Canadian Mining Eye
Subdued performance for the Canadian Mining Eye in Q3 2016
The Canadian Mining Eye index gained 4% during Q3 2016, compared with a 42% gain in Q2 2016. The Canadian Mining Eye index modestly underperformed the S&P/TSX Composite index, which gained 5% during Q3 2016. The UK Mining Eye gained 30% during Q3 2016, with commodity equities benefiting from substantial depreciation of the pound versus the US dollar. The London Metal Exchange index (LMEX) gained 4% over the quarter. The S&P/ TSX Composite Metals and Mining index declined 3% in Q3 2016, following gains of 40% in Q2 2016. The Canadian Mining Eye index’s gain was predominantly due to an increase in base metal prices, including nickel and zinc. After witnessing an increase in the past two consecutive quarters, including 29% in Q2 2016 and 21% in Q1 2016, majors retracted by 3% in Q3 2016, signalling a pause in the index during the quarter.
Following the strong Q1 2016 operating performance by a majority of mining companies, the Q2 2016 earnings continue to be accentuated by higher production, lower all-in sustaining costs (AISC) and improved free cash flow generation. As an emerging trend, mining companies are seeking to embrace digital technologies to improve productivity and hence reduce costs through insights driven by big data and analytics, and enhanced integration. Recently, Barrick Gold Corporation and Cisco Systems Inc. announced that they have partnered as Barrick seeks to automate its equipment and use advanced sensing technology and real-time operational data for better decision-making capabilities.
As such, Barrick anticipates AISC to track below US$700 per ounce by 2019 from an anticipated US$750-$790 per ounce range in 2016.1
- Gold2: Gold prices were flat in Q3 2016 compared with gains of 7% in Q2 2016 and 16% in Q1 2016. The weakness was in part due to an anticipated hike in US interest rates in November or December, as well as subdued investment in gold-linked funds.3 Despite the flat trend in the quarter, the underlying demand fundamentals remain intact for the gold sector underscored by healthy consumption trends in China, India and the US. Additionally, investors continue to view gold as a safe haven asset amid global macroeconomic challenges, coupled with the uncertainty after the recent US elections, despite a speed bump in early October.
- Base metals4: Copper prices were flat in Q3 2016 after declining by 1% in Q2 2016. Copper prices are expected to remain under pressure in 2016 due to over-supply, compounded by the advent of new mines in regions such as Mongolia and Peru. Contrastingly, both zinc and nickel prices rose in Q3 2016, increasing 13% and 12% respectively. Zinc prices are expected to gain in 2016 as it continues to operate in favorable supply deficit market conditions.
Going forward, digitization in the mining space is expected to continue to gain traction in order to achieve improved productivity and efficient operations. The outlook for the Canadian mining industry remains positive underscored by investment in new and pending projects, supported in part by a rebound in the commodities market. However, the Canadian mining sector is expected to face labor shortages of around 127,000 workers due to a lack of recruitment activity in the past five years, according to Mining Industry Human Resources Council (MiHR).5
- 1. “Barrick and Cisco Partner for the Digital Reinvention of Mining,” Press release, 12 September 2016.
- 2. “CORO Mining Corp: Company Profile and SWOT Analysis,” Timetric, 15 September 2016.
- 3. “Metal Matters,” Scotiabank, October 2016.
- 4. “Commodity Price Forecasts,” Oxford Economics, September 2016.
- 5. “Canada’s mining industry faces workers shortage of up to 127,000,” Mining.com, 30 August 2016.