The Decibel - The ‘valley of death’ for Canada’s mining companies

Episode Date: February 12, 2025

Canada has a long history of mining and produces a lot of critical minerals. Your smartphone has a bunch of critical minerals in it, your car, your fridge, pretty much everything is run on computers these days, right? That's Nile McGee, The Globe's mining reporter. We have a number of established mining companies in this country, but also ones that are smaller and hoping to grow. These are sometimes known as junior mining companies in this country, but also ones that are smaller and hoping to grow. These are sometimes known as junior mining companies. There are probably in Canada thousands of junior mining companies.

Some of them are so early stage, they're literally just drilling and they don't have anything. And then there are juniors that are quite far along. They're waiting on permitting and they've raised potentially all the money they're gonna need. But many of our junior mining companies are struggling to survive and there's a lot at stake if we lose them. Today, Niall's here to explain the challenges for Canadian junior mining companies, how China is involved and how we might be able to turn things around for this sector. I'm Maynika Ramen-Welms and this is the

Decibel from the Globe and Mail. Nile, thanks so much for joining us. Great to be here, Maynika. So now, what is it like for a junior mining company operating in Canada today? It's both a good time and it's both a terrible time. So it's a good time because critical minerals you probably know is in the zeitgeist and the government has freed up a lot of money, billions in fact over the next sort of eight years or so to put into the critical minerals sector. So there's money available that wasn't there before.

But on the other hand, it is also a very difficult time to be a junior company and attracting investment interest from the street. So just regular investors and mutual funds. So the funding situation is actually quite dire for the industry, particularly around this moment in time. The commodities under a lot of pressure. A lot of people are afraid to invest in mining companies for various reasons. And so it's in some regards also the worst of times, at the same time as kind of being the best of times. Let's look at a real world example of this.

You interviewed the CEO of a mining company called FPX Nickel Corporation. What did you hear from them? They are in, I would say, the middle of their life cycle. So they've made a discovery of nickel in central BC. So far, everything looks great in terms of the drilling results. But they are nowhere near building a mine. The earliest that they could have a mine would be the end of the decade. So that's a long time.

They have a lot of work to do between now and then. They have to prove the economics. They have to make sure that the environmental impact of any mine is going to be OK and acceptable to the province and the government. They have to work with First Nations, about five of them, in fact. And maybe most critically of all,

they have to raise a lot of money, something like $40 million or so over the next few years. But if they were to actually build a mine, we're talking hundreds of money, something like 40 million or so over the next few years. But if they were to actually build a mine, we're talking hundreds of millions, maybe even billions. They're so, so expensive to build these mines. Okay. So I want to go back to some of those important considerations that you were just mentioning earlier there, Nile, consultations with First Nations groups and environmental assessments.

When we're talking about a company like FPX Nickel, how long does all that take and what is the impact on the company at this stage? At a minimum for FPX to do everything that needs to do about another five years if everything goes well. In the mining industry, unfortunately, everything goes well rarely. In fact, usually these timelines get pushed out by sometimes years, if not decades, and there's many projects that just get stuck. Maybe it's that they can't reach an agreement with First Nations, maybe it's that they can't raise the money, maybe the government objects because of environmental issues.

So there's a lot of stuff that kind of conspires against the best laid plans of CEOs. Yeah. We mentioned the government a few times here. So this is both federal, I guess, and provincial levels usually. Let's talk about that now. Like what role does government policy really have to play here? Yes, the government is kind of a dual mandate, I would say.

They're both responsible for stimulating the industry and supporting the industry. Certainly, we're seeing a lot of funding from both levels of governments for mining companies, but they also function as a kind of regulator and a check on power. And so, most mining projects in Canada, if they're above a certain size and a lot of them tend to be big, especially in things like copper and nickel. They'll get both reviewed for permitting by the province and also the federal government. And there are plenty of examples of one level of government being for the project, but another level of government

being against the project. So this kind of dual mandate where both governments can get involved can really slow projects up in Canada. We should say there's reasons, of course, why we have that kind of red tape in place though, like we say, like environmental consultations, First Nations consultations, we understand these as a priority now. Yeah, absolutely. I mean, it's a good point because if you go back 20 years ago, maybe even 10 years ago, there were a lot of complaints that First Nations weren't being adequately consulted and mining companies were kind of trampling all over their rights.

