< Previous20 Follow us on Facebook for current mining news. makeup of their company needs to reflect the diverse communities in which they operate. Efforts have been made to include the voices of underrepresented groups in their community engagement work and in all aspects of project development. This shift is reminiscent of changes in industry culture relating to health and safety protocols, and environmental protection – subjects that have now become common in project development and execution. As both a result of and a contributing factor to this changing landscape, various initiatives and programs have been established to help move the needle on diversity and inclusion within our industry. From campaigns like White Ribbon, which encourages men to take a stand against GBV, to extractive industry- focused guidance such as the International Finance Corporation’s Unlocking Opportunities for Women and Business Toolkit, the inventory of knowledge and resources available for those seeking to address these issues is growing. While various initiatives should be credited with having a positive impact on improving diversity and inclusion, they can in many ways be inaccessible to a key and operationally unique part of the mineral industry: exploration and junior companies. Providing guidance for the exploration sector: PDAC’s diversity and inclusion initiative Exploration projects and the companies running them face a unique set of operational circumstances that are different from mid- tier or major companies. Taking into account the seasonal nature of exploration projects and limited capacity in terms of funding and resources, major diversity and inclusion strategies are impractical for juniors. In response to the changing landscape and gap between initiatives and practicality, Prospectors & Developers Association of Canada (PDAC) has taken a leadership role by creating guidance tailored specifically to the exploration industry. This guidance demonstrates how small changes can have a tremendous impact. In June 2019, PDAC published Gender Diversity and Inclusion: A Guide for Explorers, for e3 Plus: A Framework for Responsible Exploration. It serves as a primer for companies looking for guidance on how to get started with improving gender diversity and inclusion. The guidance takes a two-pronged approach and addresses barriers within the workplace and community context. We all have a role to play when it comes to improving gender diversity and inclusion, and whether a company conducts a resource-intensive policy review or they alter their signage and safety gear to reflect the diversity of their workforce, progress towards inclusivity is still progress – no matter how small.www.canadianminingmagazine.com 21 When it comes to internal workplace barriers, unpacking the root causes of low recruitment and retention issues is critical to achieving gender equality. While relevant in discussions on diversity and inclusion, improving gender diversity within an organization requires going beyond hiring policies. Workplace culture must shift to one that is open and welcoming to all genders. PDAC’s guidance helps identify both quantitative and qualitative elements that contribute to workplace culture and how to move them into actionable items. For example, looking at the signage used on a project site for inclusivity or reviewing company travel policies for ways they may impact employees differently are tangible steps that can provide a company with an understanding of who is being excluded. While recognizing areas of improvement within a company is a necessary step in implementing an effective diversity and inclusion strategy, this is only one half of the picture. Companies must also look at the ways in which the gendered dimension of their workforce, policies, and practices can impact marginalized communities they engage with. As exploration companies are often the first boots on the ground, addressing the community context of gender diversity and inclusion is of equal importance. There are different factors to consider when addressing gender diversity and inclusion in community interactions, including key barriers such as community safety and GBV, engagement and consultation processes that are inaccessible to women, and a lack of diversity in the supply chain. While taking on such large issues may seem daunting, in many cases addressing these significant barriers comes down to asking the right questions, developing a deeper understanding of the community you are operating in, and reflecting on how policies and practices do not impact everyone in the same way and adjusting accordingly. For example, a small step that can result in significant change in women’s involvement in community consultation is hosting meetings at times and places women can easily access. While these examples may seem marginal in comparison to the diversity and inclusion strategies of major mining companies, they should not be written off as ineffective. Changing culture and challenging workplace norms is a slow process that occurs over time. These small changes help to ensure companies continue moving in the right direction. We all have a role to play when it comes to improving gender diversity and inclusion, and whether a company conducts a resource- intensive policy review or they alter their signage and safety gear to reflect the diversity of their workforce, progress towards