A StatsCan report for the first quarter of 2019 indicates the economy is growing but at a snail’s pace. Overall, the economy expanded by 0.1% while gross national income grew 0.9% on the back of higher crude oil prices. On the other hand, mining exploration and evaluation decreased due to increasing uncertainty in the global market.
Cash crunch in the mining sector
While other sectors registered some growth, the mining sector contracted during Q1 2019. Official statistics show that fewer companies were involved in setting up of new projects. The gravity of the matter could not be highlighted better by some of the Canadian Toronto Stock Exchange (TSE) listed companies.
Hudbay Minerals Inc. (TSE: HBM) is one of the companies worst affected by decreased mining activity. In the quarter ended March 31, Hudbay revealed that it made a loss of $13.4 million. On the contrary, the company made $41.4 million in profits during the same quarter of 2018.
Also, the company announced a 6% drop in copper-equivalent production during Q1 2019 compared to Q1 2018. Among other things, the company blamed the low production on the closure of the Reed mine. Hudbay was unable to explore additional mines after losing Reed mine due to an industry-wide cash crush.
Poor performance by miners
Another problem that has plagued the mining sector is poor performance. To be sure, some companies made investments which have turned out to be loss-making. For instance, Hecla Mining Company (NYSE: HL) faced a difficult year in 2018 after a big growth project turned sour. Coupled with soft commodity prices, a heavy debt load, and weak earnings, the company declined close to 40%.
In particular, Hecla expanded into Nevada via acquisition as part of the investment for future revenue. However, the mines do not look like assets which will contribute to growth at all. Instead, the company will have to look for support from two other mines in Montana.
Start-up projects coming up, improved metals prices
Nonetheless, this poor performance has not dissuaded miners from starting up new projects. In particular, there is an apparent rush to raise capital by Canadian miners to facilitate the financing of new projects. A GlobalData report shows that miners raised over $11 billion in Q1 2019 although the number of inked agreements slid by 27.8%.
The report revealed that mergers and acquisitions dominated the means for capital raising. Overall, the value of the M&A activities which took place in Q1 2019 grew by 6.3% to $22.5 billion compared to Q1 2018. This is despite like earlier noted, the decreased volume of deal volume. To be sure, there were 358 deals in Q1 2018 compared to 327 in the same period of 2019.
The highlight of the deals in the quarter was the merger of business operations and assets belonging to Barrick Gold and Randgold. Following the consummation of the merger, the new company, still known as Barrick Gold Corp (NYSE: GOLD), became a mining conglomerate which controls huge chunks of the global gold mining industry. Â
