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Ernst & Young ’s Conclusions On The Canadian Mining Market Are Skewed
Ernst & Young has released the outcome of its quarterly Canadian Mining Eye index and there were some very interesting and surprising things to note. E&Y is happy that the total amount of raised money in the third quarter (C$1.4B) of this year was 4% higher than in Q2 2014 and more than twice the amount raised in Q3 2014. Wait, what? The entire mining sector is in an incredibly bad shape and E&Y sees the total amount of raised cash more than double compared to a year ago? Let’s have a closer look at those numbers.
It immediately becomes clear that the number is absolutely skewed. Almost C$550M of the raised cash was attributable to Franco Nevada which topped up its cash position before acquiring the La Candelaria silver and copper stream. Additionally, the second and fourth largest amounts raised during the quarter were caused by development stage companies raising C$125M. This means that almost half of the cash raised in Q3 2014 was attributable to three advanced stage companies. This indicates there’s still money available for the mining sector, but it only reaches the highest tier of resource companies and the funding for exploration activities has been dried up completely.
What’s more important is the visualization of the decreasing importance of the mining sector on both the Toronto Stock Exchange and the TSX Venture Exchange by E&Y. Whereas the total value of the mining sector was C$500B by the end of 2010, this had decreased to just C$250B and that’s even after the huge capital raises conducted by the major mining companies. This puts us at roughly the same level as Q1 2009 when the sector was starting its revival. This obviously also had an impact on the importance of the mining sector for both indices, and indeed. Whereas the mining sector represented roughly 25% of the total value of the two main Canadian exchanges, this ratio has dropped to just 10% by the end of 2014.
Additionally, the amount of new listings hasn’t been this low in more than 7 years and even during the darkest days of the crisis in the mining sector in 2008 there were more new listings than in the past few quarters. This could be seen as a piece of evidence of how the mining sector in Canada has been completely spit out and ignored by investors. The situation is actually worse than in 2008.
There’s one final thought we’d like to share. The darkest time of the night is right before dawn. All indications are pointing to a current situation which is worse than in 2008. However, market participants can’t deny the situation has stabilized lately, and this could very well be a platform of support wherefrom the next leg up in the commodities market will start.
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Canadian dollar falling, headwind against non Candadian investors.
As we are seeing with Russia a declining if not collapsing currency is not pushing the equity index higher but instead creating a massive inflation. Canada's rates are way lower than Russia's obviously. Is one piece of refined nickel better than another?
We do have a massive energy boom in the USA. Might have to start exporting to Canada soon.
Be interesting to see if there is Sudden Debt in Texas soon as well.
The next leg up... perhaps, in a stable world with a future. PMs set at extraction cost... gold... or below extraction cost... silver... and there is no way that exploration companies can make a living.
The good news is that major minors have been forced to cut the fat from their operations and would/will bi in great shape to take advantage of an end to paper manipulation (this is also a time for them to gobble up smaller companies who are sitting on product, as the majors are pretty much out of the exploration business).
The bad news is that we are heading straight into world war, and I somehow do not see Canadian minors as the place to be accumulating assets... if you want gold and silver, purchase the metal and take delivery.
There will be no end to paper manipulation.