Martin Turenne, chief executive officer of FPX Nickel Corp. FPX-X is wired as an optimist. In the mining industry, you have to be, because the timelines are agonizingly long and the odds are often heavily stacked against you. Mr. Turenne hopes to have a nickel mine and refinery in production at its Baptiste project in central British Columbia by the end of the decade. The grand plan is to supply nickel for Canada’s nascent electric vehicle battery industry. The early estimate to build what could eventually be a top 10 nickel operation globally is $2.6-billion.
Over the next few years, well before any mine construction starts, and well before the really big money needs to be raised, a lot of grunt work has to be done first. That includes more drilling, carrying out a feasibility study to fine tune the economics of the project, conducting an environmental assessment and consulting with affected First Nations communities. To get all this done, Vancouver-based FPX needs to raise up to $45-million over the next three to four years.
Right now, it’s almost impossible for FPX to raise this money on its own. With no mine in operation, the company has zero revenue. No bank will lend to it. FPX’s share price, which trades for pennies on the TSX Venture Exchange, has been battered this year because of a collapse in nickel prices, so a dilutive equity financing is a non-starter. What it really needs is a deep-pocketed white knight investor with a super-long time horizon.
Raising capital in Canada’s junior mining sector has been getting progressively harder over the past decade, but with one of the key sources of patient capital virtually eliminated, the job is now significantly more difficult.
A little more than two years ago, Ottawa said it would only allow Canadian critical minerals companies to raise money from Chinese state-owned enterprises under exceptional circumstances. The policy is an attempt to rein in China’s control over critical minerals. The Asian superpower dominates the supply chains for electric battery minerals such as cobalt, graphite and lithium. China routinely uses its power to crush foreign competition. This year, the world’s biggest mining company, BHP Group Ltd. BHP-N, was forced to shutter all of its nickel operations, owing to a flood of Chinese-controlled production coming out of Indonesia.
Mr. Turenne understands why the crackdown on Chinese investment into the junior mining sector was necessary from a government policy perspective, but it also hurts FPX’s chances of making it.
“Removing that source of capital from what is already a capital-deprived or capital-starved industry – it is very difficult to replace that,” he said.
In 2021, TSX Venture-listed mining companies raised US$2-billion. That was less than a third of the US$6.2-billion peak in 2009, according to data from LSEG Data & Analytics. But after Ottawa’s clampdown on Chinese investment in 2022, the slide went into freefall. As of mid-November, juniors had raised just US$400-million on the TSX Venture year-to-date.
The enormous funding pressure in mining puts Canada in an unenviable position. A whole host of EV battery plants are being built by foreign automakers and battery manufacturers in Canada, thanks in large part to tens of billions in federal and provincial government assistance. But the chances of those factories using metals sourced in this country appear unlikely. It seems far more probable that those commodities will be sourced from countries such as China and Indonesia, where environmental standards are far below those in Western nations.
“They’re very happy to turn a blind eye to the fact that these facilities may end up full of high carbon, irresponsibly-produced Chinese material,” Mr. Turenne said. “At the expense of fostering production of responsibly-sourced material from Canada, from allied countries that follow the highest labour standards and environmental standards in the world.”
A core sample, from FPX's Decar Nickel District in Central British Columbia, is stacked on top of an FPX surface sample of bedrock. The small silver flecks in the samples are grains of Awaruite, a naturally occuring alloy of nickel and iron, which are seen as a potential high-grade nickel source for refinement.Marlin Olynyk/The Globe and Mail
After not being allowed to raise money from Chinese investors, some Canadian critical minerals companies have started fleeing the country in search of deeper pools of capital overseas.
In May, Montreal-based SRG Mining Inc. kiboshed a $16.9-million financing with China-based Carbon One New Energy Group Co. Ltd. after the federal government opposed the deal. A few months later, the company, now called Falcon Energy Materials PLC FLCN-X, redomiciled to the United Arab Emirates.
Falcon chief executive Matthieu Bos said the move to the Middle East means the company can now raise money from China and not be subject to oversight by the federal government.
“Ultimately we need to raise money,” he said. “The pools of capital in that part of the world are just demonstrably bigger than what we have available for us in Canada.”
Since relocating, Falcon has already partnered with China’s Hensen Graphite & Carbon Corp. to jointly develop a graphite plant in Morocco, and teamed up with China-based contractor Shandong Xinhai Mining Technology & Equipment Inc. to develop another graphite project in Guinea.
