Canada's main stock exchanges - the Toronto Stock Exchange and the smaller-cap TSX Venture Exchange - are home to more than 1,600 listed mining companies, a great deal more than the 250 or so listed in Britain.
In fact, more than half the mining companies in the world are Canadian - and while they operate almost everywhere, they understandably tend to place a greater focus on the Americas for exploration and development than say, Eastern Europe.
Canada may boast some of the most technically advanced, biggest and most profitable mining companies in the world, but they, too, have not been immune to the uncertainty and volatility that's plagued the global mining sector recently. Major mining companies have seen operating costs increase, capital costs for new projects spiral out of control, huge acquisitions made at the peak of the market turn sour, and chief executives lose their shirts as a result of dramatic share price falls.
Many junior explorers based in Canada, meanwhile, are currently struggling to raise money after the heady days of 2009, 2010 and 2011 - and their share prices have plummeted alongside their balance sheets. Research by respected newsletter writer John Kaiser shows that, by the end of the summer, just under half of all junior mining companies listed on the TSX-V were trading at under 10¢ a share with a median working capital of a paltry $100,000; another 23 per cent trade under 20¢ a share with a median working capital of $700,000; while the next 10 per cent trade under 30¢ a share with a median working capital of $1.3m - hardly enough for even a small drilling program. That means a remarkable 80 per cent of junior miners in Canada are frantically grasping for a lifeline at the moment, and a fair chunk of them probably won't get one.
That said, this scenario is broadly reflective of the mining sectors in Australia, the UK, the US and South Africa, too. Indeed, there is now a large number of very high-quality companies in Canada that have had their shares sold off alongside the junk, and investors can and should take advantage of this. Below is a selection of these companies, arranged by size.
LARGE-CAP
Goldcorp (G): Largely regarded as Canada's lowest-cost senior gold producer, Vancouver-based Goldcorp is an investor favourite whose shares typically warrant a premium to their peers. The C$36bn market cap miner produced 2.51m ounces (oz) of gold last year at impressive total cash costs of $261 an oz on a by-product basis ($529 an oz on a co-product basis). It has a five-year gold production target increase of 70 per cent to 4.2m oz in 2016.
Teck Resources (TCK.B): Teck, another low-cost miner, is one of Western Canada's most successful diversified mining companies with a strong balance sheet and an impressive track record spanning several decades. It derives much of its revenue these days from its copper and coal mines, but also turns its hand to zinc and oil sands. With high-quality assets spread in low-risk jurisdictions across the Americas, Teck looks a solid bet on a resurgence in coal and copper prices.
MID-CAP
Alamos Gold (AGI): Alamos brought its flagship Mulatos heap-leach gold mine in Mexico into production in 2006 - and it has been churning out large heaps of cash ever since. Last quarter it produced a record 48,200 oz of gold at glitteringly low cash operating costs of C$323 per oz ($408 per oz including royalties). The company is now debt-free and has C$280m in its treasury to use on its two robust gold projects in Turkey - Alamos expects to be able to internally finance their development while maintaining a healthy dividend payout and other exploration plans.
Harry Winston Diamond Corp. (HW): Harry Winston's flagship asset is a 40 per cent interest in the world-class - albeit somewhat ageing - Diavik diamond mine, located in Canada's Northwest Territories. Diversified major miner Rio Tinto owns the remaining 60 per cent and, despite it being a highly profitable operation, Rio recently decided to exit the diamond industry altogether - putting its Diavik stake up for sale as it felt the diamond industry no longer met its internal growth requirements. BHP Billiton has made the same call with its Ekati diamond mine, also in Canada's Far North, and Harry Winston is rumoured to be interested in one or both stakes. Still, there's a significant possibility neither deal will happen in the end; in 2008, a big debt load followed by a collapse in rough diamond prices nearly proved Harry Winston's undoing - and management will be wary of getting itself into a similar mess.
SMALL-CAP
Lydian International (LYD): In its highly prospective Amulsar gold project in Armenia, Lydian seems to have found one of the best undeveloped gold deposits on the market - and we feel the company is now ripe for a takeover. Lydian has drilled 3.2m ounces of gold across all resource categories at Amulsar and the deposit is still open in all directions. A recently released bankable feasibility study drummed up some impressive numbers for the 120,000 oz per year gold project, which generated a strong internal rate of return, low capital spending and low operating costs.
ATAC Resources (ATC): ATAC burst into the spotlight of the junior gold scene in 2010 when it discovered 'Carlin-type' gold mineralisation in Canada's Yukon - helping spark a feverish gold rush in the Yukon not unlike the one there over 100 years ago. The so-called Carlin-type gold - in reference to Nevada's Carlin trend, one of the most prolific and profitable gold provinces in the world - was formerly not thought to be replicated anywhere else in the world in substantial quantity, and to Atac's delight this theory is now considered to be incorrect. Admittedly, the shares are highly speculative - they sold off heavily late last year and this year from C$10 to C$2.50, and the Yukon poses its fair share of development challenges - but the current price represents an attractive entry point.
