Q3 2017

Canadian Mining Eye

Canadian Mining Eye improved in Q3 2017

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According to S&P Global Market Intelligence, capital spending on greenfield projects is expected to remain muted in the near term as miners remained focused on improving balance sheet health.

On the other hand, brownfield projects are expected to attract capital spending from both precious and base metal miners (particularly zinc and copper), underscored by improving commodities pricing, limited additional supply and better demand fundamentals in China.1 Some of the mining companies that have committed capital spending on brownfield projects include HudBay, Trevali Mining, Sierra Metals and Lundin Mining.2

Index comparisons

In our recently published mining risks report, EY identified regulatory risk (resource nationalism) and social license to operate as 2 of the top 10 business risks facing mining and metals companies in 2017-2018. In this context we note that recently, the Tanzanian Government revised its mining laws and increased royalty tax on gold, copper, silver and platinum exports from the current 4% to 6%. The imposition of these amendments have already impacted Barrick Gold’s subsidiary Acacia through reduced production and revenues and might also impact AngloGold Ashanti as it commences arbitration.3

Top 10 business risks facing mining and metals 2017-2018

Canadian Mining Eye index and peers, last 12 months Elsewhere, according to BMI Research, a unit of Fitch Group, the Democratic Republic of Congo (DRC) is planning to introduce new mining regulations including higher taxes on profits from 30% to 35%, larger government interest from 5% to 10% in new projects and higher royalties from 2.0% to 3.5% for copper and cobalt mines. Companies such as Banro Corporation, Katanga Mining, Ivanhoe Mines and Alphamin Resources having mines in DRC are expected to face headwinds in the wake of new mining amendments.4 In September, Canadian miner Eldorado Gold withdrew its previous decision to halt operations at its Olympias mine in Greece in response to government’s delays in issuing permits. However, there is still uncertainty regarding the resumption of mining activities at its open-pit mine at Skouries.5

  • Canadian Mining Eye index, gold, copper and LMEX Index over Q3 2017 Gold: Gold Prices increased 3% in Q3 2017 compared with a flat trend in Q2 2017. Improvement in prices was due to geo-political issues, primarily related to North Korea and US domestic political issues, lowered investor confidence in US and weaker US dollar.6
  • Base metals: Nickel price increased 11% in Q3 2017 compared with a 6% decline in Q2 2017. The prices improved in both July and August owing to weakening US dollar and robust stainless steel production.7 Copper prices increased 9% and zinc prices rose by 16% in Q3 2017.
Outlook

Gold prices have remained range-bound for most of 2017 except for a significant rise in prices in August. This was largely due to geopolitical instability, a weaker US dollar and uncertainty as to whether President Trump’s pro-business agenda will be implemented.8 The downside risk to gold prices still centres on the possibility of Fed raising key interest rates by 0.25% in December 2017 and further rate hikes in 2018.9 However, the upcoming seasonal demand for gold is expected to provide support to prices in the coming months.1010

With respect to base metals, zinc prices are expected to continue their upward trend underscored by tight inventories, supply deficit and improving Chinese sentiments (world’s largest consumer of refined zinc).11 According to Wood Mackenzie, global refined zinc demand is expected to increase by 3% to 14.7 million tonnes in 2017, whereas the production is anticipated to grow by 2% to track 13.8 million tonnes, thus resulting in a deficit market in 2017.12 Canadian miners such as Vale, Trevali, Lundin Mining, Teck Resources, among many others, are slated to benefit based on the favourable conditions mentioned above.13 Nickel prices are expected to remain volatile given higher inventory levels and an excess supply market, offset by higher stainless steel demand in China.14 Meanwhile, in response to persistent lower nickel prices, First Quantum announced the closure of its Ravensthorpe mine and Vale placed its Caledonia operations under review.15 Copper prices are still expected to benefit from declining mine supply, improving global macro-economic outlook, weakening US dollar and Chinese industrial growth.16 The International Monetary Fund raised its growth expectations for China by 0.1% from its previous estimates to 6.7% in 2017.17

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  •  1. “Lack of new projects, M&A to buoy prices,” Mining.com, 11 August 2017.
  •  2. “Well Funded for Brownfield Growth,” Scotiabank, 30 August 2017; “Base Metal Q2/17 Wrap-Up and Outlook,” BMO Capital Markets, 16 August 2017.
  •  3. “Acacia accepts 50% lift in royalty as Tanzania turns the screw,” Miningmx.com, 14 July 2017.
  •  4. “Democratic Republic of Congo to revisit changes made to mining regulations,” Miningreview.com, 26 July 2017; “Canadian mining companies turn bullish on Congo, despite its violence,” The Globe and Mail, 19 March 2017.
  •  5. “Canadian mining firm withdraws threat to quit Greece amid protests,” The Guardian, 21 September 2017.
  •  6. “North American Gold Miners,” Macquarie Research, 20 August 2017; “The Trunk Call: Weekly Metals Update,” iA Securities, 1 September 2017.
  •  7. “Nickel Price Surges, But Market Remains Vulnerable,” S&P Global, 15 August 2017.
  •  8. “The Trunk Call: Weekly Metals Update,” iA Securities, 1 September 2017.
  •  9. “US Fed seen staying on track for December rate increase,” Press release, Livemint, 18 September 2017.
  •  10. “The Trunk Call: Weekly Metals Update,” iA Securities, 1 September 2017.
  •  11. “Morning Meeting Notes,” Cormark Securities, 14 August 2017.
  •  12. “Canada Mining: Industry Snapshots,” Acquisdata, 30 August 2017; “Q2 2017 earnings results report,” Teck Resources, 27 July 2017.
  •  13. “The Trunk Call: Weekly Metals Update,” iA Securities, 25 August 2017.
  •  14. “Nickel Price Surges, But Market Remains Vulnerable,” S&P Global, 15 August 2017.
  •  15. “First Quantum Minerals Ltd,” Canaccord, 9 August 2017; “Vale says loss-making New Caledonia nickel operations under review,” Reuters, 4 July 2017.
  •  16. “Base Metal Check-In – Improving Pricing Prompts Forecast and Target Price Update,” Cormark Securities, 1 September 2017.
  •  17. “IMF maintains global growth forecasts; China, euro zone revised higher,” Press release, Reuters, 24 July 2017.


Canadian Mining Eye index and peers, last 12 months ×
Canadian Mining Eye index, gold, copper and LMEX Index over Q3 2017 ×