Some minerals are 'critical' to the digital economy, but current prices don't reflect that

For almost a century now, players from across the mining industry — big or small, Canadian or international — have been gathering in Toronto annually to talk about capital, technical innovations, and market trends. 

This year's Prospectors & Developers Association of Canada (PDAC) convention is no different, with some of Canada's critical mineral explorers hoping to close deals that will help overcome a tough year in the capital markets. 

That's especially the case for those looking for nickel, lithium or cobalt, some of the building blocks of the technology that will eventually help combat climate change.

"I've been in the industry since 1987. I'm quite familiar with the cycles, the ups and downs," said Alain Lambert, co-founder of Ontario's Beyond Lithium, which has 63 properties across the province.

"But that last part of 2023 and so far in 2024 has probably been one of the most challenging environments for junior mining companies."

These companies make up most of the mining project operators in Canada. They typically have no operating revenues and rely on equity financing to do their higher-risk, early stage exploration work.

This year's mining exploration numbers tell a strange story

Natural Resources Canada is projecting some $4 billion will be spent on mining exploration and deposit appraisal in Canada in 2024.

That is relatively high, historically speaking, but doesn't necessarily reflect how much money is coming into the sector, especially for those looking for critical minerals.

According to data from TMX Group and PDAC, the share of money going to mineral exploration from the overall amount of money raised by the mining industry equity has been decreasing for three years in a row.

Junior mining companies depend on strong commodity prices to convince investors to put their money in the ground.

And nowadays, prices are rocky, even by mining industry standards.

The price of nickel — a mineral used to produce stainless steel, alloys, and the batteries used in electric vehicles —  jumped in the early days of the war in Ukraine to historic highs, but has now collapsed in response to increased supply from Indonesia, creating market uncertainty for years to come. 

Companies with deep pockets — like Wyloo Canada, which owns the high-grade Eagle's Nest project in Ontario's controversial Ring of Fire region — are able to wait out the market slump. 

"We're taking a longer term look at how we develop and where we deploy funds," said CEO Kristan Straub. 

"Prices have decreased to a place where many global operators today are forced to shut down because the prices are unsustainable for them to continue to support the losses," he added. 

It's a similar story for lithium, another important component of the batteries used in electric vehicles. The price of lithium was red hot back in 2022, but has now fallen dramatically due to oversupply and softening demand. 

Structural changes in the mining industry

"Over the last two or three years, juniors have been raising less, that's clear," said Jeff Killeen, director of policy and programs for PDAC.

He says a decade ago there was a lot more active investment in junior projects than there is today. This means more people physically sitting in chairs, willing to hear a mining explorer's sales pitch. 

That made it easier for juniors to connect with investors, even as uncertain market conditions meant a lower appetite for higher risk investments.

"More than half of the funds that move through the market on any given day are through some sort of passive investment vehicle," says Killeen. 

"Just that in and of itself has made it more challenging for junior companies to access capital because there are just less access points," he adds.

Some in the mining industry believe the expected increase in demand for critical minerals over the next decades is going to create another important structural change in mining financing. 

It's just that prices in 2024 do not reflect this.

But Alistair Corbett, head of the global mining practice at Bain & Company, believes juniors are going to end up in a profitable situation if they can hang on a little bit longer. 

"Today there isn't a shortage of critical minerals. But the demand is going to grow fast. There will be a shortage tomorrow," he said. 

"I think the junior sector will be just fine. My heart goes out to them right now because there's no money. 

"They have to be patient. Prices are going to go up," he added. 

In the meantime, companies like Beyond Lithium have to make tough decisions and explore less. 

Lambert worries that could mean lagging behind at a time where there's increased pressure to find the deposits that will help fuel the energy transition. 

Killeen worries about that too.  "I think as much as we do have all of that potential, there is a need to think of this from a pace perspective.

"We're not doing enough today as far as we can tell for Canada to get to net zero by 2050. and they're just simply not enough raw products to be able to do those types of things with today in Canada," he said.

Some in the sector — like veteran financiers Pierre Lassonde and Frank Giustra — are calling on Ottawa to force pensions to fund Canadian mining. 

Others are proposing developing deals with upstream companies like car manufacturers.