Canadian miners resilient as globe struggles through pandemic

23 July 2020 Consulting.ca

Canadian and global miners entered the pandemic period in a good position, with strong balance sheets and improved liquidity, according to a recent report from PwC Canada.

The revenues for the world’s 40 largest mining companies by market capitalization rose 4% to US$692 billion in 2019. Similar to last year, there were six Canadian mining firms on the list. The Canadian companies reported a net profit margin of 19% compared to 9% for the global top 40.

Gold miners represented four of the six top Canadian firms. Kincross Gold Corp. returned to the ranking at #40, after posting increased revenues, earnings, and margins. Goldcorp exited the ranking because of its acquisition by US-based Newmont Mining Corp.

Barrick Gold remained the top Canadian firm, rising two spots to ninth place, while Agnico Eagle Mines saw the largest jump in the rankings, from #24 in 2018 to #17 in 2019.

"The strong performance of Canada's largest mining companies in 2019 speaks to their continued progress in recent years," said Kevin Chan, national mining leader, PwC Canada. "While 2020 will be challenging, miners' resilience during COVID-19 should help them manage through the coming months and position them to make investments needed for long-term success."

The global top 40 mining companies

PwC says that miners have generally weathered the pandemic quite well, with mines in Canada and other countries continuing to operate because of their essential status. Nonetheless, commodity prices have taken a hit in the downturn, with sizable price declines for base metals in Q1.

In order to weather the storm and position themselves for long-term growth, PwC says that companies should target efforts in cybersecurity; environmental, social, and governance (ESG); and mergers and acquisitions.

There is a potential blind spot on cybersecurity in the industry, with only 57% of mining and metals CEOS expressing concern about cyber threats compared to 73% of CEOs across all industries, according to PwC’s 2020 CEO Survey. Since mining companies don’t collect customer data in the same way as other companies, they may view cybersecurity as a lower threat.

However, as miners adopt automation and connected operational technologies, they open themselves to vulnerabilities. Since these systems are connected to corporate networks and control critical infrastructure, an attack could have severe consequences. PwC recommends building a comprehensive cyber risk management program which includes a cyber incident response plan.

As noted in the consulting firm’s report on the BC mining sector, strong ESG standards can help boost bottom lines and resilience. For example, miners’ strong records on community engagement was critical to securing the social license to keep operating during the pandemic, according to PwC.

In terms of standards, Teck recently committed to carbon neutrality across its operations by 2050. However, mining firms have a long way to go in the ESG area. PwC found that only 11 of the top 40 firms are doing enough to prioritize ESG matters via commitments, reporting, and linking executive performance to ESG targets. Two of those 11 firms are Canadian.

M&A, meanwhile, offers an opportunity to attract capital and emerge stronger from the pandemic downturn. Four of the five megadeals in 2019 involved Canadian companies, with the largest being Newmont’s purchase of Goldcorp and Kirkland Lake Gold’s purchase of Detour Gold. Even as deals slowed this year, the largest transaction was the proposed merger of Canadian firms SSR Mining and Alacer Gold for US$2.4 billion.

PwC doesn’t expect many deals in 2020 as companies look to conserve cash and the uncertain economic environment makes valuations tougher. There will still be a place for smaller deals which are geared at increasing capital markets profiles and attracting investor interest, however.


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