Canadian miners need to create value as M&A picks up

Canadian miners minimized disruption at the start of the Covid-19 pandemic by acting quickly and decisively, leaving many in a good position to benefit from rising commodities prices, particularly gold, copper and iron ore, according to a new PwC report.

Over the past 18 months, companies streamlined communications, adjusted on-site work schedules to limit potential exposure, introduced new protective gear, directed technical and support staff to work from home and collaborated with industry associations to share information to better protect people from the virus. They also supported local communities through donations and rapid-testing programs.

This agility helped Canadian miners benefit from metals prices that began to rise last year and have generally remained strong in 2021, the PwC report shows. Canada’s mining sector has continued to thrive after the initial uncertainty of the pandemic gave way to resumed operations and a recovery for commodity prices that has delivered gains to investors throughout much of 2020 and into 2021, PWC says.

Gold hit record highs above US$2,000 per ounce in August 2020 before settling down at an average US$1,771 per oz. for the year, a substantial increase from the US$1,394 per oz. it averaged in 2019. The spot price for the precious metal reached a similar level last month — US$1,756.95 per ounce.

This year has already seen some key mergers in the sector, including the recent US$10.7 billion tie-up between gold miners Agnico Eagle Mines and Kirkland Lake Gold.

The standout performer among commodities has been copper, a key ingredient in the ongoing shift to renewable energy infrastructure. Prices for the metal averaged US$2.81 a lb. last year, compared to US$2.72 per lb. in 2019, and have continued their upward trajectory this year, hitting a record high in May.

The spot price for the industrial metal hit US$4.06 a lb. in the last week of September and the PwC analysts expect the strong pricing environment for copper to continue amid high demand for the metal.

“Canadian miners have built on their successes in navigating the Covid-19 pandemic to continue growing in 2021,” says Kevin Chan, PwC Canada’s National Mining Leader. “With cash on hand and conditions looking favorable for further growth, now is the time to act boldly in embracing the next stage of change and transformation.”

The authors of the report highlight four issues that should be on the agendas of Canadian miners in the year to come.

One is how to accelerate the adoption of transformative technologies, such as artificial intelligence, data analytics and cloud computing.

The second element relates to playing a key role in the shift to a low-carbon economy and incorporate environmental, social and governance (ESG) principles into their strategies.

Mining companies should also consider how to create value in a market that is ripe for consolidation, as recent mergers including Fortuna Silver – Roxgold, Yamana Gold – Monarch, Endeavour Mining – Teranga,  Equinox Gold – Premier, and Agnico Eagles – TMAC Resources have showed. 

Finally, the report calls on Canadian miners to evaluate the possibility of geopolitical changes amid a complex business landscape that’s creating both challenges and new opportunities for the industry.