‘Capital markets are collapsing,’ PDAC’s Killeen says

Jeff Killeen, PDAC’s director of policy and programs, sat down with The Northern Miner podcast host Adrian Pocobelli ahead of the 93^rd edition of the Prospectors & Developers Association of Canada conference, which starts March 2 in Toronto. 

Last year’s edition of PDAC drew about 27,000 people, and Killeen said he expects a similar turnout this time. Some 1,100 exhibitors are also expected to take part in the event. 

In the interview, Killeen sheds light on some of the major topics impacting the Canadian mining sector, including the challenges posed by the Alternative Minimum Tax and the potential expiration of the Mineral Exploration Tax Credit this month. (The federal government has just promised to extend it for two years.) He also offers insights into potential solutions. 

Questions and comments in this interview were condensed and edited for clarity. 

Adrian Pocobelli: It seems like there’s a lot of enthusiasm for mining these days. Are you getting that sense too? 

Jeff Killeen: I position it maybe more, Adrian, as a reinvigoration. If we look back 10, 12, 13 years ago, we got turnouts like this for the PDAC convention north of 25,000, north of 30,000 in some cases. We do often see ebbs and flows with our attendance based on what the commodity price environment looks like.  

There has been a shift in the last four to five years, particularly governments around the world wake up and realize how integral minerals are to supply chains, everyday life. Minerals are inherently a part of everything that every other industry does.  

AP: What is your sense of the mining landscape in Canada? 

JK: It’s a really dynamic sector. 

We did see a bump up last year in terms of how much money was invested through the equity markets into mineral exploration and mining specifically. So it was up a few billion dollars year over year from 2023.  

How did that money get raised? Where did that money go? 

There was about $10 billion raised on the TSX, the venture and the Canadian Securities Exchange combined. About 80% of all of that equity that went into those marketplaces went to just the top 50 deals. And even if you look at the top three or four deals, those represented almost $3 billion out of that total of 10.  

It really gives you a sense that there are fewer and fewer dollars that are either trickling down or penetrating into those smaller market cap companies or those companies that are at earlier stages.    

If you take an even bigger step back and you look at how much money, how much equity, was invested in the Canadian marketplace overall – not just our sector, not just mineral exploration and mining, but including everything, financial services, pharmaceuticals, consumer products, all of those different companies that are listed – it’s in a pretty dire state. You might even say that the capital marketplace in Canada is collapsing.    

We’ve seen the amount of money coming into the exchanges the last four years dropping. There was only a total of about $20 billion raised total last year in the Canadian marketplace. 

Let’s look back to post-financial crisis 2009, there was over $60 billion raised. If we look at the pandemic year 2019, or 2020, we were looking at $30 to $40-plus billion raised. So last year, as far as my view can look backwards, it was the weakest year we’ve ever seen in the Canadian marketplace for new equity investment.    

Other signals suggest as well that from the private equity markets, we’re seeing a similar trend. So there’s a real concern that we have here at PDAC. Many others around the financial ecosystem in Canada are concerned that Canada’s marketplace is really shrinking. 

AP:  Do you think that’s a result of recent policy of, say, this alternative minimum tax or the expiration of the mineral exploration tax credit or that’s just pouring gasoline onto an already a bad situation?  

JK: Probably a mix of both, Adrian, and that phrase that’s often used, death by 1,000 cuts. That’s the kind of scenario I think is playing out here in Canada.  

The mineral exploration tax credit is a piece that allows companies to raise capital in very risky terrain. Mineral exploration is not an easy business. The prospect for success is often very low, and so ushering in that risk capital into the sector often takes a bit more incentivization than you would find elsewhere.  

The mineral exploration tax credit is a critical part of our fiscal landscape here in Canada. It’s the reason why, in many cases, the Canadian marketplace has raised more money for mineral exploration than any other market in the world – why you see more than half of the mineral exploration and mining companies globally listed here in Canada. It’s because of those keys that really make it more attractive to invest here. 

As you see things like the risk of the mineral exploration tax credit expiring, that takes away some of the incentive to bring capital towards Canadian explorers. You see things like proposed raising capital gains, that makes it even more challenging to see the prospect of a positive investment reaping the rewards from that. That’s another impediment.

You also see the prospect for alternative minimum tax being raised that has an inherent link to, or a headwind towards, folks that are looking to invest through flow-through shares and the mineral exploration tax credits. So, if you layer these things on top of one another, it just adds to that potentially weakening marketplace we see in Canada overall. It creates a real risk that we’re turning what has been a fruitful grape into more of a raisin here, with potential future investment into our sector.  

AP: So, what are PDAC’s recommendations? 

JK: Part of our recommendation suite is really simple. It’s renewing the mineral exploration tax credit, but not just renewing it for a year. It’s about to expire at the end of March, at a time when we don’t have government sitting in Ottawa. The actual mechanism to renew it or extend it is really limited, or almost absent. We’re getting to a real, not a panic situation, but we’re getting to a place where we’re very concerned. How is that credit going to exist beyond April 1? 

So we’re calling for a permanent installation of the METC. That’s one of the sure ways to try and bring more capital into mineral exploration and ensure that there is a lot of activity and new discoveries being made in Canada.  

We also look at resources. How are we going to see those resources turn into reserves?  

Currently, a company can raise capital by issuing flow-through shares, and there’s a very strict prescription of how they’re to spend that money. It has to be done on a certain suite of activities. But one of those activities, or a few of those activities that aren’t included, is some of the scoping work, some of the assessment work to actually convert resources into reserves and allow a company to go forward towards a build decision, to say, this is good enough, and we can build this mine and make it a viable machine. We want to see that gap removed.    

Taking a broader view, what we really would want to see is the proposed increase to the capital gains inclusion rate abandoned. The significant decline we’re seeing in overall investment in Canada is a real, concerning litmus test, and the proposition of raising capital gains taxes on those very folks that are investing in the Canadian marketplace at a time when we’re seeing this decline just seems counter to trying to reinvigorate investment. 

There’s a lot of other things that we talk about outside of those particular fiscal changes that could be a real benefit for Canadian explorers, for miners in Canada. We join a lot of other folks who have called for a need to look at the amount of investment that pension plans and that domestic pension plans actually have in Canada. There’s a very small percentage of assets under management for many of those larger pension plans actually invested in Canada.  

The trickle-down effect of pensions investing in things like infrastructure, energy and transportation provides more optionality for our industry. It certainly could potentially lower costs for just their own development and the capital investment.