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No relief for Canada's BC as PwC expects challenges to continue into 2015

6th May 2015

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

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TORONTO (miningweekly.com) – British Columbia's (BC's) mining sector was not showing any early signs of improvement in 2015; however, investment in the mining industry needed to continue despite today's challenging conditions, advised PwC's BC mining practice partner and leader, Mark Platt.

"Miners need to keep exploring if they are to find the discoveries today that will be developed into the mines of tomorrow. This is the only way to ensure the industry remains competitive in the long term,” he said in PwC's yearly ‘BC Mining Industry Survey’.

The professional services firm expected this year to be another challenging year for metal and coal prices. While some metals would fare better than others, miners would continue to manage their costs to reflect the ongoing downturn in the cycle and were expected to treat any price recovery with great caution.

The impact of several mines being put into care and maintenance during 2013 and 2014 would also be seen in full in the 2015 numbers. While the position of these mines was not good news for the economic growth in BC's mining industry, other mines continued to move toward production.

Although, survey respondents revealed that exploration and development expenditure in 2014 had increased to $234-million from $185-million in 2013, but this was still below the $305-million spent in 2012.

Many miners were also holding up relatively well, despite lower prices for their commodities. PwC's latest ‘Junior Mine Report’, which looked at the top 100 mining companies by market capitalisation on the TSX-V, showed that the environment was tough for juniors today, but their grit and determination could soon pay off.

According to the 2014 Junior Mine Report, the Top 100 raised $685-million through equity financing in the 12-month period ended June 30, 2014, which was down from $795-million a year earlier.

CHALLENGES FACED

The unabated drop in the price of several critical commodities had kept the BC mining industry under financial pressure during 2014, with the PwC survey finding that lower metallurgical coal and copper prices, in particular, led to reduced revenues and margins.

It further revealed that total gross mining revenues fell to $8.2-billion in 2014 from $8.5-billion in 2013. Net income before taxes came in at $288-million, down considerably from $1.4-billion in 2013, amid a drop in prices for key metals produced in the province, particularly coal.

Spending also fell as companies continued to hunker down and weather the ongoing market volatility. Capital expenditures (capex), for example, fell to $1.5-billion, compared with capex of $1.8-billion the year before.

"In 2014, we saw investment in BC's mining industry remain depressed as prices for its key commodities, metallurgical coal and copper, remained soft. Producers and developers continue to take measures to contain costs, but at least producers felt some relief from the impact of the significant weakening of the Canadian dollar compared to the US dollar,” commented Platt.

COMMODITY PRICING
According to PwC, supply and demand were the critical factors impacting commodity prices in 2014. However, prices were also influenced by the strengthening US dollar and concerns about an economic slowdown in China, one of the world's largest consumers of copper, coal and zinc.

While most commodity prices were still well above the levels seen during the 2008 and 2009 global recession, they remained down considerably from record or near-record highs set in 2011.

The drop in metallurgical coal prices had the biggest impact on mining activity in BC in 2014 and a handful of coal mines were put on care and maintenance during the year as a result of lower prices.

The price of metallurgical coal had fallen below $100/t during spring, down from the record $330/t in 2011, mainly owing to oversupply of the steelmaking ingredient in the global market and a slowdown in China's economic growth.

Copper was performing well for most of 2014, but then fell below $3/lb towards the end of the year, amid concerns of oversupply. This was a drop of more than $1/lb compared with early 2011, when copper traded at a record of just more than $4.60/lb.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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