Magnetic North: The Canadian (Mining) Miracle – by Mark P. Mills (Forbes – June 12, 2011)

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Mark P. Mills is a founding partner in energy-tech-focused Digital Power Capital, a private equity firm focused on new technologies that arise from the convergence of power and the tools, materials and software of the digital age.

In child psychology birth order is often considered significantly determinative.  Younger siblings often learn lessons watching the elder ones, well, screw up.  Canada is almost a full century younger than its North American sibling.  What exactly is going on above the 49th parallel?  First quarter 2011 my Canadian brethren and sisters (full disclosure, je suis Canadien) delivered a 3.9 percent GDP growth rate against an enervating 1.8 percent U.S. rate.  Just a few short years ago, nobody would have predicted this.

Nearly one-third of Canada’s GDP is export-based with nearly half of that coming from minerals, metals and fuels.  It is a nation extracting value from its natural environment, not ‘plundering’, as Canadians’ respect for their land is deep and abiding.  And America benefits, receiving three-fourths of Canada’s exports.

Of particular interest these days is the re-invigorated gold rush in that vast northern expanse.  No surprise.  Gold is expensive again, bouncing around $1,500 an ounce.

But time was, in the early 1920s, that another heavy element, radium, fetched $15 million for a single ounce (in today’s dollars).  Inspired by that stratospheric price, a mine founded at that time on the shores of Canada’s far northern Great Bear Lake – Google map it, it’s a long way up there — broke the back of a radium monopoly held by a mine in Africa’s Congo.  Eldorado Gold Mines opened Port Radium in 1926 and accommodated the remoteness with the latest technology of the day.  To get the precious cargo south they bought a state-of-the-art aircraft originally designed to fly non-stop from New York to Rome; a 700 horsepower 1928 Bellanca aircruiser with the most efficient engine of that time – and named it the Radium Silver Express.

The Port Radium find unleashed local exploration that quickly fueled a northern mineral gold rush, literally and figuratively.

We’re in a mineral bubble again.  And while gold is the proximate center, there are many other elements from the periodic table nearly as hotly pursued, ranging from rare earths to carbon in its purest form, diamonds.  For those who missed the much more recent history, Africa was long thought to have a near lock on diamond-friendly geology, with Canada not in the running. 
Then just ten years ago, 190 miles north of Yellowknife, a determined and then obscure Canadian geologist, Charles Fipke, found the rich Diavik mine, vaulting Canada from irrelevant to third-largest supplier of diamonds, after Africa (again) and Russia.

From Nunavut and the Northwest Territories in the west, to Quebec’s northlands in the east, geologists, miners and investors are swarming.  This is all good.  Good for America and good for investors.  And good for consumers.  It’s not just that everything is made from something original dug out of the ground, but that most of the modern things we care about cannot be built without a wide array of elements.

Not so long ago most products were produced using a handful of atoms from the periodic table, like copper, iron, nickel, and aluminum.  The list was, for most things, rather short.  A century ago cars were manufactured using essentially five materials: wood, rubber, steel, glass, and brass.  Today a car is built from 39 different nonfuel minerals, including increasingly rare, actually so-called “rare earth” elements like dysprosium.  Just as many elements are needed to manufacture a cell phone.  A single cell phone typically contains about $60 worth of gold and $30 worth of silver – not as decorative bling, but interstitially critical to the electronics.

Elements are amazing things.  Magical really.  The ancients thought so.  Each of the 94 basic elements possesses unique properties – as everyone remembers, if dimly, from high school chemistry.  The uniqueness is what makes everything possible, from conducting metals to fluorescing coatings, from vibrating membranes to radio waves.  Not to wax philosophical, but it is amazing to think that every atom that we use, that we’re made of, was created in the core of a star eons ago, and has existed ever since and will exist long after humans are gone.  We just get to borrow them.  We can’t make them.  We mine them.

But nature doesn’t make it easy.  Many of the most precious atoms are buried both physically and electrochemically in rocks and dirt in often very inconvenient places.  By any standard, Northern Quebec though is pretty convenient both physically and politically.

Only last month Quebec’s Premier Jean Charest announced that province’s Plan Nord.  Shortly afterward, I had the pleasure of meeting Quebec’s Finance Minister Raymond Bachand who explained that the program would balance business and public interests, resource exploitation in the positive sense, with environmental caution and sensibilities.  So sensible.  So Canadian.

Plan Nord is focused on opening up opportunity for permits, roads, infrastructure, to encourage more mining in northern Quebec, a region rich in diamonds, copper, molybdenum, rare earths and gold.  A region, not incidentally, that is home to another great resource; the sprawling multi-gigawatt James Bay hydro dams feeding power south to New York.

And go west, and even further north, back to the regions around Yellowknife in the Northwest Territories and Nunavut to find an already active mining boom.  The Canadian stock exchange is bulging with early, mature and venerable mining plays.

As it happens, some years back I had a first hand look at some of this northern territory.  I flew to the Port Radium mine site on Great Bear Lake in an old DC 3 operated by my then employer, Eldorado Nuclear (now part of uranium giant Cameco).  Getting there took hours upon hours of flight time, one thousand miles north of now oil-boom-town Edmonton, Alberta, flying over an unending expanse of trees, lakes and rocky mineral-laden terrain.  No towns, cities, roads or signs of humanity.  Great Bear Lake is largely unknown, but is in fact the third largest lake in North America, as deep as 1,400 feet in places.  It is as far north of Edmonton as Edmonton is north of Salt Lake City, Utah.

Is all this mining activity just another bubble?  Could be.  But consider the durable pressure on supply.  A growing global economy drives the appetite for gold-containing electronics – thus far only 10 percent of demand, but that figure has no where to go but up.  Growing personal wealth drives the appetite for jewelry, which is today nearly half of all demand.  And growing global angst drives investors, both professional and personal, to gold, accounting for some 40 percent of demand.  Hard to come up with a scenario, absent the apocalypse, where gold is rendered irrelevant any time soon.  And the mining boom is about much more than gold.

The underlying macro is unsubtle.  Economic growth, even as it sputters in some nations, is (eventually) inevitable.  Minerals of all kinds, precious by various definitions, are utterly essential.  And with each cycle of growth, and each cycle of financial constraints, we endemically and serially exhaust easy and cheap mines, and then under-invest in finding and opening new ones.  We’re there again.

For the rest of this column, please go to the Forbes website: http://blogs.forbes.com/markpmills/2011/06/12/magnetic-north-the-canadian-miracle/

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