Life hasn’t come back to Canada’s mining sector just yet — report

Life hasn’t come back to Canada’s mining sector just yet — reportCanadian mining equities didn’t fare great again in Ernst & Young's most recent Canadian Mining Eye report, with the index dropping 1% in Q1 2015, yet much better than in the same period last year, which saw a 12% decline.

The index — which tracks Canadian mining sector performance of 100 TSX and TSXV mid-tier and junior companies with market capitalizations between $2.1bn and $160m — reveals that most players are still working on controlling expenses, as declining grades continue to put pressure on costs.

Life hasn’t come back to Canada’s mining sector just yet — report

Source: Ernst & Young Q1 2015 Canadian Mining Eye.

"Things like fluctuating commodity prices, stretched balance sheets and exploration shutdown are all challenging miners," says Bruce Sprague, EY's Canadian Mining & Metals Leader. "But with challenges come opportunity. We're seeing many mining companies putting efforts into streamlining inventory, optimizing working capital, divesting non-core assets and strengthening their focus on portfolio management."

Life hasn’t come back to Canada’s mining sector just yet — report

Source: Ernst & Young Q1 2015 Canadian Mining Eye.

These are the main trends highlighted in the report:

  • Base metals experienced negative returns due to weak Chinese demand.
  • The iron ore price index was down by 28% to US$51.40, the lowest since 2005.
  • Companies are aiming to reduce capex, lower costs and strengthen their balance sheets in order to survive amid falling commodity prices.
  • The valuation differential between precious metal producers and developers helped to stimulate M&A activity.
  • During the period of higher gold prices in January, there was a surge in bought-deal financing activity.

Signs of life are more dominant among major miners, says E&Y. The group witnessed an increase of 4% in Q1 2015 compared to a 9% decrease in Q4 2014.

You can read the full report here.