Canadian Mining Eye started 2017 on a positive note - ey.comFI… · Canadian Mining Eye started...
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Canadian Mining Eye started 2017 on a positive note The Canadian mining industry is off to a strong start in 2017. The Canadian Mining Eye index’s increase was predominantly due to strength in lead, zinc, gold and copper prices, offset partially by a weakness in coal. The majority of Canadian mining companies finished 2016 with strong operating performance which met or exceeded their respective production guidance. In addition, all-in sustaining cost (AISC) came in lower than expected, which helped improve free cash flow. In 2017, mining companies are looking to further strengthen their balance sheet position by reducing net debt while improving cash flow. Barrick intends to reduce its total debt by US$2.9b to US$5b by 2018. 1 It is widely anticipated that investment spending in both existing and new projects within the mining industry will increase in 2017. 2 Companies such as Goldcorp Inc., Teck Resources, Barrick Gold Corporation, and Agnico Eagle Mines expect higher capital spending in 2017 compared to 2016. In February 2017, EY released a report on M&A and capital raising - 2016 trends, 2017 outlook. In Canada, there was healthy growth of 16% in mining deal volume in 2016 and the transaction market is expected to remain positive in 2017. However, the total transaction market size was flat year-over-year. Smaller deals came out on top last year and we expect this trend to continue in 2017. 3 A renewed optimism in the deal market stems from the positive outlook of Canadian Mining Eye Q1 2017 1 “Q4 2016 earnings results report,” Barrick Gold Corporation, 15 February 2017. 2 “A return to optimism in mining puts Canada at a crossroads,” The Northern Miner, 16 February 2017. 3 “2017 looks to be a good year for mining deals,” EY’s Quarterly Report on Mineral Mergers, 6 March 2017. Index comparisons Q1 2017 Q4 2016 Canadian Mining Eye index 11% 13% UK Mining Eye 12% 8% S&P/TSX Composite Metals and Mining index 8% 12% Major index 5% 6%
Transcript of Canadian Mining Eye started 2017 on a positive note - ey.comFI… · Canadian Mining Eye started...
Canadian Mining Eye started 2017 on a positive note
The Canadian mining industry is off to a strong start in 2017. The Canadian Mining Eye index’s increase was predominantly due to strength in lead, zinc, gold and copper prices, offset partially by a weakness in coal.
The majority of Canadian mining companies finished 2016 with strong operating performance which met or exceeded their respective production guidance. In addition, all-in sustaining cost (AISC) came in lower than expected, which helped improve free cash flow. In 2017, mining companies are looking to further strengthen their balance sheet position by reducing net debt while improving cash flow. Barrick intends to reduce its total debt by US$2.9b to US$5b by 2018.1 It is widely anticipated
that investment spending in both existing and new projects within the mining industry will increase in 2017.2 Companies such as Goldcorp Inc., Teck Resources, Barrick Gold Corporation, and Agnico Eagle Mines expect higher capital spending in 2017 compared to 2016.
In February 2017, EY released a report on M&A and capital raising - 2016 trends, 2017 outlook. In Canada, there was healthy growth of 16% in mining deal volume in 2016 and the transaction market is expected to remain positive in 2017. However, the total transaction market size was flat year-over-year. Smaller deals came out on top last year and we expect this trend to continue in 2017.3 A renewed optimism in the deal market stems from the positive outlook of
Canadian Mining EyeQ1 2017
1 “Q4 2016 earnings results report,” Barrick Gold Corporation, 15 February 2017.2 “A return to optimism in mining puts Canada at a crossroads,” The Northern Miner, 16 February 2017.3 “2017 looks to be a good year for mining deals,” EY’s Quarterly Report on Mineral Mergers, 6 March 2017.
