Mining companies are cutting back and selling off assets as the price of many metals, and especially gold, continues to be uncertain, EY (formerly Ernst & Young) reported today in its quarterly survey of the industry.
The London Metal Exchange index (LMEX) fell 10% in the second quarter, and gold prices fell 23% in the same time period. The price of gold stabilized throughout July.
“The market witnessed a negative momentum in metal prices due to the fear of tightening monetary policies and lower-than-expected demand from emerging markets,” according to EY’s report.
Gold prices were affected by the U.S. Federal Reserve’s dalliance earlier this spring with quantitative easing tapering.
“By mid-July, the US Federal Reserve chairman Ben Bernanke’s comments that a highly accommodative monetary policy is required to support the US economy triggered a slight rebound in gold prices,” says the report.
The price stabilization hasn’t been enough to inject confidence into Canada’s mining sector. Companies do not think gold mining is “sustainable at current price levels.”
Companies are coping with the downturn by:
streamlining their operations;
selling assets;
seeking out opportunities in the debt markets; and
attracting private investors with a long-term view of the sector.
The tough market has also provided opportunities for smaller companies to pick up assets shed by larger players.
