Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Canada’s mining industry started the year off on the right foot, with major deals including the Barrick-Randgold merger and Newmont’s acquisition of Goldcorp, setting the tone for the sector.
As a result, Ernst & Young’s Canadian Mining Eye index — which tracks the performance of 100 Toronto Stock Exchange and TSX Venture Exchange mid-tier and junior mining companies — rose 5% fin the January-March period, compared to the previous quarter, the consultancy firm said Thursday.
Gold miners, in particular, recorded an improved performance, as prices for the metal increased by 1%, following an 8% quarter-over-quarter gain in October-December period.
EY suggests that mining and metals deals will continue to shift from divestment-led to investment-led, with a focus on replenishing portfolio growth options
EY attributed gold’s higher prices in the period partly to the possibility of fewer U.S. Federal Reserve rate hikes in 2019, and it believes the Fed factor will likely continue to benefit gold prices in the near-term.
The consultancy also noted an increase in both production and exploration spend in the gold sector in Canada and globally.
The country’s gold output is set to grow by 6% this year, compared to a previous estimate of 2%. This improvement, EY analysts say, stems from increased exploration spending resulting in a strong buildup of the project pipeline in 2019.
Major projects slated to begin production this year include Newmont Goldcorp’s Borden project in Ontario, Agnico Eagle Mines’ Meliadine project in Nunavut and Barrick’s Hemlo mine in Ontario.
Base metal prices also fared well in Q1 2019. A surge in demand for electric vehicles (EVs) boosted nickel prices by 22% following a 15% decline in Q4 2018, says EY. The outlook for nickel remains positive with ongoing demand for stainless steel and reduced inventory levels.
Similarly, zinc and copper prices increased by 19% and 9%, respectively, in Q1 2019 and are likely to benefit in the near-term from declining inventories and tight market conditions.
“Improving market conditions are inspiring new confidence in the mining and metals sector and putting growth back on the boardroom agenda,” says Jeff Swinoga, EY Canada Mining & Metals Leader. “To stay competitive in a transformed operating landscape, miners must develop bold strategies that accelerate productivity, improve shareholder returns and win investor confidence. The qualities that define long-term success aren’t the same as they once were.”
The document suggests that mining and metals deal activity will continue to shift from divestment-led to investment-led with a focus on replenishing portfolio growth options in the near-term.