I think under this current liberal government, there's been a real doubling down on making sure the First Nations, for the most part, are on board with projects. Now, per the constitution, the First Nations have to be consulted. They don't have to necessarily be in favor of the project, but mining companies have to prove that they've adequately consulted with the First Nations. On environment, I mean, it's kind of the same thing. Did people care as much about global warming 20 years ago? I think it's fair to say absolutely not. People are much more aware of the not. People are much more aware of the really bad impact that mining has on the ecosystem and there's been lots of horror stories really. I'll just point to

Victoria Goldcorp, the terrible cyanide spell in Yukon. So governments are very careful about making sure that permits are given out in good faith and that these companies will be able to handle anything that will come up on the environmental front. I want to ask you something else about government policy. About two years ago now the Canadian government announced changes to foreign investment in critical minerals. So can we talk about that? What was that decision based on? Yeah so late 2022 the industry minister basically said from now on if you're a critical minerals

company in Canada, and it doesn't matter whether your project or mine is in Canada or overseas, likely they're not going to get permission to raise money from China, but also Russia or countries that are kind of deemed as kind of hostile to Canada where there's likely to be state involvement. I think most people understand philosophically why this was necessary. China has this kind of stranglehold on critical minerals. They have so much control over the supply chain of almost everything that goes into your electric car, lithium, cobalt, battery grade, nickel, you name it. We've talked before about how dominant even in Canada China is when it comes to these

companies. Yeah absolutely. So I think for a long time the government and not only this government but the conservative predecessor government didn't really do that much to rein in or stop Chinese investment in Canada and so now you have a situation where Chinese are so powerful they've got so much control they've got so much leverage. Canada, US they've all woke up and go well we really got to do something about this and one of the tools in their toolkit is to stop investment. So that's happened but it's been a big problem for the industry as well. That's the other side of it.

So tell me about that, like how did this decision change things for mining companies? Well for mining companies and especially for junior mining companies, the small ones, they're looking for investors that will invest early and sort of stick around because there's lots of ups and downs in the life cycle of a mining company and the Chinese are renowned for investing early, investing big and staying very loyal, like loyal in terms of decades to see a return. So those kinds of investors are few and far between

and they always have been. And so losing China as an option has been a big problem. And we've seen a lot of examples like some really stark stuff. This year two companies, two juniors that had tried to raise money from China that were told by Minister Champagne, that's not going to happen. They eventually moved out of Canada because they wanna have the option to raise money from China and these other jurisdictions. Wow, so this new policy change actually basically pushed Canadian companies out of Canada then.

Yeah, I mean, we're seeing some evidence of this. It's not a huge number of companies yet. It won't be practical for a lot of companies to do it. It is a really drastic step because per the government's definition, you have to have no footprint left in Canada. You can't even have one employee left in Canada working, imagine. And so if you're a Canadian company and you have say 30 or 40 employees in Canada, it's a big step to say, hey, we're moving to Ecuador, we're moving to the Emirates. But two companies so far have decided to do that.

And so it will be interesting to see if more companies end up following that lead. So I guess that's one option with Chinese funding shut off. How else can companies raise money now? If they don't want to go the drastic step of actually leaving the country, I guess what are their other options? Well, they have just the traditional tools that they've always had.

