EY’s Canadian mining index increases by 9% in fourth quarter

EY’s Canadian Mining Eye index ended the year on a high note, rising 9% in Q4 2020. That followed a 10% jump in Q3 and a 72% increase in Q2 after a pandemic-fueled collapse in the first quarter. EY’s index tracks the performance of 100 TSX and TSXV mid-tier and junior mining firms.

Gold prices remained flat at $1,900 at the end of the year, seeing a slight decline of 0.1% driven by vaccine breakthroughs and a weaker US dollar. Gold prices are expected to remain positive in the near term, owing to inflation expectations and declining real yields.

The fiscal and monetary stimulus initiatives of global governments is expected to drive US inflation – with Goldman Sachs and Citigroup predicting inflation will breach 2% in the first half of 2021 before settling closer to 2% at the end of the year.

“We’re hearing from economists around the world that US inflation is expected to rise in the coming months on the back of global economic recovery, supported by various governments’ fiscal and monetary stimulus initiatives,” said Jay Patel, EY Canada mining & metals strategy and transactions leader. “With inflation pressures rising, we can anticipate continued demand for precious metals.”

Base metals continued to grow in the fourth quarter, driven by strong demand from China. Copper prices jumped 16% in Q4 after an 11% increase in Q3, while nickel and zinc prices grew by 14%.

Base metal prices are projected to continue increasing in the near term because of vaccination efforts and demand from China. Copper prices will maintain their growth trajectory, with an expected deficit of 87,000 tonnes according to S&P Global Market Intelligence. Nickel prices will remain bullish due to economic recovery and accelerating electric vehicle production.

“We’re already starting to see how expected government stimulus packages — such as China’s new five-year plan for greener production, Europe’s Green Deal, and the planned package from the US — are driving sustainable infrastructure development and, in turn, greater demand for base metals like copper,” Jeff Swinoga, EY Canada mining & metals co-leader, said. “Rare earth metals like nickel and cobalt are also benefitting from green-led initiatives, as the production of electric vehicles accelerates.”