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Critical minerals mining industry requires more of everything if Canada to be a global player

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Critical minerals mining industry requires more of everything if Canada to be a global player

 

 

 

 

 

Biggest challenges are decarbonization, lack of domestic refining capacity, and raising capital, new KPMG in Canada survey finds

 

Nine in 10 (91 per cent) Canadian mining leaders are optimistic that Canada can be a world leader in critical minerals, yet the overwhelming majority (98 per cent) say their companies require more investment, government commitment, and favourable tax policies to support its growth, finds a KPMG in Canada survey conducted last month.

 

“Canada has put its stake in the ground on critical minerals, but it’s clear the industry requires much more support before Canada can be a viable and sustainable global player in the transition to a green economy,” says Heather Cheeseman, Partner, and National Mining Leader for KPMG in Canada. “While more than nine in 10 mining decision makers are optimistic about the potential for growth, mining companies are having to deal with many unique challenges, including permitting delays, reducing their carbon footprint, and the ongoing challenge of raising capital. Slumping commodity prices is making it all the more challenging.”

 

Top challenges

 

Canadian mining and exploration companies agreed that their most-pressing challenges are: Identifying and mitigating environmental, social, and governance risks, raising capital, reducing costs, and overcoming regulatory hurdles. Another pain point respondents specifically identified is permitting timelines, the time it takes to obtain the “right to operate”.

 

Decarbonization is another challenge that the industry faces. Survey respondents say they expect increased scrutiny from investors this year on their decarbonization strategies.

 

The survey findings show that fewer than a quarter (23 per cent) have made formal commitments to achieve all scope-related carbon emission reductions by 2050 or earlier. About a quarter (24 per cent) have not yet made formal commitments but are working on a plan to reduce emissions, 10 per cent do not have either an ESG or carbon reduction strategy, and 7 per cent do not plan to have one or cannot reduce emissions at this time.

 

Scope 1 covers greenhouse gas emissions from sources that they directly own or control and scope 2 are indirect emissions created by the production of the energy that an organization buys. Reducing scope 3 emissions are much more difficult than scope 1 and 2 to tackle because they encompass indirect emissions created up and down the company’s value chain, which can be problematic for all companies, including mining, says Ms. Cheeseman.

 

“The pace of decarbonization depends on the company’s size, carbon footprint, and resources,” says Ms. Cheeseman. “But many in the industry face substantial hurdles to reducing scope 3 emissions in particular. Because Canada has relatively little smelting or refining capacity for most critical minerals, the intermediary minerals Canada produces are shipped to smelters around the world. Until Canada has the capacity to smelt or refine what’s mined here, the miners will be limited in what they can do.”

 

Key poll highlights:

  • 98 per cent of 75 mining company decision-makers surveyed by KPMG last month agree the critical minerals sector requires more investment, government commitment, and favourable tax policies from governments (federal and provincial) to build the necessary infrastructure to fast-track exploration and mine development
  • 91 per cent believe Canada has a growth opportunity to be a world leader in critical minerals development
  • 23 per cent have made formal commitments to achieve scope 1, 2 and 3 carbon emission reductions by 2050 or earlier
  • 36 per cent have scope 1 and 2 formal commitments to reduce GHG emissions by 2050 or earlier
  • 24 per cent have not yet made formal commitments but are working on a plan to reduce emissions
  • 10 per cent do not have either an ESG or carbon reduction strategy
  • 7 per cent do not plan to have one or cannot reduce emissions at this time

 

Incentivizing investment

 

Respondents were also asked for their opinions on the federal Critical Mineral Exploration Tax Credit, which provides investors in companies exploring for certain critical minerals a 30 per cent tax credit based on the amount invested.

 

Mining companies agree the CMETC has been successful in financing and advancing critical minerals exploration activities in Canada. However, many leaders expressed concern with the complication and conditions applicable to the credit.

 

The CMETC applies to only 15 of 31 critical minerals identified on Canada’s critical minerals list, limiting its overall benefit, says Michael Long, a KPMG tax partner.

 

Further, there is concern in the industry that the 15 per cent federal Mineral Exploration Tax Credit, which incentivizes exploration targeting critical minerals that do not qualify for the CMETC and other minerals such as gold and silver, will not be renewed by the federal government in Budget 2024, he says.

 

“Canada has a long history of using unique tax mechanisms to encourage mineral exploration and development,” says Mr. Long. “Flow-through shares continue to be an important source of mineral exploration financing. As the critical minerals industry evolves, innovative federal and provincial tax policies will be needed to spur domestic investment.”

 

Additional poll findings:

  • 76 per cent say the CMETC helped their company attract capital for mineral exploration
  • 84 per cent agree the process of claiming CMETC is too complicated and too many conditions must be met before expenditures can qualify
  • 83 per cent say tax measures like the CMETC create momentum for this specialized mining activity and are good for the industry
  • 80 per cent want to see the flow-through shares tax credit extended to include other non-critical minerals

 

KPMG in Canada surveyed 36 owners of mining companies or mining executives as part of its Federal Budget 2024 Edition survey of 534 small-and-medium-sized Canadian companies participating on Sago’s online premier business panel and 39 respondents from its own client list. The surveys were conducted between Feb. 3-28, 2024 and the findings have been combined.  

 

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 more than 10,000 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.

 

Posted March 12, 2024

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