

Robert L. Shirriff (left) has been a member of Fasken’s Global Mining Group since its inception. His love of the practice comes from his love of mining people, whom he believes are some of the most interesting and creative problem-solvers in the world.

Andrew E. Derksen is an associate at Fasken Martineau DuMoulin LLP.

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