VANCOUVER (miningweekly.com) – The EY Canadian Mining Eye index has showed a fourth-quarter gain of more than 2% quarter-on-quarter, to 4%.
The increase in the Canadian Mining Eye index's performance suggests confidence in pursuing growth is returning to the sector, after an extended period of volatility, according to EY.
The value of transactions in Canada increased by 26.5% year-on-year in 2017 compared with 15% growth globally.
During the period, companies also benefitted from price tailwinds that saw gold gain 2% in the period, building on 3% gains in the prior period – and by 13% year-on-year in 2017 on the back of growing geopolitical risks.
EY data shows that base metal prices also saw increases owing to favourable demand and supply market conditions. Nickel rose by 22%, copper by 12% and zinc by 4% in the fourth quarter. Year-on-year, copper, nickel and zinc prices grew by 30%, 28% and 30%, respectively.
The report suggests gold prices will continue to rise in 2018, with the possibility of three rate hikes and the expectation for continued geopolitical volatility. Similarly, the outlook for base metals – particularly copper – remains optimistic, EY advised.
EY noted that one of the primary issues facing gold miners is depleting reserves.
It suggests mine exploration and an expansion of the project pipeline can help ameliorate the situation. According to EY, miners may consider replenishing pipelines through merger and acquisition (M&A) activity and collaboration with other companies. However, the majority of the miners suggest that large-scale deals may slow down, while consolidation across medium-sized to small-scale companies would continue this year.
EY expects Canadian miners to remain vigilant when it comes to cost discipline and prioritise growing reserves through advancing internal projects and new exploration. Further, they need to remain focused on capital structure optimisation and balance sheet health.
It is widely anticipated that gold prices will continue to rise this year, underscored by a somewhat lower possibility of three rate hikes in 2018, due to policy and fiscal uncertainty in the US and improving demand trends in both China and India. Growing geopolitical risks worldwide will continue to support gold prices.
With respect to base metals, copper prices are expected to increase this year, underscored by favourable demand and supply market conditions with an increased demand from emerging economies, particularly China. However, TD Securities is cautiously optimistic on copper prices this year, mainly owing to overdone demand and supply deficit not emerging as a real concern until 2019/20. In the longer run, copper prices are slated to benefit from an increased adoption of electric vehicles, according to EY.
Zinc prices are also expected to increase this year, on the back of tighter mine supply and improved underlying demand trends in China. However, some are of the view that zinc prices have had their run and expect a slowdown in the near term.
Nickel prices will be dominated by two major market usages, one in rechargeable batteries and the other in traditional stainless steel. In the short term, nickel prices are expected to increase on a deficit market and fairly robust Chinese stainless steel demand. In the long term, nickel prices are poised to benefit from the rapid adoption of electric vehicles, EY notes.
Meanwhile, the Oreninc Index fell in the week ending February 23, from 46.39 a week ago to 40.31, as financings continued to be scarce as Canada saw a four-day week as much of the country observed Family Day.
Only 13 deals opened during the week, which was the second in a row that there were more closings than openings. "The dearth of financings is even stranger considering that the Prospectors and Developers Association of Canada (PDAC), the largest mining show in the Americas, is just a week away," the junior mining finance data provider said.
Total fund raises announced fell even further to C$34.8-million, a five-week low, which included one brokered financing for C$21-million – a two-week high – and one bought-deal financing for C$21-million, also a two-week high. The average offer size fell to C$2.6-million, a four-week low, while the total number of financings fell to just 13, a 109-week low, Oreninc said.
One market subsector that does appear to be healthy is lithium, which accounted for five of the 21 closings, for some C$24.9-million of the C$73.5-million total closing dollars, or 33.8%.
EY had also recently published a report entitled 'Does cutting debt have to mean reducing your ambitions?', which focused on the industry's ability to satisfy the returns demanded by its investors.
It found that miners such as Barrick Gold, Goldcorp and First Quantum Minerals indicated further debt reductions in 2018, while balancing spending on internal projects and exploration. Barrick remains on track to reduce its debt obligation by $2.9-billion to $5-billion by 2018, of which $1.5-billion was repaid during the nine months ending the 2017 fiscal year.