Anyone familiar with the Canadian stock exchanges knows the importance of the mining industry to the Canadian economy. With substantial domestic experience in mining, Canadian companies or experts lead the way across the world in various metals from flashy gold and silver, to the no less crucial copper, nickel or zinc. And it looks like, as predicted, rising demand and prices are helping to turn the sector around after a rough start to 2020.
Indeed, according to new data, not only is the mining sector as a whole now outperforming the Canadian stock market average, but this growth is led by junior and mid-tier mining companies. This is exceptionally good news as the nascent mining sector can be an indicator, and driver, of the economy’s overall health. Therefore it is worth looking into the various success stories to analyze the mining news driving their strong recovery, starting with the metal that’s always in the headlines: gold.
Gold growth is strong and likely to last, but opportunities remain for profit.
Gold prices are often in the headlines. They capture the public’s imagination and can be used to gauge confidence in an economy as well. It is thus a mixed blessing to see gold rise so steadily and stay strong in the second half of 2020. It has been consistently above $1,800 since the middle of 2020 and spending extended time at or above $1,900 an ounce, and has powered substantial profits and expansion in the gold mining business. Canada’s venerable Barrick Gold (TSX: ABX) climbed substantially after the pandemic hit and, while activities calmed on its shares as the gold price slowed, their stock price remains above pre-pandemic 2020 levels.
Unfortunately, one of the drivers for this is the overall lack of health in the economy, as investors and speculators often turn to gold in times of crisis as a means of safe storage for value (especially when governments are cranking out record-breaking stimulus packages that threaten currency failure). Thus we are happy to see that while gold’s spot price has remained high, which is great for gold mining companies, the trajectory since mid-2020 has been a downward trail off. This suggests that consumers and investors are optimistic, not pessimistic, about the chances for the economy to recover without too significant harm to the currency.
This is, of course, reflected in the performance of gold focused mining companies who have seen respectable growth during the 2020 recovery as the high price powers attention, investments and profits. While higher- and mid-tier gold mining companies have already benefited from this surge, there is still room for growth in the junior mining category. Here, hesitance leads to a lag in response to the positive economic circumstances, while their already speculative nature offers strong growth options should promising results fall such as those recently published by Rockridge Resources (TSXV: ROCK).
Gold is not the only metal benefiting from the markets’ uncertainty however, upwards volatility has also been noticed in Silver prices, where miners and other savvy entrepreneurs are seizing the moment.
Silver surges, though digital currencies offer attractive alternatives for stable currency
Often seen as gold’s inferior and less attractive cousin, silver prices have also been rising, if less steadily. In part powered by the extensive industrial requirements for the metal, as well as the speculators fleeing disrupted currencies, companies mining silver performed above expectations in the final quarters of 2020. A trend which saw an unexpected acceleration just last week as Reddit-based speculators at WallStreetBets turned their now infamous attention on the metal.
This only encouraged an explosive burst of growth, some of which has fallen off since, in both silver mining and bullion price. And while this accentuates silver’s responsiveness to market forces, it also serves as a reminder of how much growth potential there is for the under-represented metal. Indeed, some Canadian analysts are enthusiastic about one project aiming to restore silver’s potential for grounding currency value with a blockchain-based cryptocurrency tied to the metal (and gold) called the LODE project.
But you shouldn’t stop at the precious metals, the Canadian mining sector is doing well, if not even better, with other less flashy mineral resources.
Copper, zinc and nickel prices power Canadian mining growth
The meat of Canadian mining growth however is not propelled by gold or silver, but rather by a strong showing in more traditional, if less exciting, metals. Copper, notably, has had powerful growth, though Nickel and Zinc are also on upwards trajectories. Largely led by the combination of lower supply thanks to the pandemic crisis, and strong demand (especially out of China) from recovering economies has led to upwards pressure on the prices, which translates smoothly to profits for the Canadian companies well positioned on each resource.
Data from the last quarter of 2020 helps explain the positive performance of the sector
As we can see, gold mostly held steady in the fourth quarter of 2020, while baser metals rose considerably, pulling with them the index of Canadian mining stocks (here listed as Mining Eye, a subset of these stocks whom the source is focusing on for tracking purposes). Their performance also demonstrates the significance of the recovery in the final weeks of the previous year, a trend which we are already seeing repeated in January 2021.
The trend is in fact, likely to continue, at least until the supply can catch up to the ever-rising demand. Demand propelled, in part, by the growing need for electric cars and the metals needed for their batteries. Perhaps lithium or cobalt will be the major winners of 2021, either way, we are likely to see Canadian companies leading the charge, and reaping the rewards, of the surging mining sector.
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