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Canadian Mining Eye

Challenges for Canadian Mining Eye in Q3 2018

Q3 2018 highlights

The majority of the large-cap gold miners are trending toward a stronger second half of 2018 compared with the first half, primarily on the back of improving grades and production ramp-ups. As a result, most of the senior companies have maintained their production guidance for the year following a challenging second quarter performance.

Index comparisons Q3 2018 Q2 2018
Canadian Mining Eye index -12% 1%
UK Mining Eye -3% 1%
S&P/TSX Composite Metals and Mining index -1% 6%
Major index (Top 20 - TSX mining companies) -16% 2%

Barrick Gold maintained its full-year production guidance at 4.5 million–5 million ounces, despite weaker gold production in the first half of 2018, driven by stronger performance at Pueblo Viejo mine and Barrick Nevada in the second half of 2018.1 Similarly, Goldcorp maintained its 2018 gold production guidance at 2.5 million ounces, underscored by ramp-up of capability at Eleonore and Cerro Negro mines, even though its gold production was weaker in the first half of 2018.2

In March, the US Administration imposed a 25% tariff on all steel imports (except from Argentina, Australia, Brazil and South Korea) and a 10% tariff on all aluminium imports (except from Argentina and Australia). In response, China imposed a 25% tariff on products imported from the US, including agricultural products, chemical products, automobiles and aquatic products. The US imposed an additional 25% tariff on imports of 279 items from China, amounting to US$16 billion in August, following already imposed tariffs to the tune of US$34 billion in July.3

The International Monetary Fund (IMF) expects this to lower global growth by around 0.5% or US$430 billion by 2020.4 The Organisation for Economic Co-operation and Development (OECD) also believes that it could stall global economic growth and negatively impact the labor market.5 As a result, over time the US economy could slow down, leading to higher inflation and declining federal rates, which may support higher gold prices.

For the past several years, central banks across the globe have been buying gold to add to their reserves. But now these institutions are hoarding gold in an effort to diversify their monetary reserves away from the dollar.

The Central Bank of Russia has accelerated its gold purchases in recent years, which is widely believed to be in response to increasing geopolitical tensions with the US.6 According to the IMF, Russia surpassed China as the fifth-biggest sovereign holder of gold, with the US still holding the highest amount of gold.7

On the other hand, Russia has continuously reduced its US debt holdings in the past decade, which stood at US$14.9 billion as of May, from US$96.1 billion in March.8 The total amount of gold purchased was around 11 million ounces in 2017, and a similar level of buying is expected in 2018 as well.9 This accelerated level of gold purchase by the world’s central banks is expected to support gold prices as demand for the metal increases.

  • Gold: Gold prices decreased 5% in Q3 2018, consistent with the decline witnessed in Q2 2018. This decline in prices was mainly due to the strong US dollar and the recent Federal Reserve rate hike of 0.25% in September.
  • Base metals: Nickel prices decreased 16% in Q3 2018 compared with 12% gains in Q2 2018. Copper prices decreased 5% and zinc prices declined by 9% in Q3 2018. Both copper and zinc prices declined for the third consecutive quarter, impacted by trade war uncertainty.

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


While gold prices are expected to benefit from the ongoing trade tariffs imposed by the US, these remain uncharted waters. The upcoming seasonal demand for physical gold, mainly from China and India, can be expected to support the upward trajectory of prices. However, the near-term possibility of one more rate hike this year and likely three more in 2019 are expected to strengthen the US dollar and act as a headwind to gold prices.10

Concerning base metals, copper prices are still expected to trend higher due to supply deficit, coupled with China’s stimulus to increase investment in railways and the national electricity grid in 2018. However, trade protectionism is expected to put downward pressure on prices in the medium to long term due to the potential impact on China’s export of goods to the US.

The outlook for zinc prices remains positive in 2018 due to supply constraints before balancing out in 2019. However, supply is expected to increase through 2020, supported in part by startup or production ramp-up at Dugald River, Vedanta’s greenfield Gamsberg mine, New Century mine and Glencore’s Lady Loretta mine.11

Nickel prices are slated to increase, underscored by robust demand from rechargeable batteries used in electric vehicles (EVs) and declining inventories in 2018. Additionally, positive demand for stainless steel — production is anticipated to grow to 55mmt by 2020 — is expected to spur nickel consumption to 2.45mmt in 2020 from around 2.26mmt in 2018, according to Wood Mackenzie.

