Canada has a prolific mining history.
The country is famous for its vast reserves of gold, copper, coal, iron ore and uranium. We are the third largest gold producer, and many of the world’s junior resource companies are listed on the TSX or the TSX Venture Exchange; most juniors are based in Vancouver.
World-famous area plays include the Abitibi Gold Belt in Ontario/Quebec, volcanogenic massive sulfide (VMS) copper-gold deposits around Snow Lake, Manitoba, Saskatchewan’s Athabasca Basin, and the Golden Triangle in BC.
The Abitibi Greenstone Belt, which stretches from Ontario to Quebec, has produced over 180 million ounces of gold, unparalleled anywhere on the planet except in the gold fields of South Africa.
The Abitibi spawned four of the greatest gold camps in Canada: Timmins, Kirkland Lake, Red Lake and Hemlo.
The Eskay Creek mine in northwestern BC was Canada’s highest grade gold mine and the world’s fifth largest silver producer, with production well over 3 million ounces of gold and 160 million ounces of silver.
While Canada is still known as a mining powerhouse (three provinces were in the top 10 jurisdictions for mining investment in the latest Fraser Institute rankings, the passage of recent legislation is concerning.
The Modern Slavery Act
The Canadian Parliament on May 3 passed Bill S-211, the Modern Slavery Act. The new legislation, aimed at combating forced and child labor in supply chains, will have profound implications for all Canadian-headquartered companies that meet its thresholds, especially miners.
According to a recent article about the act, by mining sustainability think tank and ESG consultancy Sympac,
Recent estimates from the International Labour Organization put the number of people living in forced labour conditions, specifically, at 27.8 million globally, on any given day. In its efforts to curb this, Canada’s new Modern Slavery Act expands what is considered forced and child labour, and introduces mandatory reporting requirements that will apply to many Canadian headquartered and listed mining companies. This includes disclosing your company’s actions to manage forced and child labour risks — and their effectiveness.
Which companies does the act apply to and what do they have to do to comply with it?
The answer to the first question is any company that is listed on a stock exchange, has a place of business, conducts business or has assets in Canada, that also meets at least two of the following conditions: have at least $20 million in assets, generate a minimum $40M in revenue, or employs an average of 250 employees or more.
A glance at Investopedia’s list of the biggest Canadian mining companies by trailing 12-month revenue shows that all of them would full under the purview of the act and its substantial reporting requirements, which take effect on Jan. 1, 2024. In fact Nutrien, Teck Resources, Barrick Gold, First Quantum Minerals, Agnico Eagle Mines, Kinross Gold, Lundin Mining, Yamana Gold, B2Gold and Hudbay Minerals, all have revenues well into the billions.
Implications for Canadian-owned and operated miners include:
To prepare companies to comply with the Modern Slavery Act, the article suggests that they:
Now let me be perfectly clear: we at AOTH are not against the mining industry cleaning up its act; we certainly do not want to see exploitation of children or forced labor. But downloading all of this responsibility onto industry (the act essentially declares all companies that fall under its purview guilty of slavery unless they can prove otherwise), while ramping up demand for battery minerals under the broader objectives of electrification/ decarbonization, with limited help for juniors and miners on funding/ permitting, while EV manufacturers get all the pork, is imo not the right way to go about this.
First we had ESG, next the Canadian government passed Bill C-69, and now we have the Modern Slavery Act. Combined, they are part of an anti-mining bias in this country that is exerting its influence at precisely the wrong time in history: when the shift to a green economy requires a massive investment in mining and mineral exploration; and during a period when our world of finite mineral resources clashes with unprecedented demand for such resources.
Imo, the Modern Slavery Act will affect miners’ decision-making process regarding where they operate. And all of these well- intentioned rules and regulations will affect bottom lines and give too much say, in every step of the supply chain, to bureaucrats, indigenous, NGOs and green interference.
The waning influence of ESG
As far as mining, ESG (environmental, social and governance) is no longer a “nice to have”, but instead, needs to be accounted for up-front by mining companies in their corporate presentations, media releases and other public documents.
Unfortunately though, ESG hasn’t always been applied fairly.
After putting out the word that mining companies need to extract more nickel for EV batteries, Tesla’s Elon Musk made a deal for laterite nickel in New Caledonia. Processing this type of nickel creates about four times as much pollution as traditional nickel processing, from sulfide nickel deposits such as those found in Canada and the United States.
