As investment in miners starts to translate to projects getting built, equipment dealers, such as Vancouver-based Finning International Inc., will likely be beneficiaries.
Measures in the federal budget that seek to turn Canada into a critical minerals powerhouse could be a boon for domestic junior mining companies, which have struggled in recent years.
Specifically, Ottawa announced the creation of a $2-billion critical minerals sovereign fund in this year’s federal budget that would make “strategic” investments in critical minerals projects in the form of equity, loan guarantees or offtake agreements, which would see the government buy a certain amount of a mine’s production.
It also promised to expand eligibility for the critical minerals exploration tax credit to 12 new minerals and metals used for defence, energy, clean technology and semiconductors, including bismuth, germanium, manganese, tin and tungsten. The 30-per-cent non-refundable tax credit is for certain mineral exploration expenses incurred in Canada.
The measures are part of a push by Canada and other G7 countries to secure their own critical minerals supply chains and mitigate China’s dominance over certain minerals, such as rare earth elements.
“Canada needs to get up to speed, and so does the U.S.,” says Brooke Thackray, research analyst at Global X Investments Canada Inc., referring to recent direct investments by the U.S. government in critical minerals miners. “I can understand why these countries are saying, ‘We need to provide some sort of assistance in this area.’”
Mr. Thackray says mining stocks have fallen in popularity in recent years as technology and now artificial intelligence stocks have come to dominate stock indexes. Junior miners, as a result, have struggled to raise capital.
“There isn’t a lot of money flowing in this area. We need to kick-start this and provide some sort of lubrication,” he says, pointing to the critical minerals sovereign fund as a likely boon.
Mr. Thackray says he expects to eventually see a resources supercycle akin to the 2001-07 run-up. Investors are well aware that the demand for several critical minerals outstrips supply, he adds, but they’re focused on taking their profits from tech stocks until a “catalyst” triggers a shift to resource stocks.
Mr. Thackray says he expects more asset managers will enter the mining space with exchange-traded funds, including more active funds focused on junior miners.
Sam Baldwin, senior portfolio manager for Canadian equities at Guardian Capital LP, says he sees an opportunity for major miners, such as Agnico Eagle Mines Ltd. AEM-T and Teck Resources Ltd. TECK-B-T, both based in Toronto, to benefit in this environment. Agnico is one of the top 10 holdings in Guardian Canadian-Focused Equity Fund.
He notes Agnico, primarily a gold miner, just launched a critical minerals subsidiary called Avenir Minerals, which will house its early-stage investments in non-gold and non-copper projects. Agnico said in its third-quarter results that Avenir will “pursue strategic partnerships and government support” for critical minerals projects, primarily in Canada.
Mr. Baldwin says Teck’s lead-zinc refinery in Trail, B.C., also processes germanium and indium. Teck chief executive officer Jonathan Price said in September the company would refine copper and gallium at Trail if the federal government approves its merger with Anglo American PLC, and the companies have promised at least $300-million on critical mineral exploration in Canada should the deal go through.
As investment in miners starts to translate to projects getting built, Mr. Baldwin says equipment dealers, such as Vancouver-based Finning International Inc. FTT-T, will likely be beneficiaries, as well as engineering and construction firms.
Michael Shaw, director and portfolio manager for small-cap strategy at ClearBridge Investments LLC, says the changes to the critical minerals exploration tax credit will likely improve the marginal economics of many projects.
“For the most part, they’re going to be well-received by the companies that use them,” he says.
Mr. Shaw points out that Natural Resources Minister Tim Hodgson has highlighted rare earth elements processing projects as potential beneficiaries of federal equity investments.
“Those require private equity-like investments,” he says.
Governments can provide near-term investment, he adds, until companies can mature and come to public markets.