Index comparisons Q1 2017 Q4 2016
Canadian Mining Eye index 11% 13%
UK Mining Eye 12% 8%
S&P/TSX Composite Metals and Mining index 8% 12%
Major index 5% 6%
2 | Canadian Mining Eye Q1 2017
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Source: EY, Thomson Datastream
Canadian Mining Eye UK Mining Eye (rebased)
FTSE All Share Mining (rebased) S&P/TSX Composite Metals & Mining (rebased)
S&P/ASX 300 Metals & Mining (rebased)
the mining industry, improving balance sheets for mining companies, and an appetite to invest in junior exploration companies rather than direct investment in greenfield exploration initiatives. Larger companies are also looking at sharing risk through more partnerships and joint venture (JV) opportunities. Recently, Goldcorp entered into a JV with Barrick Gold in Chile’s Maricunga region to share infrastructure and lower capital and operating costs. Additionally, RNC Minerals and Waterton announced a JV to acquire and develop nickel assets.4
Digitization continues to play an important role in enhancing productivity and efficiency at mines. Additionally, digital technologies are enabling mining companies to improve their decision-making abilities and enhance safety of miners at the workplace. In our recent report “Digital Disconnect: Problem or Pathway”, written from the operator’s perspective, expands on the potential benefits of digital to help exploit the number one operational opportunity in mining — productivity. It also explores the common pitfalls, which include lack of practical pathways to an aligned vision, unclear accountabilities and poorly defined digital business models.
On 22 March 2017, the Canadian finance minister, Bill Morneau, tabled his second budget and confirmed that the Mineral Exploration Tax Credit (METC) will continue to be available through March 2018. The tax credit stands at 15% of specified mineral exploration expenses incurred in Canada and is seen as a positive measure to spur spending in the sector, specifically for junior mineral exploration companies and their investors.5
• Gold: Following a decline of 12% in Q4 2016, gold prices increased 8% in Q1 2017. The strength was despite the recent Fed rate hike within the range of 0.75%-1.0% in March 2017, coupled with expectations of two to three more rate hikes in 2017.6
• Base metals: Copper prices increased 5% in Q1 2017 following 14% gains in Q4 2016. The continued positive trend is on the back of increased demand from China (key drivers including housing, automotive, air-conditioner sales) and in response to an anticipated increase in infrastructure spending in the US.7 Zinc prices increased 8% while nickel prices were flat in Q1 2017.
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Canadian Mining Eye index and peers, last 12 months
Source: EY, Thomson Datastream
Canadian Mining Eye UK Mining Eye (rebased)
FTSE All Share Mining (rebased) S&P/TSX Composite Metals & Mining (rebased)
S&P/ASX 300 Metals & Mining (rebased)
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4 “RNC Minerals Announces Joint Venture With Waterton To Acquire, Develop And Operate Nickel Assets”, RNC press release, 22 March 2017.
5 “PDAC welcomes support for mineral exploration and mining in Budget 2017,” The Prospectors & Developers Association of Canada, 22 March 2017.
6 “Fed Raises Interest Rates for Third Time Since Financial Crisis,” The New York Times, 15 March 2017. 7 “Global Commodities: Copper: Grid & Appliances lifting demand,” UBS, 14 February 2017; “Commodities Report:
Copper Update,” Natixis, 3 February 2017.
Canadian Mining Eye index, gold, copper and LMEX Index over Q1 2017
Canadian Mining Eye LMEX Index (rebased) Gold (rebased) Copper (rebased)
Source: EY, Thomson Datastream
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OutlookLooking ahead for 2017, gold prices are expected to continue the upward trend mainly driven by ongoing global geopolitical risks, constraint mine supply and increased demand. Geopolitical risks include uncertainties in policies under the new administration in the US and uncertainty surrounding upcoming elections in the Eurozone. Additionally, higher ETF investment is expected to support gold prices, coupled with increased demand for jewelry in India (accounting for 16% of the world’s consumption) driven by rising income growth. Headwinds include reduced demand from China (accounting for 23% of world’s consumption) and a possibility of further Fed rate hikes in mid-2017.8
On the base metals front, copper prices are still expected to increase in 2017 primarily due to increased demand from China (largely driven by grid and consumer appliances) and anticipated infrastructure investment spending in the US. Furthermore, on the supply side, contraction is expected to be positive for copper prices, supported in part by the recent disruptions in Escondida and Grasberg mines (both accounting for about 10% of global supply).9 With respect to zinc prices, the underlying fundamentals remain positive, driven by an uplift in infrastructure spending in China and prospective infrastructure investment plans in the US, supported in part by weak mine supply. The market dynamics for nickel prices are in balance with strength in consumption driven by growing demand for stainless steel (accounting for approximately 65% of nickel consumption), offset partially by uncertainty concerning lifting of the export ban of nickel ore in Indonesia.10
Canadian Mining Eye index, gold, copper and LMEX Index over Q1 2017
Canadian Mining Eye LMEX Index (rebased) Gold (rebased) Copper (rebased)
Source: EY, Thomson Datastream
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Video insightsLearn more about the digital disconnect from Iain Thompson, BC Mining & Metals Advisory Leader, EY.
