For over 20 years the BC Natural Resources Forum has been a meeting of minds for all those interested in the development of the natural resource sector in BC and Canada.
This year’s forum was the 21st annual with an impressive assembly of stakeholders and interested parties in the natural resource industry in Canada.
On day three of the conference, Hon James Moore Senior Business Advisor with Dentons Canada LLP, Kendra Johnson Managing Director of Pear Tree Canada, Kimberly Burns Lawyer and Partner at Dentons Canada LLP and Jamil Sayani MNP’s Regional Managing Partner and B.C. Director for Indigenous Services assembled to form a panel discussing financial insights for the natural resources industry entitled “Where is the money?”.
James Moore participated via video as he was prevented from attending in person by a winter storm. He referenced recent news articles that confirmed that Canada’s economy is stalling, with a lack of job growth, high borrowing costs, and a setback for the Bank of Canada due to inflation rates.
Moore began on an optimistic note, speaking about the potential for natural resources in the future “If we get things right in terms of public policy investment climate and we work together to build the right partnerships of investment opportunity, indigenous reconciliation and responsible environmental stewardship and taking advantage of economic opportunities both at home and around the world.”
He advised that the industry should never tire of telling the incredible story of the resources sector and what it means to the Canadian economy.
“It represents 1.7 million jobs across the country,” Moore said. “The resources sector in Canada is responsible for $80 to $90 billion in capital expenditures every year, which is 30% of non-residential capital investment in Canada. Resource exports from Canada represent 51% of Canada’s total merchandise exports sitting in over $320 billion in value last year.”
However, he followed with the somber message that the country is in dire need of export markets and resource opportunities to grow because Canada’s economy is effectively in a recession citing Federal and BC government forecasts that they do not expect a recovery in living standards in Canada or British Columbia until at least 2027 and that job growth in Canada has stalled. Moore concluded that ”the resource sector needs to be bolstered”.
With an upcoming provincial budget to be tabled and a BC provincial election this year, Moore sees that there are opportunities to engage with “people who are running to be MLAs all across the province of British Columbia with people who are aspiring to be Premier”. Moore pointed out that on the federal side, even though there probably won’t be a federal election until 2025, leaders are speaking across the country and in British Columbia. (in fact Hon. Jonathan Wilkinson. Minister of Energy and Natural Resources spoke at the Forum and delivered what was essentially a campaign speech for Liberal environmental policies). Moore sees an urgent need to engage with people who want to be elected and discuss effective forward movement and development of the natural resources policies, in his words “engage with those who aspire to be our leaders.” It’s interesting to note that he used the words “those who aspire to be our leaders”, rather than “those who are currently our elected leaders”, identifying a powerful motivator for candidates to listen to appeals for policies to bolster the resource sector.
Moore encouraged conference attendees to speak to candidates to advocate for indigenous reconciliation and environmental stewardship, for taking advantage of global market opportunities and for developing our resources effectively.
“We should start setting markers,” Moore said. “Engaging with people who want to be our public policy leaders and who want to be Premier and Prime Minister, MLA , MP or ministers and start making real demands, start making people make real commitments to the resources sector across the province- about how we’re going to get this right and how we’re going to move forward effectively.”
After Moore’s barn burner video speech, panelists turned to their insights to the 2024 financial investment landscape.
Kimberly Burns, Lawyer and Partner at Dentons Canada LLP, began with the statement that 2024 is not the year that retail investors are coming back to the resource industry. She is seeing money available in private equity- everything from a local family business that is looking to invest its generational wealth to the largest global private equity funds that are using Canadian resources as part of their portfolios. Burns identified three different transaction types. First was the acquisition type, in her words, “private equity is coming in, taking your business, earning you out and you’re done and dusted in two years.”
The next was a more traditional private equity style where there is an investment for growth – a bit of a partnership with a seat on the board, possibly some veto power on major decisions and private equity might offer you some finance or executive management help. The third model, which Burns advised is available for resource businesses in Canada “looks a bit more like a traditional bank.” It is a passive investment- an equity investment where investors are looking for a revenue stream from your business. Burn’s biggest message was what businesses need to do in 2024 in order to distinguish their business to private equity.
“You need strong positive relationships with indigenous groups,” Burns said. “You need strong positive engagement and ideally, you need a strong positive endorsement from the indigenous groups and the nations that are in your community. That is what is going to get you from the ‘reach out’ from private equity to closing your deal. It’s not just important or valuable anymore to have a good reputation- you need to show your collaboration.”
Jameel Sayani, MNP’s Regional Managing Partner and B.C. Director for Indigenous Services commented on the nature of equity participation for First Nations saying First Nations ownership is key with a focus on the profitability of a project. In the past, many natural resource companies or major projects went through consultation processes that resulted in a type of impact benefit agreement that would provide a royalty payment and maybe some employment. Sayani advised there has been a shift to First Nations active ownership participation and equity stake in major projects- aligning industry partners with First Nations in a mutual focus on how projects are governed and the profitability as well as impacts of a project. Sayani credited the new paradigm development and accelerated growth to the Alberta Indigenous Opportunities Corporation’s (AIOC) program which was repeatedly praised during the conference discussions. “I think one of the one of the changes that we’d like to see,” Sayani said, “is the loan guarantee program expanding outside of Alberta, into BC and nationally and those conversations are currently underway.”
Kendra Johnson, Managing Director of Pear Tree Canada then turned the discussion to the junior exploration and development space in BC and across Canada. She identified that in recent history – going back ten to fifteen years – the sector was increasingly financed via traditional flow-through funds which were successfully supported from a policy perspective both federally and provincially.
“But the money has moved now from traditional flow-through dollars into charity flow-through dollars,” Johnson explained. “And if we look at how much money is raised on the Canadian stock exchanges, in any given year we’re sitting at about $1.3 billion for junior exploration and development companies. Approximately 83% of that is raised through the flow-through regime and approximately 98% of that 83 is raised through charity flow-through platforms. So it is an incredible mechanism to promote the industry but it also is bringing in a lot of foreign direct investment. We’ve seen some great success stories certainly in the mining industry, with dollars coming in from Australia over the last number of years- some really great success stories.”
Kimberly Burns added an important note to Kendra Johnson’s comments about global sourcing. Burns advised that the geopolitical environment in Canada has changed in the last five years and companies should be reviewing and planning their regulatory processes and talk to advisors early on in the process.
Kendra Johnson had the last word in the panel and talked about the two-year-old federal critical mineral strategy and tax credit announced in April 2022 which enabled over $500 million to be raised for critical mineral projects across the country. She stressed that there is a new important policy piece – there are proposed changes to legislation on the alternative minimum tax from Finance Canada. She stated that the changes would reduce the tax incentives to invest in critical mineral exploration and ultimately disincentivize investment.
“I don’t think it was intentional to have it impact the critical minerals tax credit in the (negative) way that it’s going to,” Johnson said. “But at the end of the day, the ultimate impact is a reduction of about 30% of the investment coming into critical minerals through the critical minerals tax credit. So that $500 million that was raised, had the new proposed rule been in place, would have resulted over the last couple of years to be only about $333 million instead of the $500 million. So that is quite a significant impact.”
Maureen McCall is an energy professional who writes on issues affecting the energy industry.