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Canadian miners build momentum: EY Mining Eye

The Canadian mining industry continued to build momentum in the June quarter according to an index of listed companies, lifted in part by a 9% gain in the gold price and optimism about another US Fed rate cut before year-end.
Canadian miners build momentum: EY Mining Eye Canadian miners build momentum: EY Mining Eye Canadian miners build momentum: EY Mining Eye Canadian miners build momentum: EY Mining Eye Canadian miners build momentum: EY Mining Eye

EY's Canadian Mining Eye index inched higher in the second quarter

Accounting firm EY's Canadian Mining Eye index increased 3% over the March quarter, when it gained 5%. The index tracks the mining sector performance of 100 TSX and TSXV-listed mid-tier and junior companies with market values between C$169-$2.5 billion.

The latest quarter ended with spot gold at US$1,414/oz, benefitting from an 8% gain in June alone, to reach new all-time highs in Canadian dollars and Australian dollars terms. However, prices remaineded 25% below their US dollar peak in August 2011 and 20% below their Chinese Yuan-denominated peak reached in the same month, EY said.

"Gold captured attention in Q2 2019 with continued talk of consolidation and significant investment from central banks in Russia and China. Gold prices were up 9% and, despite the US-China trade negotiations, they are expected to continue trending upward," mining and metals transactions leader Jay Patel said.

Base metals price momentum stalled during the most recent quarter, with nickel, copper and zinc prices declining 2%, 8% and 14%, respectively, after a positive first quarter.

However, EY forecast copper prices to remain strong in 2019, underpinned by a supply deficit and growing demand in renewable energy and electric vehicles.

Citing International Copper Study Group data, EY expects the copper deficit to rise from 189,000t in 2019 to 250,000t in 2020.

The underlying demand for nickel was also strong on the back of tight supply but slowing global manufacturing could put downward pressure on prices, the firm noted. EY said zinc prices should remain positive in the near term, although the supply deficit was forecast to reduce by 2022, owing to new mine supply entering the market.

"As commodity prices continue to benefit from changing market conditions, mining and metals companies should aggressively re-evaluate how to strategically position their existing assets to balance growth with long-term sustainability," mining and metals co-leader Jeff Swinoga said. "Strategic transactions and a focus on organic investments should continue to be top of mind as companies aim to replenish their resource pipeline and attract much needed growth capital."

The Major Index, which tracks the top 20 TSX-listed mining companies, increased by 5% in the second quarter and 7% in the first quarter. The UK Mining Eye index, however, fell by 7% in the second quarter.

EY said portfolio growth was not the only consideration for mining and metals companies in the forthcoming year.

Insight from the EY electrification in mining survey suggested companies become more agile by looking at options to electrify their mines to cut costs, boost licence to operate and contribute to a more sustainable sector. Adopting new innovative processes would help miners stay competitive, while also reducing operational risks and improving productivity in the future, the firm said.

"In my experience, the bulk of digital transformation comes from factors that are external to the sector like new ways of doing business or managing our lives," metals and mining co-leader Theo Yameogo said.

"If you don't have proper data governance and data strategy, it's quite challenging to embrace digital. Innovation, on the other hand, is changing core business practices or adopting new business models.

"Innovation can be a lift-and-shift affair: mining companies can take ideas from other businesses and other sectors and put them into practice in a completely differentiated reality."