inclusivity is still progress – no matter how small. As an association focused on ensuring that our industry remains responsible and competitive, PDAC is committed to helping our members recognize the value in diversity and inclusion, while offering guidance on how to achieve it. The launch of Gender Diversity and Inclusion: A Guide for Explorers is an initial step on tackling the multifaceted and complex issues of diversity and inclusion – and it certainly will not be our last. For more information on Gender Diversity and Inclusion: A Guide for Explorers, visit www. pdac.ca/priorities/responsible-exploration/ gender/gender-diversity-and-inclusion-guidance- document. M ROSE STACEY IS PDAC’S ANALYST FOR SUSTAINABLE DEVELOPMENT AND INTERNATIONAL AFFAIRS AND WORKS ON THE ASSOCIATION’S EFFORTS TO SUPPORT A COMPETITIVE AND RESPONSIBLE CANADIAN MINERAL SECTOR.www.canadianminingmagazine.com 23 FEA TURE VANADIUM, AN ELEMENT DERIVED mainly from mined iron ore and steel slag, is used primarily as a strengthening alloy to steel and titanium for aerospace, with other emerging uses in chemicals, catalysts, and energy storage. One company says the metal is just what the mining world needs to reduce the industry’s impact on the environment. “When you talk about the environmental impact, the potential uses [of vanadium] may reduce the footprint of the production chain by almost half,” says Paulo Misk, CEO of Largo Resources. Largo, a Toronto-based strategic mineral company, focuses on producing vanadium flake, high purity vanadium flake, and high purity vanadium powder. The company has operations in Brazil, including its flagship asset, the Maracás Menchen Mine near the town Maracás, Bahia, where the company produces vanadium. Construction at the Maracás Menchen Mine started in 2012, and the company first produced vanadium at the site in 2014. From its operations in Maracás, Largo sells 100 per cent of its production through an off- take agreement with global commodities trader Glencore; roughly 40 per cent is exported to North America, 40 per cent to Europe and 20 per cent to Asia. The company says it has among the highest known grade deposits of the element, with an ore grade of 1.15 per cent V205 and a magnetic concentrate grade of 3.21 per cent V205. About 91 per cent of vanadium is used in the steel industry but the element is also used for master alloys, chemicals/catalysts, and energy storage. When added to steel, vanadium forms carbides and promotes fine grain size, making vanadium steel strong, durable, and able to withstand extreme environments. Though the element’s use dates back centuries – traces of vanadium have been found in ancient Damascus swords – the modern use of vanadium started around the early 20th century. Henry Ford, founder of Ford Motor Company, recognized vanadium steel’s high tensile strength to make a stronger, lighter, and a better performing vehicle. Today, Misk says one kilogram of vanadium added to one tonne of steel can increase the strength of the steel by up to 80 per cent. The demand for vanadium has been increasing, particularly in regions that have a history of high consumption of steel, such as China. In 2018, China refined its regulation standards for rebar production, requiring higher strength steel. China’s demand for vanadium, added to steel to meet this higher strength requirement, has increased about 24 Producing a Stronger, Greener Future Why vanadium might be the answer the world is looking for. A night shot of the Ford Processing Facility at the Maracás Menchen Mine. A worker assesses the opening of the kiln where a flame is blasted to roast material at the Maracás Menchen Mine.24 Follow us on Facebook for current mining news.www.canadianminingmagazine.com 25 per cent over the past two years. “Vanadium demand and consumption is growing, which lends support to green initiatives as it further reduces our environmental footprint,” Misk says. Since vanadium is a strengthening additive in master alloys, fewer alloys are required in the manufacturing of airplanes, resulting in less fuel consumption. According to a Market Research Future report released summer 2019, the global master alloys market is projected to reach $576.3 million by 2024, which is driven by the growth of the aerospace sector that encourages green investments through the operation of fuel-efficient airplanes.1 Roughly two per cent of vanadium is consumed in energy storage through the vanadium redox flow battery (VRFB). This rechargeable battery uses one liquid solution – a vanadium electrolyte – to store high amounts of energy, generated from sources including renewable energy, that can be used at a later time. Though the energy storage market presents options of other energy storage batteries to use, the VRFB has stood out as a safe and green energy storage solution. Largo’s website notes this battery is a cost-competitive alternative to lithium-ion technology for large-scale and long- term energy storage. Furthermore, the use of a single element in the battery avoids cross- contamination of chemicals, giving the VRFB a fire-safety advantage over other battery technologies. These examples of vanadium use – as a strengthening element in steel and master alloys and in the vanadium redox flow battery – contribute to a healthier environment, and, in turn, make Largo’s work better through green technology, Misk says. Largo works to promote