Ranked the top destination for mineral exploration investment by the Fraser Institute in 2016, Saskatchewan has held strong ties to the mining sector for many years.
Traditionally known as an agricultural province, mining has played a prominent role in the diversification of Saskatchewan’s economy, with over 30,000 citizens now dependent on the industry in some way for employment. Over the past decade, Saskatchewan has been amongst the top growth provinces in terms of mineral production value, alongside Québec, Newfoundland and Labrador and British Columbia. In 2016, Saskatchewan also experienced the largest absolute gain in production value year-over-year, from C$7.1 billion to C$8.5 billion. However, despite its apparent attractiveness, exploration spending in the province took a dive in 2017 from C$229 million in 2016 to C$181 million. This follows an already significant decrease from the C$257 million spent in 2015.
The gap between Saskatchewan’s resource potential and investor confidence can in part be attributed to long lead times for mine development, causing many investors to look to other mining jurisdictions such as South America, Africa and Australia, for quicker return on investment dollars. The other primary factor is unfavorable market conditions for potash and uranium, coupled with a lack of significant diversification into other resources.
Superstar resources: potash and uranium
While the province’s resource reserves are varied, uranium and potash remain the province’s frontrunners. Saskatchewan produces all of Canada’s uranium, remaining the second-largest producer in the world, and boasts world-class potash reserves.
The Athabasca basin hosts the highest-grade uranium deposits in the world. With an average ore grade of 3% across the 30 identified deposits, the two largest deposits, Cigar Lake and McArthur River, have average ore grades of 15%, reaching significantly higher in some pockets. Operated by Cameco, the second-largest producer of uranium globally, both the McArthur River/Key Lake property and the Cigar Lake operation produce about 18 million lb/year and each represents about 12% of the world’s production. Formed in 1988, the company’s legacy predates the formation of Cameco to the 1950s. To ensure that Cameco retains a presence in Saskatchewan, the government has kept a “golden share”, stipulating that the head office must be in Saskatoon. The rest of the company shares are publically owned.
Cameco has gained a strong foothold in the global market over the years, but has also been subject to unfavorable market conditions since the Fukushima disaster in 2011, since when the market has seen almost continuous decline.
In response to market oversupply, Cameco has reduced production at all its sites and will be putting the McArthur River/Key Lake operations on standby in 2018. Kazakhstan-based KazAtomProm will also reduce uranium production by 20% in 2018 to better align supply with demand. These moves by the world’s uranium giants will cut global annual production from 160 million pounds, with about 35 to 40 million pounds now not coming out of the ground. “We are optimistic for the future, although we are not out of the woods yet; there is still a lot of inventory in the world, so the market will take some time to bounce back,” said Gitzel. “However, the moves that have been made by the major producers send a signal that a US$20 price for uranium is not sustainable. We are definitely headed in the right direction, and we have an optimistic demand outlook because we project a significant increase in nuclear power.”
Cameco still expects to meet all contractual obligations and has a plan in place to sustain its employees over the suspension period.
Saskatchewan is the largest potash producer in the world, possessing almost half of global reserves. Activity over recent years, such as expansions of existing mines, the opening of a new mine and the advancement of several exploration projects towards potential production translates into roughly C$20 billion in total investment over that time. “Saskatchewan’s potash industry had sales of production of 11 million tonnes K2O in 2016 – the second highest in our history,” highlighted Hon. Steven Bonk, Minister of Economy, Government of Saskatchewan. “Over the past decade, our productive capacity has increased by about 80%. Rising global population and the increasing wealth of developing nations will continue to be factors driving this growth in the foreseeable future.”
In a significant move, Agrium and Potash Corporation will merge, having received U.S. Federal Trade Commission clearance in 2017. The new company, Nutrien, is expected to be the third largest natural resource company in Canada, with headquarters in Saskatoon, Saskatchewan.
May 2017 saw the grand opening of K+S Potash Canada’s Bethune mine, becoming the first new mine in Saskatchewan in over 40 years. The mine produced its first tonnes of potash in June 2017.