Falcon isn’t the only Canadian critical minerals company that is fleeing Canada after Ottawa stymied a financing deal with a Chinese investor
Vancouver-based Solaris Resources Inc. SLS-T called off a $130-million financing with China’s Zijin Mining Group Co. Ltd. in May after failing to receive regulatory approval from the federal government. In September, Solaris announced that it is moving its head office to Ecuador, where its copper project is located. This week, the company said that come Jan. 1 it will, in effect, have no footprint at all left in Canada apart from its stock listing. All of that frees up Solaris to raise capital from Chinese investors and not have to worry about Ottawa turning a deal down.
Solaris did not respond to multiple requests for comment.
Christopher Ecclestone, principal and mining strategist with Britain-based Hallgarten & Co., said that small Canadian critical minerals companies will likely not even bother to ask the government to review any financing deal with a Chinese investor any more because of the likelihood of being turned down. Instead, a company will line up funding with a Chinese investor, agree to move its headquarters overseas to avoid Ottawa’s oversight and, in the process, remove any risk of embarrassment to Beijing.
“Losing face is a big thing in China,” said Mr. Ecclestone. “The Chinese don’t want to be slapped in the face by Ottawa.”
Over the past few years, Ottawa under its critical minerals policy has provided unprecedented amounts of money for companies that are at the very early exploration stage, and for those that are at a late stage of mine development.
But there is little public money available for companies such as FPX that are in the middle of The Lassonde Curve, a graph created by legendary mining financier Pierre Lassonde that represents the ups, downs and plateaus in the life cycle of a typical mining company.
The Lassonde Curve–junior miner life cycle
Stock value
EXPLORATION
ENGINEERING
MINING
Stage 1
Stage 2
Stage 3
St. 4
St. 5
14
Production
starts
12
Speculators
leave
10
Mine
depletion
Mine
construction
8
Promising
drill results
6
Talks with
First
Nations,
financing,
permitting
4
2
Valley of death
0
Discovery
Exploration
Engineering studies
Devlp.
Prod.
the globe and mail, Source: KJ Kuchling Consulting Ltd;
pierre lassonde
The Lassonde Curve–junior miner life cycle
Stock value
EXPLORATION
ENGINEERING
MINING
Stage 1
Stage 2
Stage 3
St. 4
St. 5
14
Production
starts
12
Speculators
leave
10
Mine
depletion
Mine
construction
8
Promising
drill results
6
Talks with
First
Nations,
financing,
permitting
4
2
Valley of death
0
Discovery
Exploration
Engineering studies
Devlp.
Prod.
the globe and mail, Source: KJ Kuchling Consulting Ltd;
pierre lassonde
The Lassonde Curve–junior miner life cycle
Stock value
EXPLORATION
ENGINEERING
MINING
Stage 1
Stage 2
Stage 3
Stage 4
Stage 5
14
Production
starts
12
Speculators
leave
10
Mine
depletion
Mine
construction
8
Promising
drill results
6
Talks with
First Nations,
financing,
permitting
4
2
Valley of death
0
Discovery
Exploration
Engineering studies
Develop.
Production
the globe and mail, Source: KJ Kuchling Consulting Ltd; pierre lassonde
The curve takes investors through the early highs and excitement of the discovery and exploration phase of a mineral project. Then there’s the multiyear bummer period that sets in after the initial euphoria has worn off, as the project undergoes intense engineering work to see if the economics are good enough to justify building a mine. If the company manages to get through this extremely difficult middle phase – and many companies don’t – there’s a final push, as the company tries to land permits, obtain financing, build the mine and finally put it into production.
Mark Selby, chief executive officer of Canada Nickel Co. CNC-X Inc. has spent the past couple of years navigating his junior mining company through the infernal middle section of the Lassonde Curve, or as Mr. Selby characterizes it, “The Valley of Death.”
“It’s brutal,” he says.
Canada Nickel is developing the Crawford nickel cobalt project near Timmins, Ont., which contains the world’s second-largest reserve of nickel. Once in production in late 2027, Crawford could be the largest nickel sulfide mine in the Western world.
Well before Ottawa put new restrictions on raising foreign capital, junior miners were struggling to attract interest owing to the slow-motion death spiral in active money management, Mr. Selby said.
He wistfully remembers the golden era of mine financing in the mid to late 2000s. Back then, a small Canadian mining company with a promising project could hit the road for a few days and meet with fund managers in charge of billions of dollars in assets in Toronto, Montreal and Vancouver. Then, when the company launched a “bought deal” financing, it knew there would be more than enough appetite from fund managers.
