Capitalizing on Quebec’s mineral potential
Disruption, particularly driven by technology and a focus on sustainability, is creating buzz in the mining and metals sector around the potential of new world commodities.
Metals like lithium, nickel and cobalt have become central to the production of high tech and green technologies from batteries and smart phones to advance defence systems.
As demand for these products grows, so does the need for new world commodities – particularly for electric vehicles (EVs) and energy storage systems (ESS). Tightening emissions regulations, government incentives for cleaner technologies and rising compliance costs for internal combustion engines (ICE) – tied with customer preferences for environmentally responsible modes of transport – are all factors driving EV adoption. It’s expected that there will be 130 million EVs globally by 2030 – that’s a massive increase compared with 3.7 million in 2017.
ESS on the other hand is a much smaller market, but still has significant growth potential due to its low current base. Grid storage, for example, is expected to grow by 42% by 2025.
A few early movers have already proactively secured supply to meet expected future demand – including Chinese state-owned enterprises that stepped in to purchase and fund mines and downstream processing, and even exploration for these minerals.
As a result, China now controls a significant portion of global lithium supply and more of the refined cobalt market than any other nation.
The opportunity may seem a world away, but it’s not Quebec is ripe for investment. The province accounts for one-fifth of Canadian mining output, and is home to the most diversified production in Canada with 15 metals and 13 non-metallic minerals. Coupled with competitive corporate tax rates and government support for research and develop projects, Quebec has promising mineral potential. Here’s why:
w Increased investment in Quebec’s mining sector: Investments in mining and mineral production are on the rise. In fact, the Fraser Institute recently ranked Quebec number six – up from the eighth spot – as the best jurisdiction around the world for mining investment. Downstream players are increasingly looking to access battery raw materials such as lithium and natural graphite by investing in upstream players.
The province as a whole has also seen greater international investment in projects from Chinese players.
w Competitive corporate taxation system and stable regulatory framework: The combined tax rate for corporations in Quebec is 26.8%, which is one of the lowest in North America. On top of that, to promote mining activity, the Quebec government offers a number of tax incentives for companies that engage in exploration and mining activities.
w Government support for research and development: The Quebec government provides financial support for the establishment of R&D and innovation projects. The government recently announced it would contribute a combined $248 million to assist a major mining project, process plant and port improvements in the central part of the province.
There is tremendous opportunity for Quebec to capitalize on mineral potential. However, every opportunity comes with its own set of challenges. As mining and metals companies start to consider greater investments in the province, here are three key things to keep on their radar:
1 Significant capital is required to develop new projects – particularly lithium projects. Major miners have spent the last three years or so strengthening their balance sheets, and have taken a relatively conservative approach to allocating capital due to new risk businesses. The mining sector will need to explore alliances and joint ventures as an avenue to access the new capital and resources needed to progress new projects.
2 Even with rising demand for new world commodities, battery raw materials are a relatively small market compared to other commodities. Mining and metals companies will have to balance their focus between the old and the new.
3 Mining and metals projects tend to overrun budgets and schedules. During project development, companies need to consider the various issues that could arise – including economic, regulatory, supply chain, utilization rate, environmental, social, and governance concerns – and have mediation and financing plans in place before the project begins.
As disruption in technology and sustainability drives demand for new commodities, opportunities are starting to take shape for miners. Mining and metals companies will need to develop flexible and agile business models, and actively review their portfolios for new opportunities if they want to capitalize on the growth. If approached correctly – taking capital, portfolio and project management concerns into consideration – Quebec could have a significant place in these new markets.
PATRICK BERTRAND-DAOUST is the Quebec Mining & Metals Leader at EY Canada.
Comments