a healthy environment not only through producing vanadium but also through practices at the Maracás Menchen Mine. For example, the mine does not discharge liquid effluent, and it reuses water discharge in the processing plan. In areas surrounding the mine, Largo works to restore areas affected by mining and to preserve local plants and wildlife. Misk started working at Largo in 2014 and became the company’s CEO in September 2019. He talks of not only his pride in Largo’s production and its contribution to reducing environmental impact but also in the company’s social responsibility. Besides offering employment opportunities, the company has social projects in Brazil, as a way to give back to the community. For example, Largo supports a beekeeping association near the Maracás Menchen Mine by donating equipment and materials, helping beekeepers develop their businesses. Largo also offers programs for children including jiu jitsu and judo training. “We take immense pride in the social work Largo contributes to the surrounding communities,” Misk says. “Promoting a positive impact in the region Maracás will continue to remain a core principle at Largo as we continue to operate the Maracás Menchen Mine.” Looking ahead, Largo Resources will continue its production of vanadium, working to supply the world’s increasing demand for the metal. On April 30, 2020, the company’s 100 per cent off-take agreement expires. Largo has already taken steps to develop its own internal sales and trading business following the appointment of Paul Vollant as Largo’s Director of Sales and Trading and Fracesco D’Alessio as Head of Sales, Americas. “Our plan is to continue our goal of operational excellence at the mine,” Misk says, “which means producing some of the highest quality vanadium in the world at one of the lowest costs.” M Largo Resources produces vanadium pentoixide flake and high purity vanadium pentoxide flake and powder at its Maracás Menchen. The Campbell Pit at the Maracás Menchen Mine. Reference 1. Market Research Future, Master Alloys Market Research Report—Forecast to 2024 (July 2018), accessed October 29, 2019, www.marketresearchfuture.com/ reports/master-alloys-market-6229.www.canadianminingmagazine.com 27 FEA TURE CANADIAN MINING COMPANIES ARE looking at further merger and acquisition opportunities as a means to create more value, following several mega deals involving major players in the gold sector in 2019. The sector, which has been emerging from a period of restructuring after gold prices fell from historic highs, is searching for new paths to growth to try to win back favour with investors. Despite improving prices for gold, many investors are treading carefully as they look for companies with clearly defined business plans to create value and focus on larger, more liquid investment targets. These are some of the major drivers of transactions in the mining sector, which have led to predictions of subsequent asset sales as newly merged companies look to sell non-core holdings. While discussions are happening, management teams, which are keen to avoid some of the M&A mistakes that preceded the last downturn, are taking their time before pulling the trigger on any transactions. They want to avoid taking on too much leverage, and, with some companies having faced challenges in raising financing on the equity markets, several have turned to share-based transactions. But that approach comes with its own complications and can be more difficult to complete than cash deals. A variety of approaches The deals that moved forward in 2019 have come in a variety of structures and sizes, involving a diverse group of players. At the start of the year, Barrick Gold Corp. completed its US$6-billion merger with Randgold Resources Ltd. – a no-premium deal that combined two international gold mining giants. The enlarged Barrick owns several of the world’s lowest-cost mines. Just weeks later, Newmont Mining Corp. announced it would spend US$10 billion to acquire Goldcorp Inc. The transaction, which solidified Newmont’s position as the world’s largest gold bullion producer, carried a 17 per cent premium to Goldcorp’s market valuation at the time of the announcement. A short time later, Barrick and the newly named Newmont Goldcorp Corp. signed an agreement to create Nevada Gold Mines, a joint venture combining assets in Nevada. We’ve also seen asset sales and private equity sell-offs, with some deals involving metals other than gold. In April, Yamana Gold Inc. sold its Chapada copper and gold mine in Brazil to Lundin Mining Corp. for US$1 billion. The deal was an opportunity for Yamana to reduce leverage and for Lundin to deploy excess cash. Brookfield Business Partners LP, meanwhile, recently inked a deal to sell Toronto-based miner North American Palladium Ltd. to Impala Platinum Holdings Ltd. for C$1 billion. Another recent transaction of note in the industry involves a Chinese state-owned copper company, Jiangxi Copper Company Ltd., taking a 10.8 per cent stake in First Quantum Minerals Ltd., one of Canada’s biggest copper miners. In the late fall, the deal activity heated up once again in the gold sector, in many cases involving single-asset companies as well as assets sold by both Barrick and Newmont Goldcorp. By Kevin Chan, PwC Canada M&A activity is heating up in the mining sector. The Value of the Deal FEA TURE28 Follow us on Facebook for current