Two years later, Musk was at it again, banging on Indonesia’s door hoping to build a processing plant using, you guessed it, laterite nickel.
Tesla was kicked off the S&P 500 ESG Index, for reasons other than mining nickel, yet Exxon Mobil was allowed to stay on the list.
The oil major knew about human-caused climate change for decades, but sowed doubts about the science behind it to prevent policies from being passed that would hurt the company’s bottom line.
When companies like this are allowed to stay on ESG indices (or aren’t called out) while higher-profile firms like Tesla are removed for comparably minor transgressions, it casts doubt on the legitimacy of the whole enterprise.
Read more: ESG needs a rethink
In fact many investors are starting to give ESG a pass, given the lack of hard evidence in favor of ESG investing. A recent Globe and Mail article cites accounting firm PwC estimating that globally, about $18 trillion is invested in firms that follow ESG principles. However, the article also references a 2020 UCLA/ NYU study that concludes, “a lot of money will have been spent, a lot of people (consultants, ESG experts and ESG measurers) will have benefited, but companies will not be any more socially responsible than they were before ESG was invented.”
In 2022 there was a 70% decline in ESG funds over the previous year, and a 60% fall in the number of new funds, according to Morningstar.
Fools rush into renewables
But we also have to keep in mind the bigger picture.
Replacing fossil fuel-generated power — coal, oil, and natural gas — 100% with renewables is untenable. Not only are solar and wind inappropriate for base-load power, because their energy is intermittent, and must be stored in massive quantities, using battery technology that is still in development, they just don’t have anywhere near the energy intensity provided by fossil fuels, or nuclear.
Driven by the need to decarbonize due to increasingly apparent climate change, governments around the world are choosing to de-invest from oil and gas, and instead are plowing funds into renewable energies even though they aren’t yet ready to take the place of standard fossil-fueled baseload power, i.e., coal and natural gas.
We have seen this foolish endeavor play out in Europe, where natural gas prices hit records due to gas plants being shut down as well as nuclear plants shelved in Germany and France. The skyrocketing cost of electricity has been borne by ordinary citizens who had no part in this dumb policy of “premature decarbonization”. (and this was before the war in Ukraine sent EU natural gas prices to all-time highs)
Saudi Arabia has warned that, without re-investing in the oil industry to find more hydrocarbon deposits, the world could be short 30 million barrels a day by 2030.
In the current under-supplied environment, high oil and natural gas prices will be with us for the foreseeable future.
But renewables are expensive, too. Wind and solar energy do not happen without mining, and they take unbelievable amounts of metals. Just replacing the current amount of energy demanded by coal and natural gas, let alone inevitably higher figures in future, with solar and wind, we calculated it would take over 60,000 solar farms and more than 120,000 wind farms. In all it’s about a 450% increase in renewables.
We will run out of metals long before we reach that level of renewable energy capacity. In fact we would be surprised if we even make it to 40%.
The way we’re going, the electrification and decarbonization agenda being pursued by many governments has the potential of ending up as a massive boondoggle. (see below for example the $13B being spent on Volkswagen’s new battery plant in Ontario)
Billions of dollars are being invested in renewables but what the politicians seem to forget, is that we don’t have the metals. To get them in the quantities required, mining companies need to go to places with minimal or zero environmental regulations. Without developing North American mines, we will remain dependent on foreign mining/ processing, and will not have control over these companies’ ESG.
Going back to Canada, in 2020 the Canadian government passed Bill C-69. The legislation broadened the scope of the environmental assessment process and added more consultation with the public and particularly indigenous groups.
Tough but fair resource regulation is necessary and expected. Unfortunately, Bill C-69 did nothing to assuage the industry’s concerns that the environmental assessment process is hampering investment.
The act also inserted subjective criteria including “social impact” and “gender implications” into the evaluation process of major energy projects. According to the Fraser Institute, in 2022, investment in the oil and gas sector dropped to $29 billion, from $76B in 2014. In a survey of the investment attractiveness of 15 energy-producing provinces and US states, no provinces were in the top five.
In 2020, the Canadian Mining Association’s Pierre Gratton, who originally backed Bill C-69, said he has “buyer’s remorse”. While the Impact Assessment Act under C-69 is better than the Canadian Environmental Assessment Act C-69 replaced, according to Gratton, He feels [former Environment Minister, now Minister of Natural Resources John] Wilkinson is bending to political pressure – from environmentalists, First Nations and the U.S.
