Canadian mining sector market value drops 7% in Q2

JOHANNESBURG (miningweekly.com) – Canada’s mining sector saw a slow start to the second quarter of 2017, according to global advisory firm EY’s Canadian Mining Eye index, which reported that the market capitalisation of 100 TSX- and TSX-V-listed midtier and junior companies fell broadly between C$47-million and C$1.6-billion. This saw the market value of the country’s mining sector drop 7% in the quarter, following an increase of 11% in the first quarter of the year.

EY attributed this loss to the weak nickel price, with zinc remaining flat and copper seeing a slight increase.

“Right now, companies continue to focus on reducing their debt, but we’re seeing a shift in how they’re doing it,” says EY Canadian mining and metals leader Jim MacLean.

He explains that companies are no longer selling noncore assets to reduce their debt, but are generating capital through enhanced cash flow, reducing their overall debt load at a good pace.

Meanwhile, owing to the use of nickel in electric vehicles and the increasing global demand for stainless steel, which contains between 8% and 10% nickel, the price of the base metal is expected to remain constant – offset by surplus mine supply.

EY’s Canadian Mining Eye index reports that, at the same time, the slowing economic growth rate in China is expected to keep copper prices constant in the near term, with a positive outlook in the medium to long term.

According to the index, key commodity changes in the quarter under review include zinc prices remaining flat; copper prices increasing by 2%; gold prices remaining flat, owing to the federal rate hike of 0.25% in June; and nickel prices falling by 6%.

“Looking forward to the end of this year, we’re expecting balanced growth in Canada’s mining and metals sector,” says EY mining and metals transactions leader Jay Patel, who adds that there are several factors on either side of the pricing equation that would cause “counter forces”.

“Global geopolitical unrest and federal interest rate hikes are balancing the price of gold, while steady global demand and oversupply are balancing the price of base metals,” he says.

Meanwhile, Kirkland Lake Gold president and CEO Anthony Makuch, who is quoted in the report, says that, in terms of gold, companies need to invest more in exploration and new discoveries.

“If you don’t have your operating cost structure in place, you won’t do well. Some companies don’t invest any capital so they may look like they are doing well with their sustaining costs for one to two years, but it can backfire on them,” he says.