4 minute read 28 Oct. 2020
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Positives for Canadian Mining Eye in Q3 2020

By Jay Patel

EY Canada Valuation, Modelling & Economics, EY Canada Mining & Metals Transactions and Valuations Leader

Relentlessly focused on helping clients seize opportunity and achieve potential, while managing risk. Business valuator. Analytics and automation enthusiast.

Contributors
4 minute read 28 Oct. 2020
Related topics Mining and metals

The Canadian Mining Eye index saw growth in Q3 2020. It increased by 10 percentage points in the quarter after 72% growth in the prior quarter.

Gold prices increased 7% in Q3 2020 after an 11% gain in the previous quarter, driven in part by weakness in the US dollar and the Fed’s decision to maintain a dovish stance. Base metals prices continued their growth momentum on the back of strong Chinese demand. Copper prices increased 11% after 22% growth in the previous quarter. Nickel prices witnessed growth of 14%, while zinc prices increased 17%.

Index comparisons
Q3 2020 Q2 2020
Canadian Mining Eye index 10%
72%
S&P/TSX Composite index 4% 16%
Major index 6% 44%

The sector has witnessed significant price volatility, even in the gold market. Price volatility has been influenced by various factors, such as slowing investor demand, an announcement by Russia of a COVID-19 vaccine breakthrough, sluggish demand and movement in the US dollar. Gold exchange traded funds witnessed net inflow of around 39 tonnes and 21 tonnes in August and mid-September, respectively, albeit at their slowest pace for 2020, reflecting a slowdown in investor demand for gold.

India and China, which account for around 50% of global demand, witnessed a decline in demand of 70% and 29% year on year, respectively in Q2 2020 on account of COVID-19 restrictions and increased gold prices.1

Central banks globally sold net 12.3 tonnes of gold in August, resulting in a net decline in central bank gold holdings for the first time in the last year and a half. Uzbekistan sold the largest quantity of gold, exporting around $5.8b worth in the first eight months of 2020.2

Iron ore prices reached a six-year high of around US$131/t in the first week of September, driven by a recovery in the Chinese economy coupled with supply disruptions. Export volumes from Brazil, the second-largest exporter of iron ore after Australia, declined due to a surge in COVID-19 cases in the country. Chinese iron ore imports grew by approximately 25% year on year in July on the back of strong demand from the steel industry, recovery in housing starts and infrastructure investments.3 Prices witnessed a correction towards the end of September on account of expected improvement in supply and lower than expected stainless steel demand.4

Nickel prices recovered from the weakness witnessed since the global COVID-19 outbreak and reached their November 2019 levels in August, driven by recovery in demand from China’s stainless steel industry. The prices witnessed volatility in September on account of movements in the US dollar and stock markets.5

Mining Eye index and peers, last 12 months
Mining Eye index, gold, copper, nickel, zinc and LME Index over Q3 2020

Outlook

Gold prices are expected to experience an uptick in the medium term underpinned by a low interest rate environment, fear among investors owing to the growing number of COVID-19 cases and the US presidential election campaign.6

Copper prices are expected to continue their upward trajectory in the near term on the back of robust Chinese demand and supply disruptions due to COVID-19.7

Nickel prices are expected to remain volatile in the short term driven by movement in the US dollar and economic uncertainty due to COVID-19.8

Zinc prices are expected to maintain their growth trajectory in the near term underpinned by rising Chinese refined zinc consumption. S&P Global Market Intelligence has revised its 2020 Chinese refined zinc consumption forecast by 39,000 tonnes to 6.61m tonnes.9

Iron ore prices may face downward pressure in the short term on account of expected improvement in Brazilian exports and stocks piled up in Chinese ports.10 In the long term, prices are expected to be supported by Chinese steel demand.

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 10 changes in index constituents in Q3 2020. SSR Mining was the new entrant in the Top 20 index. SSR Mining, Ely Gold Royalties, Gabriel Resources, GT Gold, Lucara Diamond, SEMAFO, Bluestone Resources, Mako Mining, Guyana Goldfields and Alacer Gold 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$287m and CDN$4.5b. 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. “Global Gold demand trends,” World Gold Council, September 14, 2020; “The new gold rush: western investors offset soft eastern demand,” Financial Times, September 28, 2020.
    2. “Central banks flip to gold sales after record rally,” Financial Times, October 7, 2020.
    3. “Consensus price forecasts — Chinese demand boom drives metals price recovery,” S&P Market Intelligence, September 9, 2020; “Iron ore prices have hit multi-year highs as demand soars on infrastructure investment,” CNBC, August 20, 2020.
    4. “Iron ore dips to multi-week lows as fundamentals weaken,” Reuters, September 17, 2020; “Commodity Monthly Iron Ore September 2020,” S&P Market Intelligence, September 24, 2020.
    5. “Commodity Monthly Nickel September 2020,” S&P Market Intelligence, September 16, 2020; “Consensus price forecasts — Chinese demand boom drives metals price recovery,” S&P Market Intelligence, September 9, 2020.
    6. Consensus price forecasts — Chinese demand boom drives metals price recovery,” S&P Market Intelligence, September 9, 2020; “Gold May Hit Record Before Year-End on U.S. Election Risk,” Bloomberg, September 23, 2020.
    7. “Commodity Monthly Copper September 2020,” S&P Market Intelligence, September 3, 2020; “Goldman’s favourite commodity has been on a tear, and could have further to run,” CNBC, September 7, 2020.
    8. “Commodity Monthly Nickel September 2020,” S&P Market Intelligence, September 16, 2020; “Canada Mining,” Acquisdata, September 10, 2020.
    9. “Commodity Monthly Zinc September 2020,” S&P Market Intelligence, September 22, 2020.
    10.  “Commodity Monthly Iron Ore September 2020,” S&P Market Intelligence, September 24, 2020.

     

Summary

The Canadian Mining Eye index saw growth in Q3 2020. It increased by 10 percentage points in the quarter after 72% growth in the prior quarter. Gold prices increased 7% in Q3 2020 after an 11% gain in the previous quarter, driven in part by weakness in the US dollar and the Fed’s decision to maintain a dovish stance. Base metals prices continued their growth momentum on the back of strong Chinese demand. Copper prices increased 11% after 22% growth in the previous quarter. Nickel prices witnessed growth of 14%, while zinc prices increased 17%.

About this article

By Jay Patel

EY Canada Valuation, Modelling & Economics, EY Canada Mining & Metals Transactions and Valuations Leader

Relentlessly focused on helping clients seize opportunity and achieve potential, while managing risk. Business valuator. Analytics and automation enthusiast.

Contributors
Related topics Mining and metals