The mining and metals industry has fared “quite well” during the second quarter, despite the challenging landscape brought on by the Covid-19 pandemic, says professional services firm EY Canada mining and metals co-leader Jeff Swinoga.
“This is not the first time this sector has had to face adversity,” he said on Thursday, stating that having the right tools and strategies in place had helped the industry to weather the storm.
“With the easing of lockdowns, stimulus packages and liquidity measures by global central banks, organisations can start to switch gears towards growth and transformation,” Swinoga said, as EY released its Canadian Mining Eye index.
Coming from -30% in the first quarter, the index rebounded by 72% in the second quarter.
The Canadian Mining Eye is a report that tracks the Canadian mining sector performance of 100 TSX- and TSX-V-listed midtier and junior companies with market capitalisations at the quarter end falling between C$240-million and C$3.6-billion.
In comparison, the Standards & Poor’s/TSX composite metals and mining index rose from -22% in the first quarter, to 16% in the second quarter, while the Major index increased from -13%, to 44% for the period.
EY noted that gold prices increased by 11% in the second quarter, after a 6% gain in the previous quarter. The firm said this was likely to continue on an upward trajectory, underpinned by weakness in the US dollar, government stimulus, geopolitical tensions and low interest rates.
The report also shows that 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 merger and acquisition activity toward zero-premium deals to obtain cost, operational and corporate synergies as well as more diversified portfolios.
EY Canada mining and metals transactions leader Jay Patel said the trend of zero-premium deals would continue, as buyers remained cautious and focused on minimising costs and maximising shareholder returns.
Further, the ongoing Covid-19 pandemic was expected to hamper investors’ ability to conduct due diligence at mining sites leaving investors reluctant to pay premiums for the acquisitions.
The EY report further points to the announcement of a stimulus package by the Chinese government and easing of lockdowns around the world, leading to a rebound of base metals prices in June. Copper prices increased by about 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.
Nickel prices have rebounded by about 10% from its lowest levels in March as a result of the Chinese government’s infrastructure stimulus package and expectations of recovery in the global economy.
Zinc prices rebounded to their February, pre-Covid-19 levels buoyed by demand from China.
The report shows that gold prices continued their growth momentum and reached $1 800/oz at the end of June, driven by ongoing fears of a steeper global economic downturn and massive liquidity measures by global central banks.
Similarly, base metals also experienced an uptick with copper, nickel and zinc increasing by 22%, 12% and 7% respectively. EY notes that copper is likely to continue rising while nickel and zinc are due to experience downward pressure in the near-term.
Patel said increased demand from China, along with the government’s infrastructure stimulus package, was helping to stabilise commodity prices and drive transaction activity. “The good news is that Canada remains an attractive destination for foreign capital.”