BMI View: Canada's mining sector will continue to feel the full force of the depression in global commodities markets over the coming quarters with the major mining groups for the most part retaining a conservative approach with regards to capacity levels and new investment. However, we believe the country is well placed to meet the upside when it comes, due to its well earned reputation as a world class destination for mining investment.
By most measures, Canada's mining industry is among the largest and most developed in the world with the country boasting extensive mineral minerals and metals resources that include sizeable precious metals deposits as well as large reserves of copper, nickel, zinc and iron ore. Miners are supported by a strong regulatory framework and world class infrastructure, while enjoying excellent access to capital and labour. As a consequence, the majority of the world's leading mining groups, including Vale, Rio Tinto, BHP Billiton and Glencore Xtrata, all have a significant presence in the country. The competitive landscape also includes a good mixture of internationally renowned domestic mining firms such as Barrick Gold, as well as junior miners.
Canada's mining sector has been the destination for significant foreign direct investment during the past few years, which has included the growing presence of Asian and emerging market mining groups. Moreover, there has been a push to develop the country's mining landscape beyond tradition centres of mining activity to relatively untapped regions closer to the Arctic Circle. This has convinced with a rise in transactional activity as the likes of Rio Tinto, Arcelor Mittal and Vale have sought to gain a steady foothold in the market through investing in local mining groups.
However, despite the inherent strengths of Canada's mining sector and the opportunities on offer for both local and multinational companies, the industry has not been immune from the recent downturn in global commodities markets as China and other major consumers have cut back on imports. This has lead to slowing production growth across a number of key sub-sectors, including gold, iron ore, nickel and zinc mining over the past few quarters. The higher start-up and operation costs of Canadian mining projects compared to other regions such as Latin America has led some multinationals to scale back or defer projects while, in some cases, also reducing capacity at exiting operations. Meanwhile, a number of junior miners have been forced to cease operations altogether amid falling profitability.
|Potash & Gold Remain On Top|
|Canada - Minerals By Value Of Total Sector Output, 2013 (%)|
|Source: Natural Resources Canada|
As 2015 draws to a close, prices of many commodities are showing signs of recovering or at least bottoming out, however, we expect many companies to retain a cautious approach to the coming months as they wait to see what direction prices will take over 2016. As such the project landscape remains sparser than it has been in many years, particularly in high-cost areas of mining such as iron ore. In light of this, our forecasts for the majority of the minerals we monitor point towards moderate levels of growth through the next few years through to 2019, with risk weighted very much to the downside.
|Positive But Modest Outlook|
|Canada - Mining Industry Value & Growth|
|e/f=BMI estimate/forecast. Source: BMI Calculation, Statistics Canada|