Opportunity knocks in Canada’s mining sector

While Canada remains the leading marketplace for the global mining industry in terms of finance, multinational and international transactions, and exploration and development decision-making, this sector continues to weather a “shakeup”.

Challenges

Canada’s mining companies face an unprecedented combination of market and operating challenges. With mining equities and commodity prices generally depressed, and difficult capital markets expected to persist, the mines and metals business is clearly becoming an investors’ and buyers’ market. The stress factors are higher than anticipated operating and capital costs, low cash balances and scarce financing.

The decline in metal prices, especially precious metals, has put pressure on project economics, especially for projects with high all-in capital and operating costs. This has resulted in asset write-downs and an extensive drop in equity prices. Investors in larger capitalized companies have imposed cost control requirements on management. Corporations have cut spending, putting some operating projects on care and maintenance, and delaying project development. Reductions in operating and capital expenditures, including in acquiring junior companies, have hurt the exploration and development industry.

Eden Oliver is a partner at Bennett Jones LLP, a law firm with offices in Calgary, Toronto, Edmonton, Ottawa, Dubai and Doha, and representative offices in Washington DC and Beijing.