8 “Gold Outlook: Gold to get its kicks from geopolitics,” HSBC Global Research, 9 February 2017; “Gold Sector Review: Q4/16 Gold Demand Trends Update”, 3 February 2017.
9 “Metals & Mining: Refreshing our Copper Menu as Upside Pricing Risk Grows,” Scotiabank, 6 March 2017; “Global Commodities: Copper: Grid & Appliances lifting demand,” UBS, 14 February 2017.
10 “Base Metals Drivers,” Societe Generale, 10 February 2017; “Commodities Special: Nickel’s many twists and turns ...take 2,” Deutsche Bank, 2 February 2017.
Canadian Mining Eye Q1 2017 | 3
4 | Canadian Mining Eye Q1 2017
Index constituents selected at quarter end
Q1 2017 MV (C$m)
Q1 2017 MV (C$m)
Q1 2017 MV (C$m)
Ivanhoe Mines 3,643 Premier Gold Mines 604 North American Palladium 313
Alamos Gold 3,191 Gold Standard Ventures 598 Victoria Gold 298
Pretium Resources 2,578 Richmont Mines 549 Platinum Group Metals 291
IAMGOLD 2,472 Sierra Metals 549 Sherritt International 277
Endeavour Mining 2,413 Imperial Metals 523 Ascot Resources 270
OceanaGold 2,409 Orocobre 515 Atalaya Mining 268
New Gold 2,285 Continental Gold 496 Mandalay Resources 266
Centerra Gold 2,228 Northern Dynasty Minerals 488 Anglo Pacific Group 259
Torex Gold Resources 2,091 Endeavour Silver 474 Lydian International 243
NovaGold Resources 2,078 Arizona Mining 464 Auryn Resources 241
Hudbay Minerals 2,074 Katanga Mining 454 Bear Creek Mining 235
Kirkland Lake Gold 1,992 Altius Minerals 448 Largo Resources 230
First Majestic Silver 1,780 Trevali Mining 440 NGEx Resources 209
Silver Standard Resources 1,686 Wesdome Gold Mines 392 GoldMining 205
Osisko Gold Royalties 1,575 Roxgold 391 Red Eagle Mining 204
MAG Silver 1,406 Capstone Mining 388 Jaguar Mining 200
Dominion Diamond 1,397 Dundee Precious Metals 379 Lumina Gold 199
TMAC Resources 1,371 Denison Mines 369 Alexco Resource 190
SEMAFO 1,303 Teranga Gold 361 Corsa Coal 189
Guyana Goldfields 1,231 First Mining Finance 361 AuRico Metals 185
McEwen Mining 1,215 Integra Gold 336 Kennady Diamonds 183
Lucara Diamond 1,181 Golden Star Resources 334 Maverix Metals 172
Fortuna Silver Mines 1,099 Nemaska Lithium 325 Western Copper and Gold 167
China Gold International Resources 1,058 Argonaut Gold 320 Chesapeake Gold 158
Nevsun Resources 1,032 Fission Uranium 318 Orla Mining 156
NexGen Energy 965 Champion Iron 316 Gabriel Resources 154
Klondex Mines 920 Taseko Mines 312 Midas Gold 146
Osisko Mining 893 Belo Sun Mining 310 Primero Mining 141
Sandstorm Gold 869 Great Panther Silver 294
Seabridge Gold 797 Brio Gold 284
Alacer Gold 788 Dalradian Resources 282 Total universe MV C$m 279,476
Silvercorp Metals 773 Sabina Gold & Silver 274 Top 20 MV C$m 198,161
Mountain Province Diamonds 761 Gold Reserve 336 Total universe excl Top 20 MV C$m 81,315
Lundin Gold 723 Perseus Mining 331 MV of Mining Eye constituents 76,993
Asanko Gold 623 Lithium Americas 315 MV of Mining Eye constituents as a % of MV of Total universe excl Top 20
95%
Stornoway Diamond 611 Polymet Mining 315
MV — Market value
Shading represents index entrants
Changes to the Mining Eye indexThere were 11 changes in index constituents in Q1 2017. Centamin moved to the Top 20 index. Paladin Energy, Barkerville Gold Mines, Timmins Gold, NewCastle Gold, West African Resources, Anfield Gold, Mason Graphite, Americas Silver, Bacanora Minerals, and Atlantic Gold exited the index and were replaced by index entrants highlighted in the table above.
