4 minute read 29 Jul. 2020
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Positives for Canadian Mining Eye in Q2 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
4 minute read 29 Jul. 2020
Related topics Mining and metals

The Canadian Mining Eye index rebounded in Q2 2020. It increased by 72 percentage points in the quarter, compared with a thirty percentage points decline in the prior quarter.

Gold prices increased 11% in Q2 2020 after a 6% gain in the previous quarter, driven in part by the liquidity measures by global central banks. Base metals prices witnessed a rebound after a decline in the last quarter on the back of stimulus package announcement by the Chinese government. Copper prices increased 22% after a 20% decline in the previous quarter. Nickel prices witnessed growth of 12% while zinc prices increased 7%.

Index comparisons
Q2 2020 Q1 2020
Canadian Mining Eye index 72%
-30%
S&P/TSX Composite index 16% -22%
Major index 44% -13%

The recent deal announcement by SSR/Alacer Gold, along with the previous deals such as Barrick/Randgold, Equinox Gold/Leagold Mining and Argonaut Gold/Alio Gold, highlight a trend in M&A activity toward zero premium deals to obtain cost, operational and corporate synergies as well as more diversified portfolios.1 Recent analysis suggests the trend will continue in the future as buyers are expected to remain cautious and focus on minimizing costs and maximizing shareholder returns. Furthermore, the ongoing COVID-19 pandemic is expected to hamper investors’ ability to conduct due diligence at mining sites leaving investors reluctant to pay premiums for the acquisitions.2

The announcement of a stimulus package by the Chinese government and easing of lockdowns around the world, led to a rebound of base metals prices in June. Copper prices increased by approximately 35% compared with mid-March levels, driven by US Federal Reserve’s stimulus and expectations of increased Chinese demand. Prices have been further supported by tighter inventory as constrained supply offsets weak demand.3 Nickel prices have rebounded by approximately 10% from its lowest levels in March 2020 due to the Chinese government’s infrastructure stimulus package and expectations of recovery in the global economy.4 Zinc prices rebounded to their February 2020 pre-COVID-19 levels buoyed by demand from China.5

Gold prices continued their growth momentum and reached US$1,800 at the end of June, driven by ongoing fears of a steeper global economic downturn and massive liquidity measures by global central banks.6

Mining Eye index and peers, last 12 months
Mining Eye index, gold, copper, nickel, zinc and LME Index over Q2 2020

Outlook

Gold prices are expected to continue their upward trajectory, underpinned by weakness in the US Dollar, monetary stimulus from various governments, geopolitical tensions between India and China, the impact of the COVID-19 pandemic and low interest rates.7

Copper prices are expected to witness growth in the short term supported by the recent stimulus package announcement by the Chinese government and market deficit conditions.8

Nickel prices are expected to face downward pressure as a result of an expected surplus in 2020 - S&P Global Market Intelligence predicts a surplus of 100,000 tonnes in 2020, compared with a deficit of 33,000 tonnes in 2019, on account of lower stainless steel demand and stronger primary nickel output from Indonesia. Global nickel demand is expected to decrease by 8.5% to 2.2Mt in 2020.9

Zinc prices are expected to remain under pressure in the near term due to supply exceeding demand. In the long term, demand is expected to rise supported by increased government infrastructure spending.10

Index constituents and market value at the end of the quarter
Mining Eye index and S&P/TSX Composite index performance, last 12 months
Mining Eye index and S&P/TSX Composite index since 2008
Changes to the Canadian Mining Eye index

There were nine changes in index constituents in Q2 2020. Endeavour Mining Corporation was the new entrant in the Top 20 index. Endeavour Mining Corporation, Caledonia Mining Corporation, Gold Reserve, Sandfire Resources America, NioCorp Developments, Nevada Copper, Lion One Metals Limited, Midas Gold and Energy Fuels exited the index and were replaced by index entrants highlighted in the table above.

About this report

The Canadian Mining Eye tracks the 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$240m and CDN$3.6b. 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. “SSR Mining and Alacer Gold announce filing of Joint Management Information Circular,” SSR Mining and Alacer Gold, 09 June 2020; “Argonaut Gold & Alio Gold Agree to Friendly At-Market Mergers,” Argonaut Gold and Alio Gold, 30 March 2020.
    2. “Zero-Premium Mergers Becoming the New Normal Among Gold Miners,” Bloomberg, 10 June 2020; “Expect gold mining takeovers, but no takeover premiums,” The Globe and Mail, 31 May 2020.
    3. “Copper advances as latest Fed stimulus sparks buying spree,” Reuters, 16 June 2020.
    4. “Commodity Monthly Nickel June 2020,” S&P Market Intelligence, 18 June 2020.
    5. “Commodity Monthly Zinc June 2020,” S&P Market Intelligence, 12 June 2020.
    6. “Gold poised to challenge $1 800 as virus resurgence fans demand,” Mining News, 24 June 2020.
    7. “Goldman hikes gold price forecast on debasement fears and a weaker dollar,” CNBC, 19 June 2020.
    8. “Commodity Monthly Copper June 2020,” S&P Market Intelligence, 08 June 2020; “Bank of America ups copper forecast as red metal rises for a second straight month,” CNBC, 01 June 2020.
    9. “Commodity Monthly Nickel June 2020,” S&P Market Intelligence, 18 June 2020.
    10. “Commodity Monthly Zinc June 2020,” S&P Market Intelligence, 12 June 2020.

Summary

The Canadian Mining Eye index rebounded in Q2 2020. It increased by 72 percentage points in the quarter, compared with a thirty percentage points decline in the prior quarter.

Gold prices increased 11% in Q2 2020 after a 6% gain in the previous quarter, driven in part by the liquidity measures by global central banks. Base metals prices witnessed a rebound after a decline in the last quarter on the back of stimulus package announcement by the Chinese government. Copper prices increased 22% after a 20% decline in the previous quarter. Nickel prices witnessed growth of 12% while zinc prices increased 7%.

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