The Canadian mineral industry is looking to build capacity through exploration and development as well as through acquisition activities.Getty Images
Q&A with Michael Faralla,
Head of Global Mining Investment Banking at TD Securities
Mining has come through a challenging year, marked by interest rate increases, persistent problems on the supply side, declining demand for electric vehicles and not one but two major geopolitical conflicts. Michael Faralla, head of global mining investment banking at TD Securities, shares his thoughts on the past year’s developments in mining and what could lie ahead for 2024.
What has the mining landscape looked like for the past year, and what are the factors that have shaped this landscape?
In 2023, we did see prices for many of the main commodities remain strong, particularly gold but also copper and some of the other base metals such as zinc, and also silver, which is more of a precious metal. Gold in particular benefited from an interest rate environment that changed from a higher-for-longer rate environment, particularly in the U.S., to one that appeared to have the potential for easing as inflation started coming down. Geopolitics have also been a factor. We had not only the war in the Ukraine but also the war in the Middle East, which created a stronger bid for safe haven assets that would include gold. On the base metals side, we also saw supply-side constraints, particularly in copper in the fourth quarter.
What did this mean for investors who either already own mining stocks or were looking to invest in mining?
Mining stocks performed quite poorly in the third and fourth quarters, and there was a real disconnect between the price of the commodity, which remained quite strong, and stocks, which were down anywhere between 30 per cent and 50 per cent. Weak equity markets generally meant investors were looking for safety in terms of investments. In 2023, we saw significant fund flows out of equities and into fixed income assets and money market funds, and I think mining suffered from that as well. Particularly in Canada, we’ve had a reduction in the number of institutional funds focused on mining.
I understand it was quite challenging for mining companies to raise capital in 2023, but that we also saw capital coming from new sources. Can you elaborate on this?
We did see the emergence of new capital, particularly with hydrocarbon-based economies using their sovereign wealth funds to diversify their economies given the overall energy transition happening globally. The Middle East was notable in that we saw the Saudi Arabian sovereign wealth fund partnering with its state-owned mining company in a new venture called Manara Minerals, which purchased 10 per cent of Vale’s base metals business for $2.6-billion.
We’ve been seeing a decline in battery metal prices. What’s behind that decline?
It really is a case of classic supply and demand. When we had the run-up in lithium prices going back to 2020, we saw significant new sources of supply put into development and start to come into production over the last 12 to 18 months. At the same time, we’re seeing the demand for electric vehicles plateau a bit. The significant expansion in supply – particularly of lithium – into what is a fairly narrow market caused prices to come down from a significant high. I think it’s the same story with nickel.
What does 2024 look like for mining?
The one trend that we saw towards the end of 2023 that we’re likely going to see increase in 2024 is a renewed interest in mergers and acquisitions by the mid- and large-tier mining companies. I think this is driven by two things: The first is that mining companies have spent the last half a decade or longer really focused on strengthening their balance sheets and returning capital to shareholders. So we’re now in an environment where shareholders are looking for growth again. The second is that mining companies are also looking to acquire producing assets where they’re again looking to grow their production.
Produced by Randall Anthony Communications with the Prospectors & Developers Association of Canada. The Globe’s Editorial Department was not involved.