Canadian Mining Growth Hinges on Major Infrastructure Overhaul: BMO
More investments are needed in vital infrastructure such as roads and power lines to “supercharge” Canadian mining, said BMO analyst Matthew Murphy, a few days ahead of a historic Canadian investment event.
Next week, the inaugural Canada Investment Summit will be held in Toronto to attract hundreds of billions of dollars in international investment into Canada to help cushion the blow of the continuing trade war with the United States. The event is being led by Prime Minister Mark Carney and co-hosted by big Canadian pension funds.
In a note to clients earlier this week, Mr. Murphy, mining analyst with BMO Capital Markets, said he expects the sector to play a central role in discussions at the summit, and he addressed the key question of where capital is needed the most.
In a web panel discussion on Thursday, Mr. Murphy said significantly more investment in mining infrastructure could be enormously beneficial for the industry and reward multiple companies.
“There’s a big multiplier effect on infrastructure spending,” he said. “And that’s what you need for a productive economy.”
Mr. Murphy outlined several parts of the country where infrastructure spending is needed, including Northern B.C., home to major copper and gold discoveries; the Yukon; northern Ontario’s Ring of Fire region; and Quebec’s James Bay region, which has promising lithium projects.
He pointed to past infrastructure investments that spurred new development, including British Columbia installing the 344-kilometre-long Northwest Transmission Line along Highway 37. The additional electricity supply facilitated the Red Chris block cave mine development, the Brucejack gold mine, and exploration projects in B.C.’s Golden Triangle.
Several infrastructure projects that would benefit the mining sector have already been referred to the government’s Major Projects Office, which was created last year by Mr. Carney to both reduce red tape and potentially facilitate funding.
Those projects include the North Coast Transmission Line in northwestern British Columbia, the Taltson Hydro Expansion in the Great Slave Lake region of the Northwest Territories, and the Arctic Economic and Security Corridor in the NWT, a 400-kilometre all-season road through the Slave Geological Province to the Nunavut border.
In his report, Mr. Murphy said that infrastructure investment is one of the ways “to truly supercharge growth” of the Canadian mining sector.
He said that while Canadian mining companies can draw on an educated work force, and have strong engineering capabilities, it’s a major challenge to raise the hundreds of millions in capital needed for such projects.
“Mining investors want 15- to 25-per-cent returns on new projects and that’s hard if you have to carry a big infrastructure load as well,” he said.
Large infrastructure funds, such as those run by Brookfield Asset Management Ltd. BAM-T or BlackRock’s BLK-N Global Infrastructure Partners, could potentially fill in the gap, Mr. Murphy said. These funds tend to have lower costs of capital than mining companies, and their investors can be satisfied with returns of 7 percent to 10 percent, he added.
Some mining companies have already successfully off-loaded the risk of building some mining infrastructure to third parties. Mr. Murphy pointed to BHP Group Ltd.’s BHPLF deal last year with Global Infrastructure Partners that saw GIP pay US$2-billion to acquire a 49-per-cent stake in a power network for BHP’s Western Australia Iron Ore operations.
Canadian pension funds, which have far more money invested abroad than domestically, are also potentially in a position to invest in mining infrastructure projects, Mr. Murphy said.
“We believe more Canadian capital pools can be allocated domestically, while still generating competitive returns,” he said.
Taking place on Sept. 14 and 15, the Canada Investment Summit will feature panel discussions and presentations from Mr. Carney’s cabinet ministers, some of the biggest global investors, and CEOs of several large Canadian resource companies.
One of the earliest sessions will feature a critical minerals discussion with the CEOs of Canadian miners Teck Resources Ltd., Cameco Corp. and Agnico Eagle Mines Ltd., who will discuss how to transform the domestic sector into a world-beater.
This article was first reported by The Globe and Mail