So back in the day, and when I say back in the day, I'm talking about like 2005 through 2012, let's say, the mining industry had no problem raising money at all, really. The investments were in vogue, the commodities were doing great, everyone wanted a piece of the action. They had a lot of active money managers

buying shares in tiny mining companies and just making like a bet because like they went to the property, they saw the project, they looked at the results, this looks really good, we're going to put 50 million into XYZ mining company. But you know, since I would say 2012, those active money managers have pretty much deserted mining, much more money has moved into index funds, and there's no human that oversees an index fund. It's all done on computer, it's all based on the size of the company and if you're a small company guess what you're out of luck you're not going to be in the index

for the most part. So that's that's pretty much gone away. I mean one other thing that's really hit the industry hard and this is kind of their own fault. They've made so many bad decisions over the years on things like acquisitions and really bad projects that go way over budget. And that's quite rightly so scared a lot of potential investors. So people are very wary, I think, of investing in the mining industry. I think people are quite right to be very careful about putting their money in a junior company because there's been so many cautionary tales over the last decade or so. So who is still investing in a junior mining company now?

There's one class of investor that's always kind of been there, but has become much more important in the last, I'd say, five years or so. They're called strategic investors. And that's kind of just a fancy term for a much bigger company than a junior. And historically, a strategic investor would be like just a much bigger mining company.

But in the last few years, and I would say this is tied to the EV electric vehicle revolution, let's call it, we've seen that class of investor grow. So now like car companies are investing in mining companies. And this is something we didn't see back in the day. So GM, for example, has invested close to a billion dollars. Think about that in a Canadian junior mining company called Lithium

Americas. Lithium Americas is building a lithium mine in Nevada. So you can see the connection. GM wants to secure its supply of lithium for its batteries. So it's not taking any chances. It's going to actually make this investment in the company. So that class of investor has been a godsend. There's certain companies that are able to attract those kind of investors, but the caveat is there's sort of very few of them that can. You have to be top of the class basically to get your strategic investor. We'll be back after this message. So now we've been talking about these mid-stage mining projects. They've already gotten off the ground.

They've been through the initial hurdles. But I guess I'm really trying to understand, you know, what is it about this middle stage of development that causes them to struggle so much? Yeah, so one of the CEOs I spoke to for the story was Mark Selby of Canada Nickel and they have been in this middle period for about five years and they're sort of coming through it now, the worst of it let's say, and he describes it as the valley of death.

So it's just brutal. It lasts for years. In his case, it only lasted I think for about five years, but there's many examples of companies that are in this kind of valley of death kind of period where not much is really happening to boost the share price and Sometimes just investors leave and abandon and the company can get just completely stuck in the valley in death So yeah, it's a really kind of tough spot to climb out of and there's lots of reasons for that But it's becoming worse. I would say, not better in Canada.

Wow, I mean, it sounds very dramatic when we're referring to it as the Valley of Death. It does sound like this is a really difficult place then for companies to get out of, and this is, I guess, where a lot of them end up dying. Yeah, because, you know, I mean, I'll just give you an example. I mean, I've talked about this in previous podcasts,

but the Ring of Fire Minerals Project in Northern Ontario has kind of been in the valley of death period for something like 15 years. And they're not really making that much progress. They've got a promising project. Everyone seems to think it could be a mine, but there's just so much conspiring against the project moving forward.

In that case, one of the things that's really holding things up is consultations with First Nations. There's a number that are opposed to the project. But there's also lots of other reasons things get held up. I mean, money is a huge part of it. Mines are so expensive to build. Like a copper mine nowadays, even like a mid-sized copper mine, you're talking like, say, $4 billion.

And raising that kind of money is insanely hard and the project has to be so tight and so good on paper before people are willing to give you the funds. And is there something I guess about this middle period where it is harder to get funds? Like I guess I wonder why they end up kind of drying up in this period of development. Something that the industry tells me a lot is that the red tape in Canada is kind of drying up in this period of development? Something that the industry tells me a lot is that the red tape in Canada is kind of almost a joke at this point.

