Signs of optimism emerge in sector after years of struggle
Province’s big mining firms more optimistic after struggles of recent years
Saskatchewan’s multi-billion-dollar mining industry has struggled mightily over the last few years, as the province’s corporations worked to cut costs in the face of persistently weak potash and uranium prices.
Hundreds of jobs have been lost. Two uranium mines have been closed, albeit temporarily. Production at some potash mines has been scaled back. At least one company has mused publicly about shuttering mines if demand tapers off.
Saskatchewan Mining Association president Pam Schwann acknowledged that 2017 was a “challenging” year for the sector, but pointed to strong fundamentals and renewed interest in the sector over the last year.
Over that period, companies have taken drastic steps to respond to what some have called the new normal — commodity prices that are not expected to return anytime soon to levels seen at the end of the last decade.
The most significant example is the formation of Nutrien Ltd. through the merger between Potash Corp. of Saskatchewan Inc. and Calgary-based Agrium Inc. The deal was announced in late 2016 and closed on Jan. 1.
The chief executives of both companies didn’t mince words when the deal was announced; they made it clear the merger was a response to “fierce” market conditions, which have seen potash prices fall more than 70 per cent since 2008.
They said the merger would not only diversify the combined com- pany by adding PotashCorp’s six mines to Agrium’s massive retail business, but result in annual savings of US$500 million by the end of next year.
Those savings are already starting to appear. On Feb. 5, just over a month after the deal closed, the company — which has offices in Calgary and Saskatoon — reported year-to-date savings of US$40 million.
Perhaps more significantly, the company is projecting “robust” demand for potash this year, with global shipments of between 64 and 66 million tonnes — up two million tonnes at the top end from 2017.
While some, including the umbrella organization representing unionized potash miners and former premier Brad Wall, have expressed concerns about the deal, Nutrien remains confident in its ability to execute its plan.
“I don’t have a (crystal) ball in terms of what’s going to happen when it comes to demand globally,” Chuck Magro, who ran Agrium before being appointed as Nutrien’s chief executive officer, told the Saskatoon StarPhoenix in February.
“But with what we can see … our plans are going to be very similar to last year. In fact, we’re going to produce more potash this year than we did last year,” Magro added.
Schwann echoed that sentiment, stating that potash production rates are expected to be at or above “historical average” this year, with growing demand and production cuts offsetting the introduction of new mines.
She said an increasing proportion of global potash production will be coming from Nutrien and Mosaic Co.’s conventional mines at Rocanville and Esterhazy, and Mosaic and K+S Potash Canada’s solution mines near Moose Jaw this year.
Also, earlier this year BHP announced it had struck potash 924 metres below ground at its Jansen project, about 140 kilometres east of Saskatoon. The Anglo-Australian mining giant’s board of directors has not yet sanctioned the project for completion, though.
Unlike Nutrien, which has soaked up countless headlines over the past 12 months because of its size and deep connection to the province, SSR Mining Inc. has operated its gold mining operation near La Ronge quietly — and efficiently.
According to the Vancouverbased company — which took over the Seabee operation after acquiring Claude Resources Inc. in 2016 — its gold production jumped almost nine per cent last year, to the highest level in its 27-year-history.
While the company’s annual earnings dipped slightly, its record-setting year could be shattered this year if it meets its target of producing between 85,000 and 92,000 ounces of gold in the province this year.
“Looking ahead, 2018 is an exciting year for SSR Mining with … continued growth in production at Seabee,” SSR Mining CEO Paul Benson said in a statement when the company released its year-end financials.
The province’s largest uranium
I don’t have a (crystal) ball in terms of what’s going to happen when it comes to demand globally . ... (But) we’re going to produce more potash this year than we did last year. CHUCK MAGRO, CEO, Nutrien Ltd.
miner, meanwhile, continues to struggle as nuclear fuel prices — which collapsed after the Fukushima Daiichi disaster in Japan curbed demand — continue to languish more than 70 per cent below 2011 levels.
“Another tough year, obviously. The market didn’t change much; in fact it got worse,” Cameco Corp. chief executive Tim Gitzel said earlier this year, as the company booked a $205 million annual loss — worse than the $62 million it lost in 2016.
Like the potash miners, Cameco has shifted production toward its newest and lowest-cost facilities — namely, the Cigar Lake mine. The uranium company has, however, taken much more drastic steps to reduce costs.
Those include temporarily closing its Rabbit Lake mine in 2016 and, more recently, announcing that its McArthur River mine and Key Lake Mill would be shut down for 10 months, beginning early this year. There have also been cuts at its head office.
“It’s a long game, for sure,” Gitzel said, while reiterating the company’s view that the uranium industry will recover as about 60 new nuclear plants under construction around the world start to come online.
Schwann said the reactors under construction, especially those in China, plus the prospect of nuclear power plant restarts in Japan is “good news” for Cameco, as well as the junior mining companies looking for new uranium deposits in the Athabasca Basin.
While some have expressed concern about tight budgets leaving little money for exploration, optimism in the sector will no doubt be buoyed by a recent report singling out Saskatchewan as the country ’s most attractive place for mining investment.
In its annual survey of 91 mining jurisdictions, the Fraser Institute concluded that Saskatchewan was the No. 2 place in the world to spend money, behind Finland. Last year, the right-wing think tank ranked Saskatchewan No. 1 in the world.
“Rich mineral reserves, competitive taxes, efficient permitting procedures around environmental regulations will still attract significant investment — even with slumping commodity prices,” Fraser Institute senior director Kenneth Green said.
The province’s big mining firms are certainly optimistic, even after some of the most difficult years on record. Cameco, which has struggled more than the others, is counting on its lower-for-longer strategy paying off.
“We see growth in the industry of a per cent, or a per cent and a half, each year,” Gitzel said. “Which isn’t rocket ship growth, but it’s still growth.”