Source: EY, TSX and TSXV Market Intelligence Group
Canadian Mining Eye Q1 2017 | 5
Index dataIn
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Mining Eye index and S&P/TSX Composite index performance, last 12 months
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Source: EY, Thomson Datastream
Mining Eye S&P/TSX Composite (rebased) Top 20 — TSX Mining
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If you would like to view the raw index data, please contact:
Jay Patel EY Canadian Mining & Metals Transactions Leader +1 416 943 3861
6 | Canadian Mining Eye Q1 2017
The Canadian Mining Eye tracks Canadian mining sector performance of 100 TSX and TSXV mid-tier and junior companies with market capitalizations, broadly falling between C$2.6b and C$106m. 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 comparatives purpose.
All company information is sourced from publicly available sources, including company websites and regulatory announcements.
Jay PatelCanadian Mining & Metals Transactions Leader Ernst & Young LLP+1 416 943 [email protected]
Canadian contactsJim MacLeanCanadian Mining & Metals Leader Ernst & Young Inc. +1 416 943 [email protected]
Blake LangillOntario Mining & Metals Leader Ernst & Young Inc. +1 416 943 3556 [email protected]
Zahid FazalQuebec Mining & Metals Leader Ernst & Young Inc.+1 514 879 [email protected]
Michelle GrantBC Mining & Metals Transactions Leader Ernst & Young Inc.+1 604 899 [email protected]
Theophile YameogoCanadian Mining & Metals Advisory Leader Ernst & Young Inc. +1 416 943 3832 [email protected]
Anton IvanyiBC Mining & Metals Leader Ernst & Young Inc. +1 604 891 8366 [email protected]
EY Global Mining & Metals Leader Miguel Zweig +55 11 2573 3363 [email protected]
Africa Wickus Botha +27 11 772 3386 [email protected]
Brazil Afonso Sartorio +55 11 2573 3074 [email protected]
Canada Jim MacLean +1 416 943 3674 [email protected]
Chile María Javiera Contreras +562 2676 1492 [email protected]
China and Mongolia Peter Markey +86 21 2228 2616 [email protected]
Commonwealth of Independent States Boris Yatsenko +7 495 755 98 60 [email protected]
France, Luxemburg, Maghreb, MENA Christian Mion +33 1 46 93 65 47 [email protected]
Japan Andrew Cowell +81 3 3503 3435 [email protected]
India Anjani Agrawal +91 22 6192 0150 [email protected]
Nordics Lasse Laurio +35 8 405 616 140 [email protected]
Oceania Scott Grimley +61 3 9655 2509 [email protected]
United Kingdom and Ireland Lee Downham +44 20 7951 2178 [email protected]
United States Bob Stall +1 404 817 5474 [email protected]
Service line contactsEY Global Advisory Leader Paul Mitchell +61 2 9248 5110 [email protected]
EY Global Assurance Leader Alexei Ivanov +495 228 3661 [email protected]
EY Global IFRS Leader Tracey Waring +61 3 9288 8638 [email protected]
EY Global Tax Leader Andrew van Dinter +61 3 8650 7589 [email protected]
EY Global Transactions Leader Lee Downham +44 20 7951 2178 [email protected]
EY Area contacts
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How EY’s Global Mining & Metals Network can help your businessWith increasingly positive sentiment in the sector, miners are focused on restoring balance sheet strength and liquidity in preparation for growth. The sector’s key opportunity is still productivity. Although many have made productivity improvements, the critical next wave of gains needs a strong focus on loss elimination, with digital being a key enabler.
EY has significant experience in assisting companies to evaluate and implement strategic initiatives, with deep sector knowledge to support you on finance initiatives, such as portfolio optimization and capital planning, and through to operational improvement programs, such as productivity and digital enablement.
