6 minute read
Dean McPherson (TMX Group)
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At this time of the year, I like to look back at some of the key trends that have emerged across the mining sector and which, I suspect, will have an outsized influence going forward. With so much disruption in the wake of the COVID-19 pandemic, there are any number of trends that jump to mind. This year I have picked out four: (i) the COVID-19 recovery itself; (ii) the looming prospect of inflation; (iii) climate change; and (iv) the buoyant market for new listings.
The long recovery from COVID-19
There are few industries that have escaped the direct impact and lingering aftershocks of COVID-19. The mining industry is no exception. From the doom and gloom of mine closures as the pandemic unfolded, to the robust response from miners globally, and the rapid recovery in metals prices. There is little doubt that the effects of the pandemic will remain for years to come. And in many instances, those effects will be positive.
Take the issue of the health and safety of employees and local communities. This was made a priority very early on in the crisis. Supporting livelihoods and helping to build long-term community resilience to any future crises were two issues brought to the fore as miners, governments and communities collaborated in recovery efforts.
The theme of resilience will take centre stage in another area whose frailties were exposed by the COVID-19 pandemic – that of global supply chains. Mining companies are well acquainted with the challenges associated with supply chains serving often remote mine sites. But those challenges were hugely exacerbated by the onset of COVID-19. Operations that were previously optimised for cost and based on just-in-time supply chains simply lacked the resilience to cope with the disruption caused by the pandemic. This will remain a key area of focus for miners in coming years.
Dean McPherson
TMX Group global head of business development, global mining
Dean McPherson is head of global mining for Toronto Stock Exchange and TSX Venture Exchange. He is responsible for the development and execution of the global strategy for attracting new listings in the mining sector to the Exchanges. Previously, he worked as an investment banker. Before joining the capital markets, he worked as a civil engineer, managing capital projects for Alcoa’s bauxite/ alumina operations in Jamaica and Fluor in Canada. In addition to an undergraduate honors degree in civil engineering, he earned an MBA from the Schulich School of Business and is a CFA Charterholder.
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Inflation looming large
In mid-November, gold reached a five-month high on the back of US Labor Department data which showed a consumer prices surge with October seeing a 6.2% jump from last year, the most since December 1990. The Federal Reserve has reassured that this inflation is temporary and related to COVID-19 supply issues. But whilst consumers are feeling the pinch on their wallets, inflation – should it persist – will once again be a boon for the gold sector. Aside from its use in jewellery and electronics, gold’s key value is its inflationary protection.
But beyond gold and precious metals, an emerging asset class is increasingly talked of as an alternative inflationary hedge. I am talking, of course, about cryptocurrencies. However, it is not obvious to me that the emergence of cryptocurrencies should lead to the phasing out of gold. Granted, neither asset is closely tied to the value of the dollar, but their functional use cases are quite different. And, given the volatility seen in cryptocurrencies and global efforts to effectively regulate that asset class, there are plenty of headwinds that may well see gold remain the inflationary hedge of choice well into the future.
Climate change and the increasing demand for critical minerals
As climate change continues to drive the agenda, the focus has further sharpened on the mining of green and critical metals that are seen as a crucial part of meeting global warming targets. The decarbonisation of the transportation sector, amongst others, is a crucial pillar of carbon reduction, contributing as it does around 20% of global emissions. According to the International Energy Agency (IEA), in 2020 alone, and against a pandemicdriven decline in the overall car market of over 15%, the global stock of electric cars increased by over 40% to 10 million units. Data from the IEA’s 2021 outlook presented at the recent COP26 gathering in Glasgow showed that, in the first three quarters of 2021, the global EV market recorded a nearly 50% year-on-year increase in sales compared to the same period a year ago. This phenomenal growth led the agency to highlight EVs as one of only two of the 46 technologies it assesses as being on track to net zero emissions by 2050.
Wood Mackenzie estimates that even a 2° C global warming pathway will require EVs to account for fully three quarters of all car sales by the end of the next decade. That level of EV supply would place huge demand on the supply of battery metals and indeed other metals that
will be needed to produce so many vehicles. It is important to bear in mind that EVs use approximately five times more copper than an internal combustion engine.
And so the green-driven demand increase seems likely to require substantial new investment across mining projects and will see more aggressive growth in M&A activity as miners and end users strive to secure supply.
Continued strong demand for new listings
The start of last year saw something of a capital markets renaissance as an increasing number of companies were met with strong investor appetite for their initial public offerings and follow-on equity placements. At TSX, we saw an increase in the number of new listings, number of companies raising capital and the amount of capital raised; helped in no small part by the strong rebound in commodity prices following initial pandemic related declines. And, encouragingly, we saw significant demand and interest in the junior market as well. In fact, on multiple occasions this year, volume on the TSXV exceeded or matched volume on TSX. This is important for the sector overall to have the junior market back so strongly.
Three Q4 IPOs on TSX perfectly frames the outlook. Hochschild (LSE:HOC) spun-
off their Chile-based rare earth play, Aclara Resources (TSX:ARA), onto TSX. Arizona Sonoran Copper (TSX:ASCU) listed their US-based copper play on the TSX. And Colombian-headquartered/ Latam-focused gold producer, Mineros S.A. (TSX:MSA), became the first dual listed issuer on TSX and Colombia Stock Exchange.
In 2022, we will undoubtedly find it hard to escape the long shadow of COVID-19 and its growing number of variants. It seems inevitable that the pandemic and risks such as inflation will continue to give rise to volatility in all markets and across all asset classes. But there have been some remarkable examples of resilience since the onset of the pandemic, and I would expect resiliency to remain top of the agenda for the coming year, particularly amongst the mining community. I am also encouraged by the increasing importance being placed on climate change and the consequent focus on green technologies including electric vehicles. More capital will flow to explorers and producers of input materials required to satisfy rapidly growing demand and, with TSX being the market of choice for many green and critical mineral miners, it is hugely exciting to be at the nexus of this global shift.
