In 2019, Canada’s premier equity market Toronto Stock Exchange (TSX) launched the TSX30 – a ranking of the best performing stocks over a three-year period based on dividend adjusted share price appreciation. The programme was launched to celebrate – and give greater visibility to – the best performing companies on Canada’s main market, most of which have enjoyed triple digit share price percentage growth for several years, with a number graduating from TSX Venture Exchange (TSXV) to the main board. The inaugural TSX30 list contained eight companies from the mining sector, an impressive feat at the time according to the TSX’s head of business development, global mining, Dean McPherson.
“Launching the TSX30 last year was interesting for mining because we started seeing the sector coming back from a long downturn in 2016, when commodity prices started to rebound,” he tells RGN. “Looking back, by the end of 2017 we started to see activity picking up in the sector: IPOs coming back, an uplift in the number of financings being done and a general positive turn for the space.” However, significant volatility hit global markets in 2018 in the form of an escalating US-China trade dispute plus other geopolitical and macroeconomic concerns that persisted into 2019. Despite these headwinds the mining sector remained resilient, even showing a strong appetite for growth, which has been wholly demonstrated by the 2020 TSX30 ranking – which included 14 mining companies. “This impressive outcome shows the resilience of our world-leading mining equity markets and the mining sector in general.
“During the last three years we have seen significant volatility and uncertainty, following on a prolonged cyclical downturn for the sector. In spite of the challenged global markets over the period, we were excited to showcase eight mining companies in 2019. This year, that number increased to 14 and that’s significant; almost half of the companies recognised are from our space.”
Is McPherson surprised that mining firms featured so heavily on the latest TSX30 ranking? No, because he noticed opportunities building in the sector and recognised the start of a sea change in how mining companies view their duties to operate responsibly across three cardinal principles: Environmental, social and corporate governance (ESG).
A few years ago, McPherson penned an article on why the mining industry needed a fundamental reset to eradicate some of the management hubris and balance sheet irresponsibility that he believed was creeping in across the sector and prevalent during the sector’s prior upcycle.
These concerns added to long-standing criticisms of the sector’s attitude towards the environment and communities that form the physical and social contexts where mining takes place. This perceived neglect had risen to a crescendo and was damaging the industry’s reputation in investment markets and the wider world.
“In recent years, we have seen a return to financial, social and strategic discipline in the sector. A lot of the recognition and acceptance of the sector needing to do more around ESG for example started around three years ago as we started coming out of the downturn.
“Since 2017, we’ve seen this move from talk to execution. The sector is now embracing ESG in the fullest sense. The changes that have been occurring in the sector have been recognised by investors and I think this is a big part of why we see generalist investors coming back to mining.
“It’s not just ‘gold bugs’ who are interested in mining opportunities,” McPherson continues. “I think there is a general interest coming back into mining from an investor standpoint. We needed to reconsider the impact we have on society, our stakeholders and we needed to look at governance around diversity and equality across gender and race.
“I think the sector’s performance in this year’s TSX30 is a testament to the fact that investors are recognising what mining companies are doing with regards to ESG and certainly the overall redressed sector.”
Enter Warren Buffet
The generalists were given perhaps the greatest single incentive to look closer at the mining sector in August, when world-renowned investor Warren Buffet’s Berkshire Hathaway fund took a position in Barrick Gold – the world’s second largest gold miner.
“This is perhaps the world’s most famous value investor taking a position in the mining sector for the first time. I would posit that he is not looking at Barrick solely because he wants exposure to gold. The main consideration is the significant value it represents.
“That’s significant for mining because investors are now seeing well-managed companies with strong credentials required across all sectors. We do think it’s this positive effort of the sector globally that is helping bring back generalist investors.”
Miners on Toronto’s exchanges have benefitted from strong leadership by TSX on the many facets of ESG reporting. Earlier this year, TSX created ESG 101 – an all-encompassing hub aimed at providing issuers with information on ESG reporting and its significance with regards to stock performance.
