Canadian Mining Projects Benefiting from $1,500 Gold Price

By  Paul Ploumis 25 Sep 2015  Last updated at  05:29:42 GMT

(Kitco News) - The Canadian dollar continues to be hammered against the U.S. dollar, falling below 75 cents for the first time in 11 years; however, the weaker currency is positive news for Canadian-based mining projects.

While the gold market has seen some sharp fluctuations so far this year, the yellow metal against the Canadian dollar, also referred to as the loonie, has been relatively stable, holding above $1,400 an ounce.

However, the recent decline in the loonie has now pushed the price gold to above $1,500 an ounce, with the yellow metal last trading at $1,541.80 an ounce against the Canadian dollar. Although the mining sector has had difficulty attracting new investment capital, many Canadian-based companies continue to develop their projects expecting that once the market turns around, Canadian projects will be in the spotlight because of their high profit margins.

One area that has seen a lot of renewed activity, where mining executives are considerably optimist, has been in Canada’s Yukon Territory in the northwest. During a media tour in early August, many CEOs noted that the high gold price in Canadian dollar terms, coupled with lower energy costs, have improved the financial benefits of their projects.

During the tour, Eira Thomas, president & CEO of Kaminak, which is currently developing its Coffee Project where?, said  that she is not losing sleep over  gold prices as they are expecting to produce gold at an all in sustaining cost of below $700 an ounce. She noted when the executives conducted the preliminary economic assessment (PEA), they had assumed a gold price of $1,250 an ounce at an exchange rate of around 90 cents.

John McConnell, president of Victoria Gold, also noted the lower exchange rate as a benefit to his company’s current Eagle project, also located in the Yukon. In his PEA, the company was expecting to see a 90 cent dollar. The Eagle project is expected to produce gold at an all in sustaining cost of around $729 an ounce.

“The project’s economics look better today with the lower Canadian dollar than when gold prices were higher,” he said.

McConnell is also a director of the Klondike Placer Miner Association and said that he has seen a lot of new faces in the Yukon gold fields as would-be prospectors take advantage of lows costs and higher Canadian gold prices.

“Now is actually a really good time to be a placer miner,” he said in an interview with Kitco News in August.

But it is not just the Yukon that is experience a boom as mining companies take advantage of a weaker loonie and higher gold price.

Bradley Kitchen, CEO of Secova Metals Corp, a junior explorer that is developing its Duvay in northern Quebec and Jessie Lake project in Ontario, said he is seeing more interest in his projects because of the higher gold price in Canadian dollar terms.

He noted that because of currency fluctuations, the Canadian gold market has been relatively stable compared to the U.S. market. In U.S. dollar terms, since hitting a high of $1,923.70 an ounce in early September 2011, the price of gold has fallen more than 40%, with prices hovering around $1,150 an ounce. However, in Canadian dollar terms, after hitting a high of $1,904 in 2011, the price of gold has only dropped 19%.

Kitchen added that his operation costs have fallen by a third. He also said even his drilling costs have fallen to prices he was seeing three or four years ago.

“Because of where gold is in Canadian dollars and our reduced costs, now is a great time for companies to be adding value to their projects,” he said.

While the positive impact of forex fluctuations is a positive benefit for Canadian mining companies, the sector is still faced with the broader challenge of attracting new investor interest.

Bruce Sprague, Canadian mining industry lead at EY, agreed that Canadian-based assets look good in this currency environment, but more still needs to be done to shift the current negative investment sentiment overhanging the industry.

“The investment community sees it as a win but more needs to be done to attract new capital,” he said. “Companies need to be see managing their costs effectively,” he said.

The Canadian dollar -- considered a commodity currency -- is suffering because of weaker commodity prices, in particular oil prices, which have fallen 50% in the last year. However, once oil prices and the overall commodity market turns around, the Canadian sector could be faced with some challenges.

“If you are waiting for the FX market to solve all your problems then you are eventually going to be in trouble,” said Sprague.

To turn the gold market around, Sprague said that investors need to seek companies that take proactive steps to firm up their balance sheets and that embrace new technologies. He added that the sector needs to promote the use of new innovations, even something as simple as implementing software to track payroll and other expenses.

“Companies are being a lot more proactive when it comes to finding efficiencies but more still needs to be done,” he said. “I don’t think there is one silver bullet that will fix it.”

Courtesy: Kitco News