Loan guarantee program 'huge deal' for Canada mining, Indigenous people

The Canadian federal government will soon unveil the details of a loan guarantee program that could boost equity ownership for First Nations whose territories contain lucrative reserves of metals.

The program is long overdue to help advance economic reconciliation and bolster the social license to operate for mining companies looking to expand production of energy transition metals, advocates of the system told S&P Global Commodity Insights.

First Nations people in Canada say the country's policies and treatment of their communities over the centuries have excluded them from ownership of assets operated or developed on their territories. These limitations drive up the cost of capital for Indigenous people, creating barriers to partnership in mines and associated infrastructure.

Canada said in its fall 2023 economic statement that it would announce next steps for the program — set to slash the cost of capital for approved investments — in the 2024 federal budget. The government plans to release the budget April 16.

"Is it a big deal? Yes, it's a huge deal," said Mark Podlasly, chief sustainability officer at the First Nations Major Projects Coalition, a group that helps Canada's Indigenous people participate in natural resource projects.

The loan guarantee program will give Indigenous people access to competitive interest rates that will allow them to make investments that would otherwise be impossible, while ensuring reasonable returns. Podlasly and other First Nations leaders noted that, in some cases, Indigenous groups have sought to borrow money to buy stakes in natural resource projects but have been quoted interest rates in the 40% range. They cite federal laws prohibiting them from using reserve land and assets as collateral for loans as a major reason why they can't borrow at lower rates.

"It's like a credit card," Podlasly said.

Interest rates in the 40% range are way too high to expect to make returns on most investments, such as on multibillion-dollar mine developments or on infrastructure with much smaller regulated returns, Podlasly said.

Provincial model

The Canadian government has yet to release details on what the loan guarantee program will look like, but it will be a bigger version of loan guarantees in provinces such as Alberta, Jonathan Wilkinson, Federal Minister of Energy and Natural Resources, told Commodity Insights in March.

The initiative will have clear criteria and will be critical to spurring greater Indigenous participation in major projects, said Wilkinson, who described the program as important to him personally.

"This is indeed a matter of social justice," Wilkinson said March 5 at the Prospectors and Developers Association of Canada conference in Toronto.

Alberta's $3 billion Indigenous loan guarantee program, which is run by the Alberta Indigenous Opportunities Corporation, backs loans in the $20 million-$250 million range.

As in Alberta, the federal program will help put First Nations on a more level playing field with non-Indigenous investors and push Canada forward in dealing with economic reconciliation, which is part of the country's drive to atone for past injustices that excluded First Nations from equal participation in economic growth, advocates of the program say. The federal program is widely expected to focus more on mining than similar provincial programs.

Indigenous peoples' resource rights in Canada have grown in recent decades, largely in response to court challenges. Meanwhile, many mining and exploration companies have increasingly made First Nations relations a priority, along with agreements that distribute revenues and benefits from resource projects.

Advocates for greater Indigenous equity ownership say mechanisms for sharing resource wealth, such as the industry's now well-established impact benefit agreements, are still key. But acquiring stakes in assets is crucial to putting First Nations on equal footing and redressing Canadian policies that held back Indigenous people from participating in the country's economy.

Beyond consent

Ownership is the next step, said J. Paul Stevenson, CEO of Canadian explorer Sego Resources Inc., a Métis elder, and board member of the National Aboriginal Energy and Power Association.

"It's in my lifetime that First Nations couldn't leave the reserve without permission of the Indian agent," Stevenson said, referring to a pass and permit system that operated in Western Canada until at least the 1940s in some areas, according to media reports. "Those are the things that took away opportunity. They took away self respect — all of the things that go with successful business life. It was just so terrible. So this process of guaranteeing loans is a good idea because you'll get that entrepreneurial ball rolling."

Impact benefit agreements remain important, but Podlasly said they are an accommodation rather than true partnership.

"Equity comes into discussions as a proxy for respect," Podlasly said.

Meanwhile, equity ownership may help speed some projects forward in strengthening partnerships between resource companies and First Nations, advocates of the program said.

"With an economic partnership, you go beyond consent," Stevenson said. "You're equals."

The program comes as Canada looks to expand mining operations to accommodate the energy transition. Greater Indigenous participation in major projects is crucial if Canada wants to realize ambitious plans for critical minerals, Podlasly said.

"Canada is perfectly positioned with critical minerals, [and] the technologies to make that happen, but we will miss the window if Indigenous people are not included," Podlasly said.

There are 617 First Nations communities in Canada, according to the federal government, but the influence of Canada's Indigenous people extends far beyond reserves. Many First Nations say they never ceded title to their territories, and meanwhile, courts have upheld Indigenous rights to hunt, fish and gather natural resources to support a moderate livelihood.

Equity ownership may not mean a project gets full support from Indigenous stakeholders, but it may help boost some projects, said Tara Shea, vice president of regulatory and Indigenous affairs with the Mining Association of Canada.

"If you're strengthening relationships and you're partnering together, this may help maintain that broad community support you need for the project going forward," Shea said.

The Mining Association of Canada, a trade association, told the Canadian government that it supported the program in a pre-budget submission, Shea said.

John Burzynski, a veteran gold exploration and mining executive, agreed that loan guarantees and Indigenous equity ownership are good for the industry.

"Miners understand wealth creation and this could certainly share in that," said Burzynski, founder, executive chairman and CEO of Osisko Mining Inc., which focuses on gold exploration.

In the details

Now, First Nations and miners alike await the details from the government. Open questions remain, such as whether oil and gas will fall under the program's scope, how broad the project parameters will be, and how the system will be administered.

Canada's Department of Finance, responsible for crafting and releasing the country's budget, declined to answer specific questions about the program. Next steps are coming soon, said Katherine Cuplinskas, senior communications advisor and press secretary to Chrystia Freeland, Canada's Minister of Finance.

"We want Indigenous communities to be able to share in the benefits of major projects in their territories and on their own terms," Cuplinskas said in an email.

Shea said the Mining Association of Canada hopes the loan guarantee program is not constrained to equity investments in resource projects but open to proposals for investments in infrastructure or related assets, such as a transmission line or water treatment facility.

"We don't want the communities to try to fit their ideas into a narrow program, but be able to say, 'Okay, you know what, here's something that not only is associated with the mine, but may have community benefits,'" Shea said.

Likewise, it's not clear whether the program will back higher-risk, early stage assets, and what role First Nations will play in investment decisions.

Whatever comes, Stevenson, the Métis elder and Sego Resources executive, said he is hopeful about the economic impact.

"I think you'll see agreements working that will go vastly beyond what legislation could provide," Stevenson said.