EY's Canadian mining index jumps 10% in third quarter

EY’s Canadian Mining Eye index increased by 10% in Q3 2020, after posting a 72% increase in Q2 following a pandemic-fueled collapse in the first quarter. The index tracks the performance of 100 TSX and TSXV mid-tier and junior mining firms.

Gold and base metal prices have continued their rally since the EY index dropped 27% in Q1 2020.

Gold prices grew 7% in Q3 after an 11% gain in Q2, driven by a weak US dollar and a “dovish” stance from the Fed. The gold market has seen significant price volatility, however, in part due to sluggish demand from India and China, which account for half of global gold demand. India and China saw a 70% and 29% drop in demand in Q2 2020 year-over-year (YoY), respectively, because of pandemic restrictions and higher gold prices.

Base metals, meanwhile, continued their growth on the back of strong Chinese demand. Copper prices grew 11% in Q3 (vs 22% in Q2); zinc prices grew 17% (vs 7% in Q2); and nickel prices grew 14% (vs 12% in Q2).

Nickel prices in August rebounded to November 2019 levels, driven by demand from China’s stainless steel industry.

Iron ore prices reached a six-week high in the first week of September due to a recovering Chinese economy and supply disruptions. Brazil, the second-largest iron ore producer, saw export volumes decline because of a Covid-19 surge, while Chinese iron ore imports grew by 25% YoY in July because of housing starts, infrastructure investment, and steel industry demand growth. Prices corrected at the end of September because of an expected improvement in supply.

Future outlook

The EY Mining Eye report expects gold prices to grow in the medium term because of low interest rates and investor fear. “A switch back to higher prices is on the horizon as we enter the second wave of COVID-19 and a renewed upswing in demand as fears mount over increasing cases and investors turn to a safe haven for investments,” said Jay Patel, EY Canada mining & metals strategy and transactions leader.

Copper and zinc are projected to keep growing in the near term because of robust Chinese demand.

Nickel prices, meanwhile, are expected to be volatile in the near term because of movement in the US dollar and economic uncertainty stemming from the pandemic.

Iron ore could face short-term downward pressure because of Chinese stockpiles and an increase in Brazilian exports.