In addition, as of December 31, 2016, The Mosaic Company has C$3 billion in expansion projects underway to increase mining and production capacity—including the world’s largest mine shaft project at its Esterhazy K3 mine in Saskatchewan, whose shafts reached the potash area in February 2017. K3 is expected to be the lowest-cost potash mine in Canada, and projected to add an estimated 0.9 million tonnes to Mosaic’s annual potash operational capacity.
In response to recent industry changes, such as the Agrium-Potash Corporation merger and Cameco production suspension, Eric Anderson, executive director at the Saskatchewan Industrial & Mining Suppliers Association (SIMSA), commented: “There are two aspects: the expansion and development of mines and then the operational side. When the announcements were made for the mining expansions, it was apparent that each company was spending a lot of money – one announced spending over C$6 billion in the next five years – so the budget was already known at the start, making it easy for companies to plan accordingly. When investment is expected to taper off after a certain period of time, companies will not plan their business around the expectation of long-term business with that company. The Cameco change hurts a bit because it was unexpected.”
The significant decline of commodity prices for both uranium and potash over the years has presented significant challenges for Saskatchewan’s mining sector. Encouraging the diversification of resources mined would be one way to mitigate the risk associated with focusing on just two commodities. Exemplifying the scope for Saskatchewan’s mining sector to successfully pursue resources beyond potash and uranium, gold-focused SSR Mining achieved record production in 2016 and then again in 2017. Seabee in Saskatchewan is the company’s second-largest operation after its Marigold gold operation in Nevada, which accounts for 50% of total production and 50% of operating value. Seabee comprises two underground gold mines, the Santoy mine and the Seabee mine, and produces about 80,000 oz of gold per year. “The Santoy deposit, discovered back in 2011 as a part of the broader Seabee land package, just continues to deliver,” remarked John DeCooman, vice president business development and strategy at SSR Mining. “We are also doing some preliminary reconnaissance work at Amisk, located on Saskatchewan’s Flin Flon greenstone belt, to better understand the geology of this deposit.”
Following good exploration results, SSR Mining has pursued an expansion at Seabee with greater confidence in its ability to provide ore to the plant.
Adverse market conditions and the inconsistency in the recent and anticipated near-term successes of Saskatchewan’s established mining companies highlight a need for the province to diversify its resource exploitation to better weather future dips in different commodity markets.
Companies across the mining supply chain are as focused as ever on reducing costs and increasing efficiencies wherever possible. Aside from low commodity prices, Saskatchewan’s companies are facing challenges at a regulatory and policy level. “It is a very challenging time for the mining sector, particularly because of increased costs related to proposed carbon taxes, additional regulatory processes and continually escalating power costs that competing jurisdictions aren’t faced with,” highlighted Schwann. “There is work to be done to ensure the sector remains globally competitive while ensuring a continued strong environmental and safety performance.”
Despite being a historically conservative industry, companies are recognizing a need for new technologies and are becoming more open to the implementation of new solutions. Automation technologies are gaining further traction, and Big Data is an increasing focus for most engineering firms. “As the demographics change with the retirement of mine founders and third generations joining the industry, uptake of automation is increasing so as to be more globally cost-competitive and gain more recovery out of processes,” highlighted Mike Fedoroff, general manager at Hatch.
Referencing the advancement of artificial intelligence (AI) and its application to mine data to discern trends for better operation, Fedoroff continued: “The ability to store massive amounts of data coupled with the ability to search and analyze it for trends which can be implemented for facility improvements. Uranium and potash are 100% exported commodities, so it is important to improve facilities for increased global cost-competitiveness.”
Predictive maintenance can also be used to calculate potential decreases in product quality or product variability over time, and can be used to avoid unplanned downtime through prediction of part failure or deterioration over time.
Saskatchewan holds all the ingredients for a top destination for mining investment but lacks the synergies to convert its potential into the perfect recipe. Coupled with unfavorable market conditions for its two key resources, it will be an ongoing battle to continue attracting significant funds for the foreseeable future.