Co-head of Mackenzie’s Energy Evolution Team says that permitting will help give investors certainty around the decision to deploy capital for resource extraction
The end of the Canada Investment Summit last week reinforced the growing political and economic consensus in Canada that our primary competitive advantage lies in natural resources. That’s the core takeaway from Benoit Gervais, Managing Director, Portfolio Manager, and Co-Head of the Resources and Energy Evolution Team at Mackenzie Investments in Toronto. Gervais says that there is now plenty of money being made available for Canadian natural resources and infrastructure investments. What comes next, he says, is the assurance that the money will result in new projects and outlets.
Gervais highlighted the difficult permitting process that has held up investments in Canadian mining and natural resource extraction over the past several years. He explained what’s changing in that permitting process and how that has shifted the valuation of mining and energy names on public markets. He explained why investors seeking upside from this new political consensus should still look for diversified exposures, acknowledging that while the tailwinds for resources are strong, uncertainties remain.
“What's obvious, and maybe it was obvious to me but maybe it wasn't obvious to everybody, is that money is available for resource development in light of the focus on the energy transition, AI, deglobalization, tariffs. Money is available for Canada, but can we permit and bring focus so that people put the money to work?,” Gervais asks. “It's available. Pension funds are here. We have lots of friends. A lot of people want to invest here. People are tending the hand if you want to in many ways, Europeans and others. And we have local money, too. So it is now very obvious that money is there if you have something to build.”
How permitting has stymied investment and what could change
Gervais describes Canada’s permitting process for resource extraction projects over the past decade as “horrendous,” with permits taking seven, ten, or twelve years and requiring approvals from countless stakeholders. There was never certainty, he says, that once a project obtained a permit it would not be renegotiated down the road. He contrasts that process with Australia, where permits typically take 18 months despite the country’s many similarities with Canada.
Permitting speed matters, Gervais says, because the decision to invest in a resource extraction project is fraught with risk. Even if permitting can be expedited, the construction of the project can take years, and all of that time and capital is resting on the extraction of a commodity with inherently volatile pricing. In addition to speedier permitting, Gervais wants to see faster depreciation so these projects can begin to return capital faster and become a platform for the next investment.
For investors looking at the resource sector, Gervais says that the political consensus around natural resource extraction is already beginning to change how energy companies are being valued. A large number of energy companies, especially in exploration and production, were being valued on a “blow-down” basis, which uses only the potential earnings of existing reserves to price a company’s stock. However, a smoother permitting process should result in more investment in further exploration and production, making these companies valued as going concerns. Gervais explains that as investors see these companies as able to invest in the extraction of new reserves, their earnings multiples will expand. He says that we’ve already seen multiple expansion in a number of mineral and energy extraction companies as investors revise how they value these names.
Capturing resource upside in retail portfolios
Gervais believes that the investment case for Canadian energy and resource extraction goes beyond just a moment of patriotism and a focus on Canada’s competitive advantage. He says that a host of global macro forces should also be supportive for commodity and natural resource prices. That includes the energy-intensive rise of artificial intelligence, global reshoring, and heightened geopolitical tensions that make Canada a preferred partner, especially in markets like Europe. He notes that Canada is rarely the cheapest producer of many natural resources, but that our relative stability and friendliness when compared with other major producers of resources like natural gas or critical minerals make us a competitive player.
There are still preconditions that need to be met for the long-term investment case in resources to make sense. Gervais explains that advisors need to be confident in a healthy market for Canadian resources, and that economic growth in the G7 should be a good indicator of that market. The ongoing AI buildout is another underlying driver of both GDP growth and energy consumption, as is electrification. In looking at investable opportunities, Gervais says that advisors should look for projects and themes that harvest today’s high prices for commodities while investing in new assets.
The Canada Investment Summit highlighted infrastructure investment as a core driver of wider economic growth. While pure-play infrastructure is still largely treated as being in the alternatives category, Gervais advises seeking exposure across the “energy chain.” He argues that diversified exposure will benefit investors most, even if the current moment gets them excited about one particular aspect of this new economic trend in Canada. He uses natural gas production to demonstrate that point.
“There's the production of natural gas. There is the transport of natural gas. There's liquefaction. There's the boat. There's all the steel that goes into this, whether it's the pipeline or the terminal. There's a lot of labour and engineering and construction that goes into this, and different parts of that chain have different risk and reward profile,” Gervais says. “Our argument with all our clients is that I don't think you want to pick and choose the one.”
