5 minute read 13 May 2020
EY - Mining equipment

Challenges for Canadian Mining Eye in Q1 2020

By Jeff Swinoga

EY Canada National Mining and Metals Co-Leader

Bringing a strategic perspective to clients. Accomplished speaker and presenter. Passions include playing tennis, guitar and cycling.

Contributors
5 minute read 13 May 2020
Related topics Mining and metals

The Canadian Mining Eye index declined by 29 percentage points in Q1 2020, as compared to an 11 percentage point gain in the prior quarter.

Gold prices increased 6% in Q1 2020 after a 3% gain in the previous quarter, driven in part by the US Federal Reserve rate cut.

Base metal prices, on the other hand, declined on account of the ongoing COVID-19 pandemic. Nickel prices decreased 18% after a 19% decline in the previous quarter. Copper prices witnessed a decline of 20%, while zinc prices declined 17%.

Index comparisons
Q1 2020 Q4 2019
Canadian Mining Eye index -29%
11%
UK Mining Eye
-18%
-5%
S&P/TSX Composite index -22% 2%
Major index -13% 10%

Mining companies around the world are facing disruptions in supply chain, parts and consumables, and as a result of government mandated actions following the ongoing COVID-19 pandemic. 

Canadian mining firms have taken a number of measures to protect their employees and to ensure business continuity. Agnico Eagle and Yamana Gold’s Canadian Malartic mine, the country’s largest gold mine, has been temporarily shut down to reduce the spread of the virus.1 Newmont Corporation and IAMGOLD have put their Musselwhite, Cerro Negro and Westwood Gold mines into care and maintenance.2 Furthermore, companies such as First Quantum Minerals and Teck Resources have been operating with reduced workforces, with only critical activities being performed.3

Suspension or reduction of mining activity is expected to lead to lower guidance from companies, but the scale of the impact remains unclear as the pandemic continues.

The COVID-19 crisis has also impacted base metal prices, with copper being affected the most. Copper prices have reached their lowest level since 2016, mainly because of a slowdown in China’s construction activity; the country accounts for approximately half of global copper consumption. GlobalData, an analytics and research firm, now expects copper demand in China to grow by 3.8% in 2020, as compared to its previous forecast of 5.8%.4

Nickel prices have declined approximately 20% over the last three months due to lower demand from the stainless-steel industry following temporary production shutdowns. Furthermore, nickel production may also decline due to virus-related delays expected in the development of Indonesian nickel projects worth nearly US$11b.5 Zinc prices declined to July 2016 levels due to a reduction in automotive and construction industry demand.6

Gold prices, on the other hand, have been volatile over the past few months. Gold prices reached a seven-year high of approximately US$1,670 per ounce in the second week of March, declining to around US$1,478 per ounce in the third week and then bouncing back to US$1,660 towards end of the month. The recent rebound in prices was driven by the Federal Open Market Committee’s decision to reduce the Fed rate to the 0.00% to 0.25% range in response to the growing economic threat from the spread of the COVID-19.7

Outlook

Gold prices are expected to maintain growth momentum, supported by the slowdown in global markets and declining interest rates.8

Copper prices are expected to remain subdued in the short term because of the ongoing COVID-19 crisis. However, they are expected to gradually recover over the long term on the back of an expected stimulus package from the Chinese Government and persistent market deficit expectations driven by increased demand from the power and automotive industries.9

Nickel prices are expected to remain under pressure in the near term due to decreased demand in the stainless-steel industry. In the long term, nickel prices are expected to gain from growing demand from electric vehicles coupled with an expected supply deficit.10 The impact of lower oil prices on electric vehicles, however, remains unknown.

Zinc prices are expected to face downward pressure in the near term on account of factory shutdowns in China. Zinc prices are expected to further decline in the long term due to expected market surplus.11

Changes to the Canadian Mining Eye index

There were 10 changes in index constituents in Q1 2020. Alamos Gold and Centerra Gold were the new entrant in the Top 20 index. Alamos Gold, Centerra Gold, TMAC Resources , Mountain Province Diamonds, Excelsior Mining, Josemaria Resources, Trevali Mining Corporation, Filo Mining, Continental Gold and Leagold Mining Corporation exited the index and were replaced by index entrants highlighted in the table above.

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 quarter end broadly falling between CDN$125m and CDN$2.3b. 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 comparative purposes.

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

  • Footnotes

    1. “Yamana to suspend operations at Canadian Malartic,” Mining.com, March 25, 2020.
    2. “Newmont Implements Additional Controls to Further Protect Workforce, Neighboring Communities,” Newmont, March 23, 2020; “IAMGOLD Provides Update Following Provincial Directives Regarding Covid-19,” IAMGOLD Corporation, March 24, 2020.
    3. “First Quantum Provides Update,” First Quantum Minerals, March 24, 2020; “Teck cuts workforce at Elk Valley operations by 50% in response to COVID-19 concerns,” The Narwhal, March 25, 2020.
    4. “COVID-19 (COVID 19) Executive Briefing,” GlobalData, March 24, 2020.
    5. “Metals Markets to Rebound After COVID-19 Epidemic Peaks — Part 2,” S&P Market Intelligence, March 5, 2020.
    6. “Zinc prices decline due to concerns over impact of Covid-19 in China,” Mining Technology, February 26, 2020; “Metals Markets To Rebound After COVID-19 Epidemic Peaks — Part 2,” S&P Market Intelligence, March 5, 2020.
    7. “Gold is the only thing to own after Fed cuts rates to zero,” Kitco, March 15, 2020.
    8. “Goldman Sees Gold Hitting $1,800 as ‘Haven of Last Resort’,” Bloomberg, February 27, 2020.
    9. “Copper price revised up on bullish H2 2020 outlook,” Mining.com, March 6, 2020.
    10. “Nickel price under pressure in 2020,” Mining.com, February 2, 2020; “Virus another wild card in nickel's year of uncertainty,” Reuters, 11 February 2020.
    11. “Zinc 2020 price forecast revised down over supply deficit – report,” Mining.com, March 16, 2020.

Summary

The Canadian Mining Eye index declined by 29 percentage points in Q1 2020, as compared with an 11 percentage point gain in the prior quarter. Gold prices increased 6% in Q1 2020 after a 3% gain in the previous quarter, driven in part by the US Federal Reserve rate cut. Base metal prices, on the other hand, declined on account of the ongoing COVID-19 pandemic. Nickel prices decreased 18% after a 19% decline in the previous quarter. Copper prices witnessed a decline of 20%, while zinc prices declined 17%.

About this article

By Jeff Swinoga

EY Canada National Mining and Metals Co-Leader

Bringing a strategic perspective to clients. Accomplished speaker and presenter. Passions include playing tennis, guitar and cycling.

Contributors
Related topics Mining and metals