MCMILLAN PARTNER, SASA JARVIS, UNPACKS THE FUTURE OF CANADA’S CRITICAL MINERAL MINING SECTOR
HOW TRADE POLICIES AND INVESTMENT TRENDS ARE RESHAPING THE SECTOR AS GLOBAL DEMAND SURGES
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By Lucy Saddleton, Managing Editor, ADB Insights
International trade restrictions and polices are changing the landscape for mining in Canada and around the world — particularly with regard to the critical mineral sector. With China recently placing restrictions on critical minerals including tungsten, molybdenum and indium, demand is rising as industries dependent on these metals struggle with supply chain challenges.
Canada is seeking new trading partners amid new policies which have pushed up prices for US businesses investing in Canadian minerals.
Sasa Jarvis, Partner, McMillan
“I think that Europe is going to end up being a key trading partner for Canada,” said Sasa Jarvis, a partner at McMillan LLP. “They're another region that is trying to push ahead with an energy transition, trying to build electric vehicles and expand their electric grid.” Jarvis focuses her practice primarily on capital markets and securities — specifically mining.
Earlier this month, the US started applying a 25 per cent tariff on imports of steel and aluminum products from all countries, including Canada, so major producers such as Rio Tinto will also be forced to seek out new markets outside the US.
During a recent podcast interview with The Legal Innovation Forum, Jarvis discussed key drivers and trends at play in the critical mineral mining sector — and the broader mining sector — in Canada and globally, and she discussed the impact of the current trade war. She also shed light on how capital markets are viewing investment opportunities in Canada, and revealed her outlook for the future of the mining industry.
Jurisdictional Differences
Different Canadian provinces are at varied stages in presenting themselves as an attractive investment opportunity for mining investors, with British Columbia still lagging behind Saskatchewan, according to Jarvis. Saskatchewan is home to 27 of the 34 critical minerals on Canada’s list, and the province boasts the world’s largest deposits of potash and high-grade uranium.
However, BC is looking to make significant investments to raise its profile for investors.
“My view is that the recent discussions or threats from the United States are actually creating some political willpower to prioritize investment in natural resources in BC,” Jarvis said. She referenced comments from BC Premier, David Eby, about plans to fast-track a series of projects, including 18 mine expansions and other natural resources projects focused on natural gas around renewables.
While the political focus in BC has historically not been on mining, but rather on environmental protections, this is slowly starting to change.
BC has also taken an important step by entering into an impact assessment cooperation agreement with the federal government which is intended to address parallel permitting requirements and reduce inefficiencies. This will reduce permitting times, and allow for a lot more activity within BC — and potentially make it easier to raise capital to fund mining projects, Jarvis said.
Other provinces are also trying to create a strategy around critical minerals. For example, Alberta made a recent push to sustain regulation through The Mineral Resource Development Act, which gave authority to the Alberta energy regulator over minerals.
CAPITAL MARKETS
The Canadian federal government's use of national security review powers under the Investment Canada Act has impacted foreign investment, particularly from China. More recently, Canada has refined its position on Chinese investment while expanding its foreign investment review powers, potentially requiring pre-filing of transactions, which could slow down investment processes and increase uncertainty, Jarvis noted. .
“Certainty drives investment decisions, and a lack of it is going to impact that, so the federal government has kind of created a little bit of uncertainty if you're looking at Chinese investment,” said Jarvis.
Canadian exploration projects can access domestic capital through a flow-through regime which offers tax incentives but this is unlikely to sufficiently develop capital markets, so international investment will be incredibly meaningful for the future, Jarvis said.
The mining industry in Canada consists of a wide range of players, from small, high-risk exploration companies to large, established mining corporations like Teck and Rio Tinto. While institutional investors are drawn to companies with operating assets and steady cash flow, Jarvis noted that the real challenge lies in supporting early-stage companies that operate on tight budgets and rely on volatile financing to make discoveries.
government incentives
Since exploration is essential for future development and production, the focus for Canadian governments should be on regulatory and financial support to ensure these smaller companies can continue to drive the industry's long-term growth, in Jarvis’ view.
“I don’t think the appetite for institutional investors is ever going to switch to that high-risk investing, but those explorers are still vital because if we don't have exploration, we're not going to get to development, we're not going to get to production,” she said.
Canada's flow-through regime is a valuable way to encourage investors. The federal government has recently proposed to extend the 15 percent Mineral Exploration Tax Credit for investors in flow-through shares for an additional two years, until March 31, 2027.
Different provinces will also have their own tax credits. For example, Quebec is known for being very supportive of mining, with a policy that allows investors to deduct up to 120 percent of the cost of certain exploration expenditures,
Ontario also has a flow-through share tax credit with a five percent credit for projects in the province.
The Future of Mining
Jarvis hopes to see a reduction in permitting time from 12 to 15 years down to five years, which would offer the opportunity to invest either at the asset level or to invest in a Canadian company with Canadian projects. This would reduce volatility for smaller mining companies.
“When you have a Canadian company going from exploration to development to production, you give those tax incentives to Canadians, you get Canadian investment in, and you support Canadian infrastructure development, it's going to be important for the operation of that mine,” said Jarvis. “You create Canadian jobs, you secure Canada's supply chain for these minerals and for critical minerals that are going to be so fundamental to other Canadian industries. That's where I think that there's an opportunity in that two-to-five year period to really develop the country by developing our natural resources.”
If Canada can build the infrastructure to be in control of our own supply chain and produce the metals essential for the production of everything from refrigerators and smartphones, to semiconductors and cars, it will put the country at a huge economic advantage.
“Every aspect of our lives is impacted by mining, and so to the extent that we can actually have production in Canada of the materials that we need, and supply our own minerals, our own metals, I think that's going to be a game changer,” said Jarvis.
INTERVIEW - SASA JARVIS - PARTNER, MCMILLAN
