March 5, 2015 / 8:49 PM / in 3 years

Canada gold assets regaining lost luster, helped by soft C$

TORONTO (Reuters) - Canadian gold projects once shunned by miners in favor of more alluring opportunities overseas are regaining their sheen, as a weaker currency, new tax breaks and greater security of tenure are wooing miners to return home.

A Queenston Mining geologist examines the drill core from one of the company's drill sites east of Kirkland Lake, Ontario, October 6, 2011. REUTERS/Euan Rocha

In the gold rush during the last decade, Canadian miners had largely focused on projects in far flung countries that often offered much larger potential output than what was available at home.

But a rash of windfall gains taxes, political turmoil and even outright expropriation have caused those miners to rethink their strategies.

“Canada is, for all intents and purposes, one of the best places you can explore,” said Ian Ball, president of Abitibi Royalties Inc (RZZ.V). “It had fallen out of favor a bit, but it is coming back quite rapidly.”

At this week’s Prospectors and Developers Association of Canada convention, the world’s largest mining gathering, the mood was somber. Many junior mining companies ravaged by the downturn in metal prices have struggled to raise financing, or attract the interest of larger rivals.

But that trend is beginning to turn for some of those with gold projects in Canada.

“We have noticed that mining companies are really, really looking at Canadian projects,” said Richard Boulay, a director with Moneta Porcupine Mines Inc ME.TO. He said Moneta, which owns gold projects near Timmins, Ontario, had been approached by five major miners at the convention seeking details on its assets.

These Canadian mines generally do not hold the promise mega projects like Barrick Gold Corp’s (ABX.TO) Pascua Lama asset in South America and Kinross Gold Corp’s (K.TO) Tasiast mine in Africa. But bets like those soured badly and resulted in billions in write-offs.

Miners are now keen on smaller assets in safer jurisdictions that cost less and are faster to build.

And even though project permitting can be arduous in Canada, much of the recent takeover activity in the sector has centered around Canadian gold assets.

In January, Canada’s Goldcorp Inc (G.TO) agreed to buy Probe Mines Ltd (PRB.V) in an all-stock deal that valued the owner of the Borden Gold project in Ontario at C$526 million ($421 million).

Late last year, Osisko Gold Royalties Ltd (OR.TO) agreed to buy smaller rival Virginia Mines for C$479 million, winning control of royalty interests in two major Quebec mines. [ID:nL3N0T74I7]

Those deals came less than a year after Yamana Gold Inc (YRI.TO) and Agnico Eagle Mines Ltd (AEM.TO) bought Osisko’s Canadian Malartic gold mine in the province of Quebec and other assets in the area for C$3.9 billion. [ID:nL2N0N80QB] [ID:nL1N0UY0FB]

“Investors have yet to catch up with the corporates who see value in these assets. In time, that trend is likely to change, as it has in previous cycles,” said James Wilson, mining analyst for Morgans Financial in Perth.

He sees a similar trend eventually playing out in Australia as well, as a weaker Aussie dollar pushes miners take a closer look at gold assets there.

CANADIAN ATTRACTION

Of 13 major equity financing deals announced by Canadian mining companies this year, 12 were focused on funding gold assets. And eight of those were specifically to fund work tied to Canadian gold projects, an indication of where investors see value.

“Everything is happening in Canada. One because it is a safe jurisdiction and two because of a much weaker Canadian dollar,” said Abitibi’s Ball.

While gold XAU= is traded in U.S. dollars and has stayed in the $1,150 to $1,350 an ounce range in the last year, costs for Canadian gold miners are largely denominated in local currency CAD=, which has weakened to about 80 U.S. cents.

Agnico Eagle, which produces some two-thirds of its gold in Canada, recently estimated that local currency declines could reduce its U.S. dollar-denominated cash production costs by 5 to 6 percent.[ID:nL1N0SX1Q9]

Canada, home to the majority of the world’s publicly-traded mining companies, is also putting in place incentives that give exploration companies and investors tax credits for early stage permitting and community consultation.

Ball says the tax credits will help. [ID:nL1N0W30KG]

“Canada is experiencing a resurgence in gold, it is a cycle and we may well fall out of favor again, but right now Canada is coming back.”

($1 = 1.2499 Canadian dollars)

Additional reporting by Nicole Mordant and John Tilak in Toronto, and James Regan in Sydney; Editing by Marguerita Choy

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