4 minute read 28 Jan. 2021
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Positives for Canadian Mining Eye in Q4 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 Jan. 2021
Related topics Mining and metals

The Canadian Mining Eye index saw growth in Q4 2020. It increased by 9 percentage points in the quarter after 10% growth in the prior quarter. 

Gold prices remained at $1,900 levels at the end of the quarter, witnessing a slight decline of 0.1% in Q4 2020, driven by vaccine breakthroughs and a weaker US dollar. Base metal prices continued their growth momentum on the back of strong Chinese demand. Copper prices increased 16% after an 11% increase in the previous quarter. Nickel prices and zinc prices each experienced an increase of 14%.

Index comparisons
Q4 2020 Q3 2020
Canadian Mining Eye index 9%
10%
S&P/TSX Composite index 8% 4%
Major index -7% 6%

Economists around the world expect US inflation to rise in the coming months as the global economy recovers from the COVID-19 pandemic, supported by various governments’ fiscal and monetary stimulus initiatives.1 Research houses such as Goldman Sachs and Citigroup foresee inflation to push above 2% in the first half of 2021 before settling down closer to the 2% level by end of the year.2

Inflation expectations have also been fuelled by recent advances in metal prices on the back of a weakening US dollar and the Federal Reserve’s announcement of the extension of its emergency bond purchasing program.3

Copper prices reached a seven-year high in December 2020 amid increasing demand from China and growing optimism regarding a global economic recovery with positive developments in COVID-19 vaccines. Copper prices have been further supported by expectations of government stimulus packages such as China’s new five-year plan for greener production, Europe’s Green Deal and US President Joe Biden’s planned package.4

Iron ore prices advanced to 2011 levels in December 2020, underpinned by strong demand from China’s steel industry and tightened supply. Iron ore supply has been hampered by the Vale’s ongoing issues related to reopening of tailing dams, resulting in supply deficit conditions.5

Zinc and nickel prices continued their growth momentum supported by vaccine rollout breakthroughs and growing Chinese consumption.6

Mining Eye index and peers, last 12 months
Mining Eye index, gold, copper, nickel, zinc and LME Index over Q4 2020

Outlook

Gold prices are expected to remain positive in the near term, supported by the weaker US dollar, inflation expectations and declining real yields. Improving consumer demand in countries such as India and China is expected to further support prices.7

At the same time, positive breakthrough on COVID-19 vaccines along with strong Chinese demand are expected to continue to support base metals prices in the near term.

Copper prices are likely to maintain their growth trajectory on the back of an expected recovery in the global economy and market deficit conditions. S&P Global Market Intelligence expects the copper market to be in a deficit of 87,000 tonnes in 2021 driven by strong Chinese market demand.8

Nickel prices are expected to remain bullish in the near term, triggered by the global economic recovery and accelerated production of electric vehicles.9 Zinc prices should also remain elevated owing to Chinese demand.

Iron ore prices are also expected to remain high in the short term driven by tight supply conditions. The global iron ore market is expected to remain in deficit in the medium term amid a slower ramp-up in Brazilian exports and strong Chinese stainless-steel demand.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 10 changes in index constituents in Q4 2020. Newcrest Mining Limited was the new entrant in the Top 20 index. Northern Dynasty Minerals, Galiano Gold, First Mining Gold, Gold Standard Ventures, Abitibi Royalties, Freegold Ventures Limited, Chesapeake Gold, Lumina Gold, Auryn Resources and Minera Alamos 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$334m and CDN$4.4b. 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. “Inflation debate looms large over US market outlook,” Financial Times, December 12, 2020.
    2. “Inflation is poised to rear its head in 2021 but may not stick around long,” CNBC, December 30, 2020.
    3. “Consensus price forecasts — Vaccine rollout injects optimism,” S&P Market Intelligence, January 8, 2020.
    4. “Commodity Monthly Copper December 2020,” S&P Market Intelligence, December 4, 2020; “Inflation Fear and Green Hope Drive Investors into Copper,” Bloomberg, November 30, 2020.
    5. “Iron ore price leaps to highest since 2011,” Mining.com, December 18, 2020; “Commodity Monthly Iron Ore December 2020,” S&P Market Intelligence, December 16, 2020.
    6. “Commodity Monthly Nickel December 2020,” S&P Market Intelligence, December 18, 2020; “Commodity Monthly Zinc December 2020,” S&P Market Intelligence, December 10, 2020.
    7. “Gold's big year slows near end, but market observers optimistic for 2021,” S&P Market Intelligence, December 11, 2020; “Gold Sector review,” Credit Suisse, December 16, 2020.
    8. “Commodity Monthly Copper December 2020,” S&P Market Intelligence, December 4, 2020; “Copper Outlook 2021: Prices to Remain High and Volatile,” Investing News, December 15, 2020.
    9. “Commodity Monthly Nickel December 2020,” S&P Market Intelligence, December 18, 2020.
    10. “Commodity Monthly Iron Ore December 2020,” S&P Market Intelligence, December 16, 2020.

Summary

The Canadian Mining Eye index saw growth in Q4 2020. It increased by 9 percentage points in the quarter after 10% growth in the prior quarter.

Gold prices remained at $1,900 levels at the end of the quarter, witnessing a slight decline of 0.1% in Q4 2020, driven by vaccine breakthroughs and a weaker US dollar. Base metal prices continued their growth momentum on the back of strong Chinese demand. Copper prices increased 16% after an 11% increase in the previous quarter. Nickel prices and zinc prices each experienced an increase of 14%.

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