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EY says Canadian miners can be more optimistic about 2019

22nd February 2019

By: Mariaan Webb

Creamer Media Senior Deputy Editor Online

     

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The Canadian mining sector continued to face challenges in the final quarter of 2018, as a Chinese economic slowdown weighed on commodity prices, but advisory firm EY says there is reason to be optimistic for 2019.

The EY Canadian Mining Eye index, which tracks the Canadian mining sector performance of 100 TSX- and TSX-V-listed midtier and junior companies with market capitalisations falling between C$158-million and C$2.2-billion, fell by 2% in the fourth quarter, following a 12% decrease in the third quarter.

The UK Mining Eye and the S&P/TSX Composite index also fell during the final three months of the year, although the Major index, which tracks the top 20 TSX-listed mining companies, turned its 16% decrease of the third quarter to a 7% increase.

2018 was characterised by considerable volatility in some of the commodities. Citing a recent study by Scotiabank, EY states that industrial and precious commodities declined by about 12% by mid-December. In stark contrast, cobalt prices declined by 24% in the same period as compared with growth of 127% in 2017. The decline in 2018 was primarily owing to weakness in the Chinese electric vehicle (EV) market owing to the rollback of consumer subsidies, coupled with the addition of new production capacity.

In the fourth quarter, nickel prices decreased by 15%, compared with a 16% decline in the third quarter, while copper and zinc both fell by 5% in the December quarter.

Following two consecutive quarterly declines of 5% in the second and fourth quarter, gold increased by 8% in the final quarter of 2018, owing to the weakness in global stock markets, uncertainty over future economic growth and a possible likelihood of fewer than three US Federal Reserve interest rate hikes in 2019.

"The challenges we saw last year with global commodity prices are, in part, due to a slowdown in the Chinese economy near the end of 2018,” says EY Canada mining and metals transactions leader says Jay Patel.

“Although Canadians can anticipate more positive pricing in the near term, slower growth is expected to continue in China over the coming year, and will inevitably have an impact on global commodity prices.”

Nevertheless, EY is optimistic that better days are ahead for the Canadian mining sector, noting that rising demand for nickel from the stainless steel sector and the EV battery market, coupled with fewer new production projects, should boost prices in the near term.

The outlook for copper and zinc is also favourable following supply constraints and tight market conditions.

EY Canada mining and metals leader Jeff Swinoga notes that mining companies will have to continue to work towards reinventing itself this year.

“Strategic transactions, refocusing on quality deposits and, of course, digital transformation are top of mind as the mining and metals industry continues to work toward reinventing itself this year,” he says.

Citing an EY report looking at the top ten business risks facing mining and metals in 2019/20, Swinoga adds that the licence to operate is the number-one risk facing the sector – up from seventh position in 2019 – in response to a shifting stakeholder landscape.

New to the top 10 risk radar this year is the future of the workforce. The Mining Industry Human Resources Council estimates that the sector will require 97 450 to 135 230 workers over the next decade to meet industry demands. Production occupations are expected to have the largest hiring demand, accounting for about 25% of the total hiring requirement in the industry.

Meanwhile, demand continues to grow for workers from science, technology, engineering and math backgrounds.

“Miners must make certain they have the right talent with experience and skills fit for a digital future,” EY says.

 

Edited by Creamer Media Reporter

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