“Our confidence in the ability of the Impact Assessment Act to be implemented well is very quickly eroding,” Gratton said.
Foreigners load up on claims
The Canadian government is making it more difficult for junior resource companies to advance mining properties, through Bill C-69, but it is doing nothing to prevent offshore companies from picking up Canadian mineral claims that could one day become foreign-owned mines.
While the federal government last year said it would not allow any more Chinese acquisitions of Canadian critical minerals companies, ostensibly to protect Canadian interests, at the prospecting stage there are almost no restrictions.
Not only is purchasing a claim online as easy as slapping down a credit card on Amazon, finding out “who owns what” is especially problematic. In a recent article, the Globe and Mail states,
After filling out basic paperwork, passing a rudimentary knowledge test and paying nominal fees, foreign firms with ties to authoritarian regimes are allowed to buy claims across Canada…
The provincial systems make disguising financial backers simple for prospectors, potentially facilitating companies with ties to the Chinese state to drift in under the radar.
“A lot of times companies that are staking are just numbered companies. So, you have no idea what their background is,” said [Mike]Tremblay, a seasoned prospector who about a dozen years ago found a good chunk of his 10,000 claims in northern Ontario hemmed in on all sides by China Metallurgical Exploration Corp.
Under Canada’s mineral claims system, organized by province, a company like CME can afford to stake vast tracts of land, in Ontario paying just $400 a claim annually to keep them active.
While in that case China Metallurgical gave up its Ontario claims late last year, the Globe quotes Richard Fadden, the former director of the Canadian Security Intelligence Service, and a former national-security adviser to prime ministers Stephen Harper and Justin Trudeau, saying that Ottawa should know who is prospecting, where they are prospecting, what they own and if they have any ties to state-owned enterprises.
“At an absolute minimum, we need almost perfect transparency when foreign countries come into this country and start prospecting,” said Mr. Fadden.
But the issue appears not to be even remotely on the radar screen of the federal government.
Note that other resource-rich countries are far more restrictive when it comes to foreign entities registering mining claims.
In Australia, firms with more than 20% ownership by a foreign government need approval from the country’s Foreign Investment Review Board before they can acquire an exploration license.
The United States requires prospectors to be US citizens, or in the process of becoming a citizen, before they can stake claims.
Unsurprisingly, given the importance it has attached to critical minerals, the Chinese government does not allow foreign prospectors any access to certain minerals, such as rare earths, radioactive minerals and critical minerals such as tungsten, the Globe said.
China is the competition
How free is the West when it must go cap and hand to China, for the new electrification/ decarbonization metals?
Consider: China rules the electric vehicle supply chain. It is also a major player in renewable energy markets (solar & wind), and is building the most new nuclear power plants of any country.
In the rush to electrify/ decarbonize, is the West not just substituting one energy tyrant (Saudi Arabia) for another? The world’s largest consumer of commodities already has a monopoly on rare earths mining/ processing, produces the most lithium and cobalt, and dominates the graphite market.
China controls about 85% of global cobalt supply, including an offtake agreement with Glencore, the largest producer of the mineral.
Beijing is also locking up nickel supply, through investments in the leading producer, Indonesia. China is working with Indonesia to develop a huge facility for developing battery-grade nickel.
According to the International Energy Agency, China processes about 90% of the world’s rare earth elements, along with 50 to 70% of lithium and cobalt.
The United States is 100% import-reliant on 13 of the 35 critical minerals the Department of the Interior has classified. They include manganese, graphite and rare earths.
“We are dependent upon different countries, most notably China, for a number of our critical mineral resources,” S&P Global quotes Abigail Wulf, director of critical minerals strategy for Securing America’s Future Energy, a group advocating for greater US energy independence.
However, a recent article finds that previously unfettered access to critical minerals, under globalization, is unlikely to last. According to Paul Wong and Jacob White of Sprott, The world is moving from a system of free and fair access to commodities to one likely marked by interregional competition, and unstable availability and pricing of critical minerals.
