The Canadian mining industry is facing deep-rooted structural problems, with no easy solutions in sight. That's according to a well-known Canadian mining executive, who spoke on the opening day of the Prospectors & Developers Association of Canada (PDAC) convention on Monday.
In an unscripted and candid keynote speech, Sean Roosen, chief executive of Osisko Gold Royalties Ltd., bemoaned the lack of investor interest in mining, the dearth of investment over the past few years in exploration projects, skyrocketing capital costs and, in particular, the rapid-fire rise of alternative sectors, such as bitcoin and marijuana, that has wooed investors away from the industry.
"People used to invest in prospectors and exploration because they wanted to take risks and they wanted to have fun," Mr. Roosen said.
"That money has now moved over to cryptocurrency and weed stocks." said Mr. Roosen.
Mr. Roosen also noted that marijuana companies have gobbled up much of the speculative equity capital that has been raised in Canada over the past few years.
"Weed stocks kind of ate our lunch," Mr. Roosen said.
"Now, we have to figure out how to plant marijuana on our exploration projects," he quipped.
Tens of thousands of mining aficionados are currently gathered in Toronto for PDAC, which runs through Wednesday.
Mr. Roosen is a 30-year veteran of the industry, who founded and developed the Malartic mine in Quebec, one of Canada's biggest gold mines. In 2014, Agnico Eagle Mines Ltd. and Yamana Gold Inc. acquired the mine by buying his previous company, Osisko Mining Corp., for $3.9-billion. That same year, Mr. Roosen started the gold-financing company Osisko Gold Royalties.
Large, active money managers traditionally provided much of the risk capital for new mining ventures Mr. Roosen said. But the secular movement away from active fund management to passive investments such as index funds has shifted billions of dollars in potential funding away from mining.
"If we don't have active management, we won't we able to finance new projects," Mr. Roosen said.
Finding new reserves, the life blood of the industry, is getting more difficult as many promising reserves are in harder-to-access locations. Furthermore, companies have not adequately invested in exploration since the great financial crisis, with Mr. Roosen noting that a geologist is the "first one fired, and last one hired" after a downturn.
Mr. Roosen predicts the future of the industry will see companies increasingly teaming up to share the risk. With much of the cheap mineral deposits by and large mined, the large resource bases that remain demand massive upfront capital expenditures that run in the billions.
"Bigger companies are going to have to go back to the old playback where we used to do joint ventures, and we're going to have to syndicate bigger deals, and we're going to have to commit capital on a longer-term basis," he said.
As a tool to grow again, mergers and acquisitions (M&A) is no panacea either. Getting a deal done in the current environment is extremely difficult Mr. Roosen said.
Problems for the industry are not contained to the junior sector. He noted that large companies such as Barrick Gold and Goldcorp are also struggling with beaten-down market valuations and don't have the same licence from shareholders to embark on M&A, after costly missteps in the past.
"Part of our challenge is to get the next generation of investors interested in our space," Mr. Roosen said.