Given the increased adoption of electric vehicles, cobalt prices are still expected to trend higher due to higher demand for rechargeable batteries. It is anticipated that EV batteries would account for 36% of total cobalt demand by 2025, compared with around 9% in 2017.12

Changes to the Canadian Mining Eye index

There were 13 changes in index constituents in Q3 2018. Ivanhoe Mines and OceanaGold were the new entrants in the Top 20 index. Ivanhoe Mines, OceanaGold, Lydian International, Barkerville Gold Mines, Mason Graphite, Bear Creek Mining, eCobalt Solutions, First Cobalt, West African Resources, Millennial Lithium, Klondex Mines, Arizona Mining and Dalradian Resources exited the index and were replaced by index entrants highlighted in the table above.


  • 1. “Barrick Reports Second Quarter 2018 Results,” Barrick Gold Corporation, 26 July 2018.
  • 2. “Goldcorp Second Quarter Report,” Goldcorp, 25 July 2018.
  • 3. “The US-China Trade War: A Timeline,” China Briefing, 10 September 2018.
  • 4. “IMF warns Trump trade war could cost global economy $430bn,” The Guardian, 16 July 2018.
  • 5. “Trade war hits global growth and could soon harm jobs and pay,” The Telegraph, 20 September 2018.
  • 6. “Central Banks Go On Gold Buying Spree Over Dollar Worries,” Forbes, 11 September 2018.
  • 7. “Russians are holding gold while U.S. piles up debt,” Washington Times, 22 February 2018.
  • 8. “Russia is stockpiling gold as fresh sanctions from US loom,” The Economic Times, 23 August 2018.
  • 9. “Central Banks Go On Gold Buying Spree Over Dollar Worries,” Forbes, 11 September 2018.
  • 10. “The Trunk Call: Weekly Metals Update,” iA Securities, 31 August 2018.
  • 11. “Base Metals Q2/18 Scorecard - Increasing Trade Fears,” TD Securities, 18 July 2018.
  • 12. ibid.
Canadian Mining Eye index and peers, last 12 months ×
Canadian Mining Eye index, gold, copper and LMEX Index over Q3 2018 ×
Index constituents selected at quarter end: Canadian Mining Eye - Q3 2018 ×
Mining Eye index and S&P/TSX Composite index performance, last 12 months - Q3 2018 ×
Mining Eye index and S&P/TSX Composite index since 2008 - Q3 2018 ×
EY - Peter Marrone Q&A
with Peter Marrone
Founder & Executive Chairman, Yamana Gold

Q. What’s next for Yamana?

Over the last several years, we’ve focused on improvements to operations. And with improved operations and better predictive modeling, we’re also increasing our guidance. In fact, we increased our guidance twice last year and will do so this year too.

Back in 2014, we experienced some challenges with some development-stage projects, which caused us to look more seriously around our projects and capabilities. We’ve also gone through several succession plans, the most notable being Jason LeBlanc taking on the role of CFO from retiring Charles Main, and the promotion of our COO, Daniel Racine, to CEO.

We’ve also looked both within and outside the company to expand our skill sets at the senior management and board levels. Diversity on our board is a focus for us — looking for both gender diversity (with 4 women on our 11-member board) as well as diversity of skills — such as our interactions with First Nations, our depth in capital markets and measurement of returns, and our capital project skills. Last, we looked at the CEO and chairman role to see what needed to be done there.

Overall, we’ve managed these transitions well and have retooled our capabilities and skills to help us continue to grow — with management focused on its drivers of success over the next one to three years and the board taking a long-term view of the company in seeing what drivers of success will be needed over a longer horizon. We have developed and are critically evaluating a plan for the periods of one to three years, three to seven years and up to ten years and beyond.

I’m also quite excited about a new committee we established recently at the board level that’s aimed at overseeing both opportunities and risks for the company, with our board members rotating through to share their perspectives and oversight. The committee will help decide how projects get prioritized, and how to best allocate and spend available project funds.

Finally, as with all mining companies, pipeline is important. Most recently, in the second quarter of 2018, our Cerro Moro gold-silver operation in Argentina ramped up. Looking ahead, we have several exploration/development in a number of our properties, including Malarctic in Quebec and Chapada in Brazil.

Q. What’s your opinion on the mining sector today?

The mining sector has done an excellent job on critically evaluating and better defining growth and improving upon its constructs. I’m very encouraged by the industry but have some reservation about the future, and resources and reserves. Our sector needs to continue to look at resources and reserves for the future, and ask the question, “Where are the new assets coming from?”