mining news. The announcements included Kirkland Lake Gold Ltd.’s C$4.9-billion bid for Detour Gold Corp.; Saracen Mineral Holdings Ltd.’s US$750-million purchase of Barrick’s stake in the KCGM Super Pit gold mine in Australia; Endeavour Mining Corp.’s approximately C$2.5-billion hostile bid to merge with Centamin Plc; the C$1.4-billion sale of Continental Gold Inc. to China’s Zijin Mining Group Co. Ltd.; and Newmont Goldcorp’s agreement to sell the Red Lake complex to Evolution Mining Ltd. for US$375 million in cash and up to US$100 million in additional contingent payments. On December 10, Barrick announced yet another transaction: the sale by it and its joint venture partner, for up to US$430 million, of their 90 per cent interest in the Massawa project in Senegal to Teranga Gold Corp. Finding the right partner Amid all of the deal activities, gold mining companies have seen an additional boost from rising prices during much of 2019. But as we’ve seen in previous cycles, companies can’t rely on elevated prices alone to drive deal success. At the core, every transaction must create value. So far, there are positive signs that companies are targeting deals that will produce results and attract more interest from investors. In the case of Barrick, the company has seen a rise in its stock price in the wake of its recent deals. Barrick’s market valuation has soared since the end of 2018, rising from C$21.5 billion on December 31, 2018, to C$30.8 billion on January 31, 2019 (after the merger), to C$40.1 billion as of October 18, 2019. To produce results, acquirers need to put a big emphasis on their value creation roadmap. It starts by prioritizing the right deal targets and structures. At the moment, we see joint ventures as a significant opportunity. In the case of www.canadianminingmagazine.com 29 Nevada Gold Mines, both Barrick and Newmont Goldcorp saw a chance to capture synergies through the combination of their Nevada assets. For any mining company looking to make a deal, success will come from knowing the corporate priorities, embedding detailed synergy identification into the company’s strategy and exploring all aspects of the deal as early as possible. It’s particularly important to develop the integration plan before announcing the deal. Successful acquirers understand that there’s no value in delaying this planning until closing the deal since accelerated transitions result in faster return on deal investment, better capitalization on post-deal opportunities, and reduced organizational uncertainty. Deal analytics are a crucial part of the value creation roadmap. When used properly, new data tools give companies deeper insights that can lead to better decision making, greater profitability, and the ability to uncover new synergies. A frequently forgotten element concerns corporate culture. Failing to plan for cultural change can significantly diminish the value created by any deal. That’s why keeping employees top of mind in deal planning and execution is important. Holding on to human capital requires the parties to put corporate culture at the heart of the transaction. To do that, companies need to identify critical workforce issues early on, get the right leadership and objectives in place, and communicate effectively during the execution of the deal. Outlook for mining in Canada Companies that get the value creation roadmap right will be in the best position to grow. But even with the positive signals so far, the sector’s consolidation is sparking increased questions about the future of Canada’s mining industry given the potential loss of some head- office jobs. The reality is Canada’s mining industry has continued to thrive following previous spurts of deals. Changes brought about by mergers and acquisitions, joint ventures, and asset sales create opportunities for smaller players to grow and become the next big names in the industry. One Canadian player that has seen success recently is Kirkland Lake Gold. As we noted in PwC’s 2018 report on the world’s 40 largest mining companies, Kirkland Lake broke into the rankings that year after annual revenue hit US$915.9 million, up 23 per cent from a year earlier. Profit more than doubled to US$273.9 million, helping to send the share price up 87 per cent during the year. The Toronto-based company benefited from the performance of mines in favourable jurisdictions, including two high-grade, low-cost operations: the Macassa mine in northeastern Ontario and the Fosterville mine in Australia, which it acquired through a merger with Newmarket Gold Inc. in 2016. The outlook has been less clear for junior mining companies, which have struggled since the downturn to raise capital for exploration and development. While there’s no easy answer to that challenge, we do know that large and mid-size companies will need to replenish their reserves. Many will do so through mergers and acquisitions, including by mid-size companies looking to buy assets from junior miners. So, while we wait to see exactly how the changes the industry is undergoing play out, we can expect the sector to continue to evolve with a bright future ahead. M KEVIN CHAN IS THE NATIONAL MINING LEADER AT PWC CANADA WITH SIGNIFICANT EXPERIENCE IN MERGER AND ACQUISITION TRANSACTIONS, INCLUDING TAX DUE DILIGENCE, DOMESTIC AND INTERNATIONAL STRUCTURING AND TAX MODELLING FOR BOTH CANADIAN INBOUND AND OUTBOUND COMPANIES.Next >