Among the key takeaways is the fact that electric vehicle OEMs are attempting to gain greater control and ownership of supply chains, including critical minerals, in many cases investing directly in miners to secure access. For many examples of this trend, read EV-makers connect with mining companies to ensure adequate supply of battery raw materials
Given all that we know about China’s vice-like grip over natural resources, it is unsurprising to read the authors’ contention that when seeking vertical integration, i.e. offtake agreements, carmakers’ biggest competition isn’t each other, but China:
Not only is China far ahead of any EV carmaker in its geographic reach, financial capacity and technical abilities, but it is also at least a decade ahead in securing critical metals. Since becoming the dominant consumer of global commodity resources, China has aggressively locked in supplies of virtually every necessary commodity for its industrial security. It has sought to ensure industrial outcomes by securing necessary inputs. We see this pattern repeating across the globe.
China achieved this goal with its hyper-finance model and its BRI, locking up many downstream commodities and building out midstream capacity (e.g., smelting, refining and processing). Having secured these assets, China and its state-owned enterprises would likely never sell any part of its operations to a Western EV carmaker. China’s overall aim is to further increase global dependencies on China’s dominant critical mineral supply chains.
As a result of its aggressive procurement of critical minerals, China currently dominates the battery materials market. Chinese companies CATL (Contemporary Amperex Technology Co. Limited) and BYD Co. Ltd. together control half of the global EV battery market. EV carmakers are in a near-existential quest to secure battery materials. Ensuring long-term, reliable, stable prices for supply chains is a necessary condition for triumphing in the global EV battle, and this battle has only just begun.
Economic growth requires the supply of raw materials for manufacturing end-products, and a litany of other industrial activities, including home construction, replacing and building new infrastructure, developing a global electrified vehicle/ rail transportation system, and constructing lower-carbon sources of electricity generation.
Unless all of these areas are continuously supplied, economic growth will drop off, hurting employment and lowering our standard of living. This becomes a major challenge when demand is coming from so many directions at the same time.
We simply can’t afford not to continue investing in mining and oil and gas exploration. We have seen what happens when there is too much focus on renewables and not enough on the oil sector — sky-high natural gas prices, borne mostly by electricity consumers in Europe — and concerns that without re-investing in the industry to find more deposits, the world could be short 30 million barrels a day in eight years. (38% of global oil production in 2022 of 80Mbod)
Here in the West, it isn’t only that we have failed to maintain mining and oil investments. We have also put roadblocks in the way of mining, such as the lengthy permitting process in North America. In Canada we’ve let interest groups hostile to corporations dictate resource policy, by allowing them to scupper oil pipelines that would help to alleviate the glut of Canadian crude that has depressed prices for decades.
Getting to a mining “yes” has never been more difficult in Canada. First we have Bill C-69, which can force a duplicate federal environmental review on top of a provincial review, like happened in 2020 when Teck Resources tried to extend the life of its Fording River coal mine. Next is ESG, and while some investors are turning away from ESG funds, there is no doubt that for the mining industry, environmental, social and governance norms are here to stay. According to study published by Ernst & Young (EY), losing social license to operate (SOL) is now seen as the main risk mining firms are facing.
The third leg of the stool undermining resource development in Canada is the Modern Slavery Act. While no one here is suggesting that forced or child labor in mining is ok, the law downloads extensive responsibility onto industry, in the form of onerous reporting requirements. Failing to comply with the reporting requirements could result in a $250,000 fine. That’s no slap on the wrist. Directors, officers, and other individuals who knowingly participate in, authorize, or assent to non-compliant activities can be held personally liable.
In many metal markets, the West’s reluctance to mine has been China’s gain.
During the 2000s, metals were much more readily available than they are currently, and China was there, ready to sign offtake agreements and lock up valuable supplies.
Governments currently dependent on China for their key minerals want to get out from under Beijing’s thumb. Their solution is to build manufacturing plants — either for batteries or for electrical vehicles. Yet the source of the raw materials, that will supply the plants, rarely comes up for discussion.
The Canadian and United States governments are competing with each other in this endeavor, seeing who has the deepest pockets in the race to develop a domestic EV supply chain. While at the same time blocking mines and slowing discovery development with unreasonable permitting timelines, ESG, Bill C-69 and now Bill S-211, the Modern Slavery Act
We need to mine a lot more in the west. To do that we need to up our exploration game — and nobody is better at it than Canadian junior resource companies — so that we can find and develop the deposits that will become the world’s next mines.
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