One year ago, the share price for B.C.’s largest mining company, Teck Resources Ltd. (TSX:TECK.B), had fallen below $4. Many analysts predicted Teck would follow more than a dozen American coal-mining companies into bankruptcy. One year later, the company’s stock has moved back above $30. Mining has always been a cyclical industry, and no one can guess when the next commodity price plunge will happen because the industry is now in an unprecedented era of extreme volatility. China has a lot to do with today’s commodity price volatility. For example, when China decided to cut back on its production of steelmaking coal, prices went from US$92.50 per tonne in 2016’s third quarter to US$200 per tonne in Q4 2016, and US$285 in 2017’s first quarter. As Teck CEO Don Lindsay has noted: “As miners and explorers, I believe that we have to consider that this extreme volatility is the new normal in our industry.”
A prolonged down-cycle due to an oversupply of metallurgical coal and copper – key commodities for B.C. – forced all major mining companies to tighten their belts, which meant little investment in greenfield exploration and development. However, we are finally seeing an upward turn and the mining sector can cautiously look to the future with optimism. Minerals and metals prices are rising, investor confidence in the majors is returning, and those majors are keen to restock depleting minable reserves. According to Haywood Securities, mining companies on the Toronto Stock Exchange raised $9.4 billion in 2016 – a 38% increase over 2015 – and market capitalizations of mining companies increased by $100 billion in 2016, compared with 2015. This return in confidence is a huge boost for B.C.’s economy as there are more than 30,000 people working in B.C.’s mining industry. Last year alone, mining contributed $6.3 billion to the provincial economy. The province has also offered a supportive contribution by committing $10 million to Geosciences B.C. to back a two-year program of basic scientific study of mineral and energy resources in the province.
Due to the nature of the mining industry, a bounce back isn’t something that can happen overnight. It takes a decade to bring a new mine from discovery to production and the major mining companies are now looking to the junior exploration sector to bring them new mineral deposits. Goldcorp CEO David Garofalo said the mining sector has seen gold production decline and known reserves to shrink. Therefore, some companies have reached the point where “virtually all of us are in harvest phase,” Garofalo said. “We have to invest back into exploration.” This is welcome news for local BC mining exploration companies – the core of Vancouver’s mining industry – as they were the first to suffer the squeeze of a five-year downturn that saw major companies, such as Teck Resources Ltd. and Goldcorp Inc., cut costs, slash capital spending and abandon joint ventures. In B.C., spending on prospecting and exploration to find new mines shrank to $272 million in 2015 compared with $680 million at the peak, which saw the loss of dozens of small companies and hundreds of jobs.
B.C.’s major mining companies arrived at the Association for Mineral Exploration of B.C.’s annual convention on January 23-26 with the vision of a more immediate need to reinvest in finding new mineral deposits. On that front, Goldcorp was among the first B.C. mining companies to make headlines with its $520-million purchase of Kaminak Gold Corp last summer to acquire the firm’s highly advanced Coffee gold-mine project.
With the major companies on the hunt to find new prospects for new mines, B.C.’s mining sector can look forward to the possibility of a reinvigorated mining economy.