4 minute read 31 Jan 2020
EY - Underground mine

Positives for Canadian Mining Eye in Q4 2019

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 31 Jan 2020
Related topics Mining and metals

The Canadian Mining Eye index increased by 11 percentage points in Q4 2019 compared to a 3 percentage point decline in Q3.

The Canadian Mining Eye index saw growth in Q4 2019. It increased by 11 percentage points in the quarter, as compared with a 3 percentage point decline in Q3 2019.

Gold prices increased 3% in Q4 2019 after a 4% gain in the previous quarter, driven in part by the US Federal Reserve’s dovish stance. Meanwhile, nickel prices decreased 19% after a 36% gain in the previous quarter. In other commodities, copper prices experienced an 8% increase while zinc prices declined 6%.

Index comparisons
Q4 2019 Q3 2019
Canadian Mining Eye index 11%
-3%
UK Mining Eye
-5%
2%
S&P/TSX Composite index 2% 2%
Major index 10% 3%

Major investment banks such as Jefferies, Goldman Sachs, Citi and Morgan Stanley expect copper to rise in 2020. According to Jefferies, factors such as low inventories, supply constraints and growing demand are expected to benefit copper prices over the year. Goldman Sachs also suggests that copper demand in China will increase with growth in the property sector and grid investments due to the Government’s recent infrastructure stimulus.1 Furthermore, DBS Bank expects global copper demand to recover from a 1.4% decline in 2019 to 2% growth in 2020 underpinned by stimulus provided by major countries such as China, Germany and the US.2

According to a report by S&P Global Market Intelligence, global copper exploration budget increased by 12% to US$2.32b in 2019 as a result of increased exploration in Australia, Chile and the US. In 2020, exploration spending is expected to be supported by higher demand from China.3

Canadian Mining Eye Index and peers, last 12 months
Canadian Mining Eye Index, gold, copper and LME Index over Q4 2019

Outlook

Gold prices are expected to maintain their positive momentum in the near term due to the US Federal Reserve’s stance and negative interest rate policy adopted by jurisdictions such as Japan, Europe and Switzerland. US-China trade negotiations, global growth in 2020 and geopolitical issues are all likely to create volatility in gold prices.4

Copper prices on the other hand are expected to experience an uptick in the medium term underpinned by limited production capacity and increasing demand from electric vehicles and green energy projects.5

Nickel prices are likely to maintain elevated levels as the current supply deficit is expected to continue in 2020. However, the deficit is expected to decline from current levels over the medium to long term.6

Zinc prices may face downward pressure as a result of expected surplus in the near term. International Lead and Zinc Study Group expects a surplus of 192,000 tonnes in 2020, as compared with a deficit of 178,000 tonnes in 2019, on the back of higher production from Chinese smelters.7

While the outlook for base metal prices at the start of 2020 was favourable, the coronavirus is creating uncertainty, which we expect will impact the expectations discussed above as the year unfolds.

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

There were 13 changes in index constituents in Q4 2019. Katanga Mining Limited, NovaGold Resources and First Majestic Silver were the new entrants in the Top 20 index. Katanga Mining Limited, NovaGold Resources, First Majestic Silver, North American Palladium, Cobalt 27 Capital, Barkerville Gold Mines, Sandfire Resources America, Clean TeQ Holdings Limited, Garibaldi Resources, Nemaska Lithium, Alphamin Resources, Fission Uranium and Cantex Mine Development 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 CA$176m and CA$3.1b. 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. “Copper tapped as the next big metals trade of 2020,” Mining.com, 17 December 2019.
    2. “Copper,” DBS Bank, 25 November 2019.
    3. “Copper budgets grow 12% YOY, driven by Chile, US and Australia,” S&P Market Intelligence, 11 December 2019.
    4. “Gold Price Forecast 2020: XAU/USD bulls likely to remain in control,” FxStreet, 20 December 2019.
    5. “Copper Outlook 2020: Political Unrest to Drive Prices,” Investing News, 19 December 2019.
    6. “Metals & Mining ,” ScotiaBank, 13 January 2020.
    7. “Zinc and lead supply hits push expected surpluses into 2020,” Reuters, 4 November 2019; “Global zinc supply set to surge in 2020,” Argus Media, 30 December 2019.

Summary

The Canadian Mining Eye index saw growth in Q4 2019. It increased by 11 percentage points in the quarter, as compared with a 3 percentage point decline in Q3 2019. Gold prices increased 3% in Q4 2019 after a 4% gain in the previous quarter, driven in part by the US Federal Reserve’s dovish stance. Meanwhile, nickel prices decreased 19% after a 36% gain in the previous quarter. In other commodities, copper prices experienced an 8% increase while zinc prices declined 6%.

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