Mark Selby, CEO of Canada Nickel Co. Inc. His company is developing the Crawford nickel cobalt project near Timmins, Ont., which contains the world’s second-largest reserve of nickel.Duane Cole /The Globe and Mail
Fifteen years on, the landscape has changed entirely. Those marketing trips across Canada have all but disappeared because many of the big mining funds have closed.
“Now it’s maybe half a day of marketing in Toronto,” said Mr. Selby.
Doug Pollitt, veteran mining analyst with Toronto-based brokerage Pollitt & Co., pins the decline in active management largely on investors switching into passively-managed exchange-traded funds. Active funds are run by fund managers who get to know a mining company well over a period of years by doing site visits and through conversations with management. The managers have the ability to overweight certain companies and participate in financings if they like a company.
ETFs, by contrast, track indexes. There is no human manager for a small mining company to meet to pitch its story to.
“The capital allocation process gets screwed up,” said Mr. Pollitt of ETFs. “It’s not who’s got the best mine, or which CEO has a great track record. There’s an algo based on market cap and trading volume. That’s the basis of the investment.”
Despite the long odds, amid Ottawa’s restrictions on raising capital and the absence of demand from active money managers, Mr. Selby has guided Canada Nickel most of the way through The Valley of Death. That’s in large part because the company landed sizable equity investments from Anglo American PLC NGLOY, Agnico Eagle Mines Ltd. AEM-T and Samsung SDI that brought in $75-million.
These so-called “strategic investors” are particularly prized right now in the mining industry because the financings are typically done above the market price of the stock, the buyers are usually long-term shareholders and if a project ends up being as good as promised, they often end up acquiring the company.
An acquisition at a premium price is the long-term goal of most junior mining companies not only because of the financial windfall that management and early investors typically receive when they cash out stock they may have been holding for more than a decade, but also because the senior company has the experience in building mines, so a major risk is removed.
Mr. Turenne hopes to have a nickel mine and refinery in production at its Baptiste project in central B.C. by the end of the decade, with the goal of supplying nickel for Canada’s nascent electric vehicle battery industry.Marlin Olynyk/The Globe and Mail
Strategic investments have also been a godsend for FPX, even if the money hasn’t solved all of its funding travails. Over the past two years, Finnish stainless steel producer Outokumpu Oyj, Japan’s Sumitomo Metal Mining Canada Ltd. and a third unnamed strategic have invested just under $49-million into the company.
These investments are a major bright spot for the industry and the pool of strategic buyers over the past few years has widened beyond large mining companies to include the end users of critical minerals, such as battery makers and auto manufacturers. General Motors Co. GM-N, for example, has invested close to US$1-billion into Vancouver-based Lithium Americas Corp. LAC-T, which is building a lithium mine in Nevada.
The problem is there are still relatively few strategic investors, and they don’t make up for the decline in active money management. Also, because strategic investors tend to be either large mining companies or OEMs (original equipment manufacturers), they’re often only interested in massive mineral projects that can move the needle on their end, meaning juniors with smaller projects are out of luck.
“The challenge is you have to be a project of a certain scale, with a team with a certain amount of credentials, in a jurisdiction and location that a major might want to get involved in,” Mr. Selby said.
The enduring funding difficulties for Canadian companies in the middle of the Lassonde Curve contrast starkly with those that are not as far along. Over the past couple of years, Ottawa and Washington have jointly provided tens of millions in grants for Canadian critical minerals projects. In some cases, the amounts being awarded are not far off the market value of the company, or even above it.
Fortune Minerals collects ore samples from the NICO Cobalt-Gold-Bismuth-Copper project in the Northwest Territories in March, 2024. The company received $16.2-million in government funding earlier this year.Fortune Minerals Limited/Courtesy of manufacturer
Fortune Minerals Ltd. FTMDF a cobalt, gold and bismuth development company based in London, Ont., with a market value of $28-million, received $16.2-million in government funding earlier this year. Montreal-based Lomiko Metals Inc. LMR-X, whose market value is a mere $5.6-million, was awarded $16.3-million.
Meanwhile, for late-stage juniors, there is billions of dollars in game-changing government assistance available, with the public sector in some cases funding mine construction, a domain that used to be primarily left to the private sector.
