Junior Miners Face Funding Crunch Despite Critical Minerals Demand Surge

So how can a gap, or lack of funding, be overcome?

On July 29, British Columbia’s Association for Mineral Exploration (AME) penned an open letter signed by 65 mining companies, directed at François-Philippe Champagne, Canada’s Minister of Finance and National Revenue.

While the letter began by congratulating the federal government on its decision to make critical minerals a cornerstone of Canada’s economic strategy.

The AME outlined how important the mining sector is to the Canadian economy, stating that it employs more than 710,000 workers across a range of high-paying jobs and is a key driver of rural economic development, with as much as 87 percent of every dollar spent on exploration remaining in the communities nearest the projects.

When Canada launched its critical mineral strategy in 2022, it was intended to stimulate growth in the resource sector. During that time, only one project has moved into production, and only one has received a positive environmental assessment; 68 technical reports have been completed, and 14 projects have advanced beyond the federal impact assessment process.

However, the AME suggested there was a significant financing gap between the discovery and development stages, ultimately creating significant headwinds in bringing a project online.

Under the current tax regime, there are programs in place to stimulate investment in exploration-stage projects, but there is a shortfall for development-stage expenses.

In an interview with Investing News Network's "INN Conversation" podcast, AME President and CEO Todd Stone explained that the existing programs are good but could be improved.

“What we believe would be more helpful than almost anything else that the federal government could do to help address this challenge and get more mining opportunities into the pipeline faster and move them through faster is to expand the eligibility criteria,” he said.

The association’s preferred solution would be to expand the activities eligible for inclusion as Canadian Exploration Expense Claims (CEEs) to qualify for tax credits, including technical studies, engineering and feasibility costs for precious, base and critical mineral projects.

However, if the government deemed expansion inappropriate, the AME called for a Mineral Project Advancement Tax Credit. Either outcome, it suggests, would close a funding gap that is currently stalling 171 critical mineral projects from proceeding to the next stage.

Listen to the full interview with Stone to hear his thoughts on the Canadian exploration sector and how provincial governments are joining his call for federal exploration tax reform.

How does funding help?

Since the letter was sent, Stone said that the number of companies backing the initiative has grown to more than 85, giving him hope that it will catch the attention of government officials.

“We’re very hopeful that the federal government is taking a long hard look at this and may very well include it in the upcoming budget this fall,” he said.

Stone suggested if the government followed through it would be a significant measure to build on the rest of the Build Canada Strong platform.

“That would really be about having one eye on that next wave of major mining projects that would help Canada achieve its ambitions to be a critical mineral superpower,” he added.

To that end, Stone suggested that, if applied correctly, it could drive the sector beyond the next 10 years and help mining operations become established on an ongoing basis for the next half-century and beyond.

The reality is, the exploration stage is the most challenging for companies; they can spend years, sometimes decades, exploring a property. During that time, the company’s only source of income is fundraising, but when cash flow is limited, it can be hard to ensure there is sufficient capital to sustain activities.

“Those early exploration opportunities tend to arrive at a place that is known as the Valley of Death, and it’s that early to mid stage in the life of a project as it’s being explored, where the company in question is doing everything it can to raise as much capital as possible,” Stone said.

What would it mean for investors?

Effectively, it would allow mining companies to pass expenses on to investors, who could claim them as tax credits.

“The company renounces its tax deduction because these companies don’t typically have profit. These are early stage, and they basically provide that tax deduction benefit to investors, and the calculation of how much of a tax deduction the investor gets is based on which expenses are considered eligible,” Stone said.

He noted that as it is, there are some pretty significant expenditures that aren’t currently eligible. Many of these are critical steps in proving economic viability, such as feasibility and engineering studies.

These steps look at the project, weigh the costs of building out a mine, which would include major infrastructure, material and labor costs, against the size of the resource, commodity prices, and the cost to extract the minerals and whether it would drive long-term profits.

Here is where many companies stall out; they can’t get the funding to surpass this hurdle, or the "Valley of Death" that Stone alluded to.

Making more activities eligible for the types of credits AME is seeking could be a win-win for investors and companies alike. While it wouldn’t eliminate risk, it could help de-risk one of the most economically fraught stages in mining and ultimately drive more projects to completion.