Mine 2019

Resourcing the future of Canadian mining

Why it’s time to go beyond financial performance to build the industry’s brand

Canada’s largest mining companies played a leading role in the global sector’s strong financial performance in 2018. 

As a group, the organizations on PwC’s list of the world’s 40 largest miners by market capitalization increased production, boosted cash flow, paid down debt, accelerated capital spending and provided returns to shareholders at near record highs during the 12 months ended December 31, 2018.

Six Canada-based companies made PwC’s global top 40 list for 2018, led by Barrick Gold Corp., which ranked 11th by market capital, and Teck Resources Ltd. at No. 14. China was the only country with a greater presence, comprising one-quarter of the list, and Canada’s showing would have been even stronger if the rankings had included royalty streaming companies. In terms of profitability, the Canadian players outperformed the group as a whole, with aggregate EBITDA margins of 42%, compared with 24% for the top 40.

Kirkland Lake Gold Ltd. broke into the rankings as annual revenue hit US$915.9 million, up 23% from a year earlier, and profit more than doubled to US$273.9 million, helping to send the share price up 87% during the year. The Toronto-based company benefited from the performance of mines in favourable jurisdictions, including two high-grade, low-cost operations: the Macassa mine in northeastern Ontario and the Fosterville mine in Australia, which it acquired through a merger with Newmarket Gold Inc. in 2016.

Agnico Eagle Mines Ltd. edged up two spots from the previous year to No. 24. The Toronto-based company exceeded production forecasts at lower-than-anticipated unit costs, and investors reacted favourably to news that the Amaruq and Meliadine projects in Nunavut are on track to begin production in the third quarter. Agnico Eagle also reported “significant exploration results” from several of its key pipeline projects in the first quarter of this year.

"The global mining industry had an excellent year in 2018, and Canadian companies played a leading role in that success. As they continue to make progress, companies have a chance to take the industry to the next level by creating more awareness of their successes and contributions to society."

Kevin Chan, National Mining Leader

Photo courtesy of Pan American Silver

New global concerns

But strong financials alone haven’t been enough to keep investors happy. Canada’s largest miners find themselves facing the same challenge that’s confronting the global industry, notably the shifting sentiment of investors and other stakeholders who are concerned that the sector lags in three critical areas: reducing emissions to address climate change, investing in new technology for the digital age and building stronger brands and ties to consumers and other stakeholders.

As a generator of greenhouse gas emissions and a provider of carbon-based materials, the mining industry is in the middle of the climate change debate. But Canadian companies have many opportunities to address stakeholder concerns, improve the public’s perception of their brands and win over the hearts and minds of investors again.

A road map to building the mining industry’s brand

Explore growth through M&A

Mergers and acquisitions accelerate growth in the industry. As larger companies emerge, they attract more investment dollars and offer smaller miners a chance to grow by picking up non-core assets. Deals activities also represent an opportunity for Canadian miners to increase their profile and brand by pursuing transactions that focus on improving long-term strategic value.

After a period of sluggish deal activity, mergers and acquisitions are back on the agenda for the top 40 mining companies. The value of announced transactions jumped 137% in 2018, to US$30 billion, driven by a flurry of activity in the gold sector, rising demand for energy metal projects and a push by miners to optimize their portfolios. The momentum has continued in 2019, with total deal value announced in the first four months of the year already exceeding the amount for all of 2017. 

Canada has been centre stage for some of the biggest transactions. It accounted for more than one-quarter of total deal value in 2018, driven by a gold sector that has been reacting to a shrinking pipeline of projects, fewer gold discoveries and high-grade deposits and a lack of quality development-stage assets. Barrick Gold’s purchase of Randgold Resources Ltd. set the tone in 2018 that has continued this year, led by Newmont Mining Corp.’s acquisition of Goldcorp Inc. and Yamana Gold Inc.’s sale of its Chapada copper-gold mine in Brazil to Lundin Mining Corp.

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Find the right path to digital transformation

In many industries, the largest companies make sufficient investments in technology to merit an executive-level position to manage information technology. Among the top 40 miners, only seven have a chief technology, chief information or chief digital officer.

Automation and digitization are gaining some momentum in the industry, as companies look to reduce production costs and improve efficiency. But miners need to look at other industries that have led in the successful deployment of technology and apply similar thinking to their own businesses.

Examples of success with technology in the mining industry include Agnico Eagle’s deployment of an LTE network three kilometres underground at its LaRonde mine in northwestern Quebec after a pilot project last year. The technology lets workers communicate and share data and video in real time, improving both productivity and safety.

