High costs and low commodity prices have squeezed financing options for Canadian gold miners, but it still beats the emerging markets.
"In certain places...they change the rules all the time and start introducing new taxes once you've made a huge investment," says Randall Oliphant, executive chairman of gold producer New Gold Inc.
"During a period of uncertainty, to try to do something in some of those riskier countries, people are just that much less willing to fund those."
Financing projects is a subject he's considered both at New Gold and as the new chairman of the World Gold Council, a position he recently took over from Goldcorp Inc. chairman Ian Telfer, another well-known Canadian mining figure.
This week, the World Gold Council in partnership with PricewaterhouseCoopers LLP released a study on the economic impact of gold. It found that out of the top 15 gold producing countries, Canada reported the highest level of capital investment made by companies in the gold sector.
While Canada's spending to maintain existing operations was fairly low, its spending used to expand current operations or develop new operations blew away the competition at $2.23-billion (U.S.) last year.
But even with that money flowing, Mr. Oliphant describes the current climate as an "austerity period." The cost of capital and operations has increased in the last few years, and investors have been disappointed that the returns of gold producers' equities haven't kept pace with increases in the price of gold, he said.
According to sources who work with the mining industry, that could lead to consolidation or shareholder activism in the gold mining sector.
Barrick Gold Corp., where Mr. Oliphant was chief executive from 1999 to 2003, is one company struggling with underperformance. Investors have demanded a rethink of the board of directors after taking issue with compensation packages and the lack boardroom diversity.
"The Barrick stories are well-known," Mr. Oliphant said. "People want to see change, but it's interesting – does that mean consolidation, or companies breaking up, or not building projects?"
For New Gold, part of the response to that demand for change was consolidation. The company bought junior gold miner Rainy River Resources Ltd. back in May for about $310-million. New Gold also has projects in regions such as Mexico, the U.S., Australia and Chile.
Mr. Oliphant said that Chinese companies are also increasingly looking for opportunities to invest in mining, often through joint ventures.
But that doesn't mean the climate is warming up yet. "There's a vibrant industry here," he said, "but people are remarkably risk averse, so it limits the capital that's available."