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Q3 winning streak over: “Considerable underperformance” among Canadian miners in Q4

by Ana Komnenic | February 6, 2014 | Reprinted by permission of

Canadian mining stocks experienced a 45% decrease in market capitalization in 2013, with the last quarter alone showing a 9% drop, according to Ernst & Young’s Canadian Mining Eye Q4 2013 report.

It’s well known that concerns over global economic growth and uncertainty over what the U.S. Federal Reserve would do next dragged down commodity prices, leading companies to write down assets and cut costs.

But, despite some mild improvements in the third quarter, last quarter of 2013 unfolded much like the rest of the year—poorly.

The Canadian Mining Eye index—which tracks the performance of 100 TSX and TSXV mid-tier and junior companies with market capitalizations between $1.4 billion and $55 million in Q3—shed 9%. The preceding quarter the index rose by 5%.

“This indicated a considerable underperformance relative to the S&P/TSX Composite index that gained 7% in the fourth quarter,” according to the report.

Q3 winning streak over: “Considerable underperformance” among Canadian miners in Q4

Chart from Canadian Mining Eye Q4 2013, Ernst & Young


By commodity group, the only winners were among the diamond, platinum group metals, and coal and consumable fuels sectors.

The gold and fertilizer minerals sectors were hit the hardest; gold dropped 27% over the year and the potash industry was crushed by the breakup of the Russian-Belarusian potash cartel in July.

As for individual companies, Colossus Minerals TSX:CSI is the index’s biggest loser; the company experienced a net share price decline of 91% during the quarter.

One-third of the companies tracked by the Canadian Mining Eye index realized a net gain in the fourth quarter, compared with more than half in the third quarter.

Lucara Diamond TSX:LUC came out on top, gaining 66% on its share price. Brigus Gold TSX:BRD gained 42% throughout the quarter after its flagship Black Fox mine achieved record gold production.

But miners can take solace in the fact that 2013 is over and, at least according to Ernst & Young, 2014 will provide growth opportunities for companies across the sector.

“We note that a new year has brought some transactional activity for companies with good quality projects and lower valuations,” researchers wrote.

“Investors are likely to view the current underperformance as a buying opportunity as projects are de-risked. We expect companies to continue to adopt a disciplined approach to capital management and to seek creative financing options to withstand the downturn.”

Reprinted by permission of

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