Rising demand for 'green' metals as the world transitions to clean energy is contributing to renewed optimism in the growth prospects for Canada's mining industry, finds a new KPMG in Canada report, Risk and Opportunities for Canadian miners.
Minerals like lithium, cobalt, and nickel are critical to the green and digital transition now underway to achieve a below 2°C future. The production of minerals needed to deploy wind, solar, and geothermal power, as well as energy storage, is predicted to increase by nearly 500 per cent by 2050, according to the World Bank. Demand for lithium used in batteries, for example, including electric vehicles, is expected to expand by a factor of 30 by 2030, according to the International Energy Agency.
"The outlook for the mining industry is extremely positive," says Heather Cheeseman, partner and Toronto mining leader, KPMG in Canada. "The year-long rally in commodity prices, even with the recent volatility sparked by inflationary concerns, is driven not only by pandemic-induced supply chain issues, but also climate-action demand for green metals and the massive spending expected on infrastructure."
But, she warns their growth prospects could be dimmed by many factors, not least of which include how companies respond to environmental, social, and governance (ESG) risks, and technological transformation.
ESG under the spotlight
The report, which is based on a survey of 225 global mining companies, including 89 headquartered in Canada, reveals that Canadian miners are far more concerned than their global peers about the 'S' in ESG criteria by which investors evaluate sustainable, long-term financial returns. The key findings include:
- 42 per cent of Canadian miners ranked community relations and social licence to operate as the top ESG risk (24 per cent globally)
- Only 19 per cent included environmental risk as a top risk (27 per cent globally)
- 90 per cent agreed they need a clear, measurable ESG strategy (79 per cent globally)
The pandemic is accelerating the focus on ESG, particularly on how credible, reliable, and accepted mining companies and projects are in the local communities where they operate, says Ms. Cheeseman.
"The days of considering ESG factors as 'soft' secondary risks are long gone," she says. "Investors are demanding miners have clear and measurable strategies in place. ESG now dominate boardroom conversations in every mining company, and mining leaders overwhelmingly agree this is a top priority."
KPMG research also shows miners are focused on innovation and technology to help control costs and grow sustainably.
About a third of Canadian and global miners believe innovation and technological transformation will drive future growth and nearly half expect major technology disruption in the next three years, with the four in five viewing it as an opportunity instead of a threat.
Yet, only a third of Canadian miners say their organization is actively disrupting the industry through digital innovation, compared to half of global respondents, which the report notes, could be an issue for future competitiveness.
"There is a distinct need to find ways to better manage costs and mitigate risks whether that's through consolidation or embracing innovation," says Ms. Cheeseman.
Nearly two-thirds of Canadian miners believe organic growth is important to expand over the next three years, compared to just over half of their global peers. And, more than two in five (44 per cent) Canadian miners cited merger and acquisition activity as important for growth versus 22 per cent globally, the report said.
"The results may not be surprising given the numerous small- and medium-sized miners in Canada that may not have the ability to scale up or access capital to meet rising demand, embrace innovation or address growing ESG expectations," says Ms. Cheeseman. "Consolidation may provide the opportunity for many players to address these as well as drive efficiencies and lower costs."
While access to capital had previously been a top risk, more Canadian miners now say their ability to access equity financing has improved over the past year, largely due to investor interest in the green economy transition.
The report identified 10 risks for Canadian miners in 2021, including these top five:
- Commodity price risk concerns reflect ongoing volatility
- Global pandemic risk - new
- Community relations and social licence to operate strengthening in ESG agenda
- Permitting risk
- Economic downturn/uncertainty
About KPMG in Canada
KPMG LLP, a limited liability partnership, is a full-service Audit, Tax and Advisory firm owned and operated by Canadians. For over 150 years, our professionals have provided consulting, accounting, auditing, and tax services to Canadians, inspiring confidence, empowering change, and driving innovation. Guided by our core values of Integrity, Excellence, Courage, Together, For Better, KPMG employs nearly 8,000 people in over 40 locations across Canada, serving private- and public-sector clients. KPMG is consistently ranked one of Canada's top employers and one of the best places to work in the country.
The firm is established under the laws of Ontario and is a member of KPMG's global organization of independent member firms affiliated with KPMG International, a private English company limited by guarantee. Each KPMG firm is a legally distinct and separate entity and describes itself as such. For more information, see home.kpmg/ca
For media inquiries:
Caroline Van Hasselt
KPMG in Canada