Canadian mining equities fared poorly 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.
"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."
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.