E&B DATA’s Canada Mining Watch

October 12, 2012

 

Canada’s portfolio of blue-chip minerals could be a good bet during the next market correction

Even though mineral exploration in Canada has slowed due to the financing difficulties experienced by junior exploration firms, no major capital-investment project has been put on hold. Even if some projects were to be put on hold, though, Canada’s diversified mix of minerals would prevent a domino effect.

Diversified mix

Of the 70 or so announced major capital projects (valued at $500 million or more) in Canada’s mining sector, approximately 50% involve base metals  (including iron, copper, nickel, zinc), 20% involve agricultural minerals (potash), 15% involve precious metals and minerals (e.g. gold, silver, diamonds), 8% involve strategic minerals such as rare earths and 7% involve energy minerals (uranium, coal). This diversification should help the large pool of Canadian mining suppliers remain busy even if the prices for some minerals continue to decline.

A blue-chip portfolio

Overall, prices for Canada’s mineral resources are higher than various commodity indices. Two elements help explain this performance:

• Canada’s strong position in ‘refuge’ minerals, in gold projects of course, but also in strategic minerals where Canada is carving a new international niche (rare earths extraction and refining).

• Canada’s strong position in commodities with long-term world demand, rather than those dependent on clients in China, where growth is increasingly sluggish. Demand for potash, for instance, will increase to support the expected 60% growth in agricultural production by 2050. Demand for uranium is also expected to increase; while Western countries seem increasingly ambivalent regarding nuclear energy, Asian countries (China, Vietnam, South Korea in particular) are busy building new nuclear plants, with no less than 37 new projects underway.

The resilience of Canada’s mining sector also springs from other factors, such as a favourable environment for energy development (competitive prices, diversified and abundant sources, positive trade balance), as well as exceptional economic and political stability.