For example, now that Canada Nickel is nearing construction, it hopes to land a US$500-million loan from Crown corporation Export Development Canada and $500-million from another unnamed government financial institution. The company should also be eligible for federal refundable tax credits and carbon capture and storage tax credits worth more than US$600-million once Crawford goes into production.
Companies stuck in the middle of the Lassonde Curve, however, qualify for next to no public money. So what can be done?
More aggressive trade measures are part of the solution, as well as better co-ordination between the United States and Canada.
In May, the U.S. imposed steep tariffs on many critical minerals imported from China, including graphite, cobalt, aluminum and nickel used for steel production.
Canada followed in October with tariffs on steel and aluminum products. Ottawa stopped short of imposing tariffs on a bigger basket of critical minerals, as the U.S. has done, but has left the door open to doing so at some point.
For now, neither Canada nor the U.S. has imposed tariffs on nickel sulphate, which is used in electric car batteries and is the metal that companies such as FPX intend to produce.
“This is what I mean about not having a coherent set of policies,” Mr. Turenne said.
Samples of nickel sulphate, the chemical compound used in the production of nickel-based lithium-ion batteries for electric vehicles.Marlin Olynyk/The Globe and Mail
To address some of the glaring gaps in trade policy, Mr. Turenne said that North American governments should take action not just against Chinese nickel, but against imports from all high-carbon commodity producers.
The European Union has already started to do this. The goal behind its Carbon Border Adjustment Mechanism is to tax imports of certain carbon-intensive commodities, such as iron, steel and aluminum. The CBAM is supposed to ensure that miners from countries with lax climate policies end up paying the same carbon costs as EU producers.
“It levels the playing field between responsibly-produced materials and irresponsibly-produced materials on the basis of carbon emissions, without singling out any particular actor,” Mr. Turenne said.
Ottawa could also broad access to a niche capital raising tool that only a small subset of companies have access to. Flow-through shares have been the go-to method for exploration-stage mining companies to raise money in Canada for decades, owing to the tax advantages to the purchaser.
But flow-through shares can only be issued when the proceeds are put toward early exploration work. Mr. Turenne and Mr. Selby have both petitioned the federal government to allow flow-through shares to be issued for other uses, such as advanced exploration, engineering studies for mines, metallurgical test work and costs related to engaging with First Nations, all expenses faced by development companies in the middle of the Lassonde Curve.
And what about Mr. Lassonde himself, whose eponymous curve was first featured in his 1990 book The Gold Book: The Complete Investment Guide to Precious Metals. The Franco-Nevada Corp. co-founder says that cutting red tape around issuing permits for mines is crucial. Back in the 1990s, it took just two and a half years for Franco-Nevada’s Midas mine in Nevada to go from discovery to production. Fast forward to the present day in Nevada and permitting times in isolation can stretch to five years, Mr. Lassonde said.
“‘The Killing Fields,’ I call it,” Mr. Lassonde said of the permitting morass. “Where all the juniors get killed because they cannot afford to stay alive.”
Mike Henry, CEO of Australian mining company BHP.Supplied
The permitting times in many provinces in Canada is far longer than in Nevada. BHP CEO Mike Henry told The Globe and Mail earlier this week that permits can take up to 17 years to obtain in this country. And unless something is done about it, Canada risks losing future investments in critical minerals to its global rivals.
“Canada is a resource-rich nation, steeped in mining history, and has a really good talent base. But many other countries also have resources, they’ve spotted the opportunity and they’re chasing after it pretty aggressively,” Mr. Henry said.
In the federal government’s 2022 critical minerals strategy, Ottawa acknowledged that getting a Canadian mine into production can take up to 25 years, partly because of regulatory red tape. The government vowed to streamline the permitting and environmental review process, and try to get rid of the duplication of effort when both Ottawa and the provinces are involved, which is often the case.
But while there are plenty of steps governments can take that can help small mining companies survive the funding crunch, the industry also has to reckon with itself. Many companies don’t live up to their promises. The projected economics turn out to be too rosy, costs balloon, unforeseen geological problems crop up, mine ramp-ups go awry or relations with host governments suddenly sour.
Investors over the past decade and a half have been burned hard in the Canadian mining industry and patience is running low. The best of the best in mining can still find ways to raise money, said Mr. Pollitt, but the market has zero tolerance for any company that isn’t executing flawlessly.
“Poor performance has been a fact of life in the Canadian junior circles for 100 years,” said Mr. Pollitt. “Yet when the commodity cycle comes back, we always forget the last cycle. This time it feels different.”