“We were early into ESG and it started out with acceptance and recognition. It has taken many different names down the years, but I think we’ve finally settled on ESG. At this point, we are very proud of the work we have done supporting our issuers with this and of course we are continuing to innovate with other products and services to this end.”
The online transition
This year, all facets of modern life have been severely affected by the unprecedented emergence of COVID-19, which was classified as a global pandemic back in March. The subsequent shutdown of national economies and restrictions on international travel and trade caused all sectors on global markets to quickly bottom out, as the economic impact of the health crisis was laid bare.
However, no one could have anticipated the speed of the equity markets bounce back from the initial shock; McPherson maintains that while the dip was a record dip, the recovery was also a record one.
“For our markets, I think that has a lot to do with how we responded as an exchange. We see ourselves as the epicentre of capital markets for mining and we implemented several relief programmes for our issuers and in support of the capital markets in general. We extended our deadlines for reporting, lowered the minimum price at which financings can be done and were in constant contact with all 1,200 of our issuers to see how we could help.”
TSX also shifted to a virtual platform in April for its Market Open ceremonies – a time honoured tradition celebrating achievements and milestones for issuers and other organisations. The online transition received significant positive feedback for its convenience and efficiency from all stakeholders.
The continuation of this tradition was deemed important by the exchange to support the Canadian capital markets and its clients during this period of uncertainty and unprecedented challenge, McPherson explains.
“Investors soon started to adjust to this significant shock and began to look for opportunities, chiefly in precious metals. We started to see a pick up in activity in our marketplace in terms of financings being done and subsequently new listings.”
Gold leads the recovery
As governments continued to pump more money into the global economy, a powerful wave of safe haven investment pushed the gold price to a record high of US$2,067 per ounce in August. The high gold price went on to boost other commodities including copper.
“The pick up in base metals is interesting in the long term because we know that copper has a significant fundamental imbalance, with forecasted demand not expecting to be met by current supply. My expectation is that you will see other sectors picking up in the medium term, particularly battery metals as the energy revolution moves ahead.
“Overall, it’s been encouraging to see the speed of recovery on our market and I think it’s a lot to do with what we did but also the resilience of our issuers and their ability to adapt and adjust to this new world.”
Of the 14 mining companies on the TSX30 this year, 10 can be classed as either solely or predominantly gold-focused. However, McPherson is keen to highlight the diversity of Toronto’s listed miners across all commodities.
“Around 50% of our issuers are exposed to gold, which is quite normal for the sector when you look at the attractive economics around precious metals, but a great characteristic of TSX and TSXV is that we’re quite diversified across all commodities.
“Base metals would be our second largest representation, but we extend quite far into battery metals as well as critical minerals. Diversity in commodities and geography of projects on our marketplace is something we are proud of.”
Powering past market volatility
Looking towards 2021, McPherson remains confident that mining will continue its upward trend of the last three years, despite the ongoing impact of COVID-19 on the global economy and capital markets.
“No doubt, the chances of uncertainty going forward is quite high. I think commodities like precious metals will continue to do well, based on all the predictions I’ve come across which look at inflation expectations and other macro-expectations coming out of this pandemic.”
He highlights the new-found strength of mining companies across Toronto’s exchanges today. “When I compared the eight companies which qualified for the TSX30 last year and the 14 who made it this year, one consistency is management.
“If you have well-run mining companies in attractive jurisdictions, then you have the framework to respond to any situation or uncertainty going forward. Whatever market brings next year, we are seeing companies doing more to prepare themselves to respond to that challenge and that’s a good thing for the sector.”
McPherson’s parting message is directed to the junior segment of the mining market and those exploration firms listed on TSXV. He points towards the fact that seven of the 14 miners on the TSX30 this year started out on the Venture Exchange, before graduating to the main board.
“This demonstrates to juniors that our system works. No matter the stage of your mining company, we have the world’s leading two-tiered markets providing you with a market to grow into a world leading mining company.
“We’re very proud that half of the 14 companies on the TSX30 this year started their life with us on the Venture Exchange. We think this is a testimony to the depth and breadth of our marketplace and the level of activity you see in the Venture marketplace.”