The mining sector’s hard drive to free cash flow tends, in my opinion, to minimize investment and capital deployment. That being said, I do have a sense that back when we had the euphoria of high metal prices, our sector may have suffered from too much groupthink and irrational behavior in how we dealt with building mines — we placed too much pressure on building mines.

I believe, though, that strides have been taken to improve the quality of life for a gold miner, and mining in general from an investor and owner’s perspective.

Q. What are the key challenges faced by mining companies today?

The primary challenge I see is more critically defining projects. A lot of the work has already been done in this area over the last several years.

At Yamana, we saw this with one of our mines, Cerro Moro in Argentina. We could have gone in for immediate development. Instead, we completed over 87% of the engineering plan upfront to reduce the risk and implement the right level of planning. This was a $300m project, but it provided us with excellent risk management and much improved accuracy for Cap Ex. Another challenge in the sector is, of course, project execution.

Q. What’s the current thinking in the mining industry regarding consolidation or expansion?

I believe there are too many gold mining companies in such a small sector of the overall extraction industry. So I’m in favor of consolidation where it makes sense. At Yamana, we were “agents of consolidation” when we completed our larger acquisitions in 2007 and 2014, and smaller acquisitions before 2007 and between those dates.

I don’t believe in consolidation for the sake of consolidation, however. Success should come in many forms, and mining companies need to be more self-aware of their strengths and weaknesses before they attempt to acquire or consolidate. For us at Yamana, engaging with others may also be a successful platform for growth for us. For example, if our skills are exploration and another party has skills to take the mine site further operationally, it may indeed make sense to partner.

Q. What’s your view on digital mining, and what does it mean for Yamana?

My view on digital mining is to bring in high-quality people and also confirm the direction that we want to go. For us, innovation is important, and as a result we initiated a program more formally last year at corporate and at our sites. We also have some governance in place via a committee to share where we are around data, productivity, our current processes, health and safety, and ways in which we can improve the quality of life for our employees and our stakeholders.

If we can remove some human interaction around heavy machinery and replace it with automation, for example, that may assist us in improving the quality of life and our health and safety targets. I’m not a proponent of removing our people simply for innovation, but rather redeploying our talent to where it may be best improve our productivity and the skills of our people.

I do believe being disciplined around digital mining is important and that we need to do our homework in understanding new technology/electronic computing or AI such that it’s beneficial for us. If we engage with the right third parties, pick the right partners and vet the knowledge we have with our partners, we hope to set a good course on innovation. We’re also open to partnering with other smaller companies and investing in them if it makes sense to us. We ultimately are looking for like-minded partners we can be successful with.

Q. In terms of strategies for the future, what’s your advice for the sector?

For Yamana, we’ll assess the free cash flow that we expect to create in the next several years, monitor progress and show that all is delivered as planned. We do need to continue to evaluate our pipeline in every jurisdiction we’re in. I also see the need to continue to optimize mines — through exploration, new gold mine discoveries and evaluating projects as I mentioned earlier. It may be optimal, for example, to seek joint ventures or to sell, given the talents in our company vs. in the sector.

I don’t believe in a master plan for Yamana. I believe we’ll continue to adjust and flex to follow the path that’s most right at any time.

Past interviews

EY - George Burns

“Technology has played an important role over the four decades I’ve been in the industry.”

George Burns
President & CEO, Eldorado

Read more
EY - Stephen Letwin

“I have renewed optimism in the mining industry overall.”

Stephen Letwin
President and CEO, IAMGOLD

Read more
EY - Scott Perry

“I’m feeling constructive and bullish on all base metals for 2018, with a particular focus on copper.”

Scott Perry
CEO, Centerra Gold

Read more
EY - David Garofalo

“I do see real potential for disruptive technologies for the mining industry”

David Garofalo
President and CEO, Goldcorp Inc.

Read more
EY - Anthony Makuch

“I think digital mining is something we need to embrace.”

Anthony Makuch
President and CEO, Kirkland Lake Gold

Read more

About this report

The Canadian Mining Eye tracks Canadian mining sector performance of 100 TSX and TSXV mid-tier and junior companies with market capitalizations at the end, broadly falling between CDN$2.2b and CDN$166m. These companies trade on the TSX and TSXV, though some of them are headquartered outside Canada.

Movements and analysis of the index are reported quarterly. From Q1 2014, we have retroactively reset the index to Top 20 and Next 100 (from Top 25 and Next 100) based on the market capitalizations at the end of 2013. The historical data has also been reset for comparatives purpose.

All company information is sourced from publicly available sources, including company websites and regulatory announcements.

The views of third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made.

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