So I was recently speaking to the CEO of BHP, which is the biggest mining company in the world, and he had said specifically on Canada, the permitting part of the process can take 17 years. 17 years. Yeah, and that 17 years, remember, is only part of the overall timeline of mining companies from discovery to production and the Canadian

government in its own materials said that the timeline from discovery to production in Canada can take 25 years. Wow. And so yeah these are very very long timelines. So it sounds like the government is obviously aware of these struggles for the industry. What is the role of the federal government? Like when we're talking about this valley of death period here, Nile, does the government play a role in helping these companies out of that? Yeah, absolutely.

I mean, the government has said or promised numerous times over the last year or so that red tape is unacceptable in Canada. We have to figure out ways of making it more efficient. I mean I think the big problem in Canada for the most part is there's this dual government mandate so most big projects will be overseen by if you're Ontario the Ontario government but also the federal government and I think it's fair to say the Ontario government, the current Ontario government, is pretty pro-industry, pro-mining. We've got a pro-mining premiere so a lot

of projects might get the okay from the province but the federal government may take its time. It may get bogged down. So red tape for sure in Canada is something I think the industry wants to see improve. Who knows if it's going to improve. The other thing is people are always looking for money. So these companies are kind of stuck in the middle, the ones that are in the valley of death. One of the things they tell me is, hey, there's a lot of money available for companies that are earlier than us. They just made their discovery and they might get 10 or $20 million in funding. And we've seen examples of this from the Canadian government

and increasingly, by the way, the US government, even though the company is Canadian, whereas the company is stuck in the middle, they say, well, there's not really much money for us. That's like direct funding. So that's another thing that these smaller companies in the middle would like to see more of, like more just grants. It seems like there's a lot of obstacles with this industry here at Nile.

I guess I wonder, is it really worth it for these like junior companies that haven't yet made it? Like, why not choose another industry that might be a little easier to get through? Yeah, you know, it's funny, I kind of think that myself, having covered the industry for seven years and seen so many like disaster stories or cautionary tales, I'm like, why does anyone go on with this? This is kind of lunacy. But I think the reason is the industry

is full of dreamers and optimists and fake-until-you-make-it type personalities. And it doesn't matter who you talk to, what CEO, how small the project is, how marginal it may look on paper. When they're selling it to you, you kind of get sucked into it and you believe what they're saying before you step back and then you look at it in the cold light of day. See, industry is just chalk a block of these dreamer personalities. You know, it's kind of like when you walk into the store and you buy a lottery ticket. Like, why do people buy lottery tickets? People say, don't buy a lottery ticket. It doesn't make any

sense. You've got zero chance of winning yet. People do. And I think it's the same thing with the junior mining industry. Very lastly here, Nile, I wonder what could happen if junior mining companies find it harder and harder to succeed in Canada, like we've been talking about. If they keep either leaving the country or if they don't survive, what do we lose?

I mean, for sure, we're gonna just become more and more dependent on China for sourcing lithium, cobalt, graphite, you name it. And nobody thinks that's a good idea. Just recently, China pretty much overnight decided it was going to stop the export of three critical minerals to the US. And this had a massive impact because these critical minerals are used in things like AI, quantum computers, your cell phone, you name it, your fridge, your car. If there's not homegrown

supply that comes online in Canada, that's a risk that Canada also faces that we just become more and more dependent on China. And it's just kind of a sad thing too, that like it's an industry that used to be really thriving and buoyant and important to Canada and a huge source of jobs. And you know, if that goes away, I think the country just does lose a little bit of itself. Nile, always interesting to talk to you. Thank you for being here. It was great. Thank you, Manika. That's it for today. I'm Monica Ramon-Wilms.

This episode was produced by Kevin Sexton. Our producers are Madeleine White, Michal Stein, and Allie Graham. David Crosby edits the show. Adrian Chung is our senior producer and Matt Frainer is our managing editor. You can subscribe to The Globe and Mail at globeandmail.com slash subscribe. Thanks so much for listening.