With technology evolving so quickly, the mining industry needs to become more agile in how it uses it, which will also require employees to embrace and champion the change. To encourage this mindset, companies should take a closer look at how employees learn and what they want. Employees, particularly millennials, want to learn and stay current, but they’re also looking for the personal benefits technology can offer, including mobile access to their work and greater flexibility around when they work.

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Highlight the mining industry’s wealth contributions

Canada’s mining industry creates billions of dollars of value each year that benefits many stakeholders, including governments, employees, shareholders and others.

Through taxes and royalties, mining distributes a significant proportion of funds and earnings to governments. Last year, the six Canadian companies listed on the global top 40 paid aggregate direct taxes of US$1.6 billion and royalties of US$858 million. They also made US$78 million in community investments. For the five companies that reported employee costs, salaries and wages totalled US$4 billion. Outlays on dividends, share buybacks and capital spending created additional wealth.

At a time when public opinion perceives corporations to be retaining wealth, it’s important for Canada’s top miners to show stakeholders the full picture. Relying on public filings and financial reports is no longer sufficient. Instead, companies need to explain their total contribution to society.

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Promote diversity

For the mining industry to improve public perception of its brand, companies must diversify their ranks to better reflect the world they operate in.

Collectively, the Canadian miners listed on the top 40 are heading in the right direction when it comes to improving gender diversity, but the pace of change is slow. They’re making some progress, with women accounting for one-quarter of Canadian board appointments last year, compared to 21% among the global top 40. Looking at new senior management appointments, the respective figures were 27% for Canadian companies and 12% globally.

In 2018, the overall board composition of Canada’s six miners in the top 40 was 21% female, which was on par with the global rate. Women comprised only 10% of senior management positions, which was slightly below the global figure of 11% and raises the question of how the industry will be able to find female leaders with industry experience to fill board seats in the future.

On their own, equity initiatives won’t be enough to address the imbalance. Achieving gender diversity and inclusivity needs to become a strategic imperative for companies, which means they can’t look at it as just another human resources policy. Rather, the issue requires board oversight and the involvement of top leadership. Companies also need to embed diversity and inclusion into business objectives, performance measurement processes and compensation incentives.

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Sharpen carbon policies

The world’s largest mining companies have made significant improvements in addressing how their operations affect the environment. Most of the top 40 have committed to greenhouse gas reductions of between 3% to 5% by next year. They have also stepped up their public reporting on sustainability issues. But in today’s environment, disclosure on its own isn’t enough to win and maintain the trust of stakeholders, many of whom want to see direct and visible progress.

The mining industry doesn’t appear to have kept pace with some other industries when it comes to setting clear and measurable environmental goals. Companies need to do more, especially as a growing number of institutional investors are now assessing how companies approach environmental, social and corporate governance issues before they look at investing in them.

Savvy companies have made the risks and opportunities associated with climate change a strategic matter that garners direct oversight from their boards of directors. Some are also tying a part of overall compensation to how well employees manage sustainability efforts. At Teck Resources, for example, sustainability performance affects at least 5% of senior management team members’ annual target bonus. New ideas and policies like these will help the mining sector catch up to, and keep pace with, stakeholders’ evolving expectations.

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Financial outlook for global mining companies

In 2019, the top global mining companies will likely find their margins under pressure and see revenue growth flatten, as a small increase in production and higher prices for iron ore are offset by weaker prices for both copper and coal. Further deal activity could improve investor interest in the sector, paving the way for new exploration and mine development.

$bn 2019 Outlook 2018 2017 Change (%)
Revenue 686 683 632 8%
Operating expenses (511) (505) (465) 9%
Other operating expenses (6) (13) (9) 44%
EBITDA 169 165 158 4%
Impairment charges (4) (12) (3) 300%
Depreciation and amortisation (46) (47) (47) 0%
Net finance cost (10) (13) (13) 0%
PBT 109 93 95 (2%)
Income tax expense (33) (27) (30) (10%)
Net profit 76 66 65 2%

Source: Mine 2019: Resourcing the future

The global Top 40 mining companies

Global production profile and external market drivers

The global top 40 mining companies

Contact us

Kevin Chan

National Mining Leader, PwC Canada

Tel: +1 416 941 8321

Monica Banting

Eastern Canada Mining Leader, PwC Canada

Tel: +1 416 941 8233

Mark Patterson

BC Mining Leader, PwC Canada

Tel: +1 604 806 7160

Maxime Guilbault

Quebec Mining Leader, PwC Canada

Tel: +1 514 205 5448

Herman Lombard

Senior Director, Consulting, PwC Canada

Tel: +1 416 687 8864

Lauren Bermack

Director, Consulting & Deals, PwC Canada

Tel: +1 416 815 5323

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