Mining remains one of the province’s most significant industries, and it roared back from a lacklustre 2008 to dominate the list of companies posting the biggest advances in profitability in 2009. While there were also a handful among the myriad resource companies posting hefty losses, mining rose on the strength of buoyant commodity prices despite a sagging U.S. dollar, much as Canada’s men’s hockey team prevailed despite third-period heroics by the U.S. team on the final day of Olympic competition in Vancouver.
“Weakness of the U.S. dollar is generally offset by commodity price strength,” says Greg Waller, vice-president of investor relations and strategic analysis at Teck, who pointed to the sector’s diversity as a key to its strength in what promises to be an extended period of U.S. dollar weakness. “Over the long term, a diversified mining company is valued more highly than a single-commodity company.”
Teck’s own diversity allowed it to tap into steady demand for commodities in 2009, especially in Asia, where it sees significant opportunities. Speaking to BCBusiness two years ago, Teck CEO Don Lindsay had voiced what’s become his key message to Prime Minister Stephen Harper and others: China is emerging as a far more important economic partner than the U.S.
“People are worried about a U.S. recession, but in our core commodities the U.S. economy has become a much smaller influence,” Lindsay said at the time, noting that positive growth in Chinese demand for copper would more than make up for a drop in U.S. demand during a recession.
Steady demand for products requiring Teck’s metals, from lighting to high-end computer systems, fuels Waller’s optimism. “We are well positioned to benefit from the expected economic recovery in the Western world and the continued strong growth for our products,” he says.
It’s a similar rosy message from Robert Gallagher, president and CEO of New Gold Inc., which posted 59 per cent growth in revenues in 2009, offsetting a whopping $222-million net loss for the year associated with its $1.2-billion merger with Toronto’s Western Goldfields Inc. “Where a lot of companies were retrenching, New Gold was growing,” Gallagher explains.
New Gold didn’t have a lot of funding at its disposal coming out of the 2008 financial crunch, jeopardizing development of its New Afton mine near Kamloops. So it partnered with Western Goldfields, which wasn’t seeing much growth from its own properties. The all-stock deal satisfied the needs of both companies.
“By combining the two companies, with the cash flow from the Western Goldfields’ Mesquite [California] mine, that solved the funding shortage,” Gallagher says.
New Gold has also focused on cutting production costs, reducing the expense per ounce of gold produced from $565 in 2008 to a projected $450 this year. And it’s bound to get better: Gallagher’s excitement peaks as he talks of the New Afton copper mine, which will come on stream in 2012. Production at the site will cover operating costs at New Gold’s entire company (at current prices), allowing it to produce 430,000 ounces of gold annually at a significant profit margin. “It more than doubles our cash-flow generation,” Gallagher says enthusiastically.
New Gold could be a poster child for what’s going right in the sector. A recent PricewaterhouseCoopers survey of the mining sector found 79 per cent of mining executives grousing about the mine permitting process in B.C., but report co-author Erfan Kazemi notes Victoria recently granted a permit to the first major new metal mine in the province in more than a decade: Roca Mines Inc.’s Max Molybdenum project south of Revelstoke. Two other operations also just completed permit applications: Mount Milligan and Copper Mountain.
“We see potential operations down the pipeline,” says Kazemi. This, in a “strong year” that rivalled the heady days of 2007 when the sector was revelling in being back on its feet a decade after what many recall as the dark days of NDP rule.
“We saw the B.C. mining industry fare better than most industries in relation to the global slowdown,” Kazemi says of 2009.
Would that the rest of the resource sector was so lucky. “The lumber outlook – it’s down so low that looking up, posting gains will not be hard,” remarks Helmut Pastrick, Central 1 Credit Union’s chief economist. He adds that the mining sector is much healthier by comparison even though it and forestry have both been hit hard in export markets.
“I think we’ll see some very good numbers out of the mining side, particularly coal out of B.C,” he says of the outlook for 2010.
Back at Teck’s offices, Waller is equally confident. “While the current economic recovery may be slow and volatile, global demand for commodities will rise further when the U.S. emerges from recession, as it inevitably will,” he says. “We therefore foresee strong growth prospects for all our business divisions over the next few years.”
