Canadians are celebrating the strength of the dollar (Canadian). For the first time since the 1970s, our dollar is worth more than the U.S. dollar; on Wednesday, Oct. 31, one Canadian dollar was worth US$1.05. And our mining industry is making the most of it.
Increases in all commodity prices since 2002 represent the first improvement in real-dollar terms since I’ve been in this industry. Mining is cyclical; prices rise and fall. But the recent rise is more than a cycle; it is a genuine gain in value due to growing global demand, particularly in China and India.
Gold is headed for US$800/oz, uranium is in the US$80/lb range, copper is solidly at about US$3.50/lb, nickel is reaching US$14/lb, and the list goes on. Prices are likely to stay high if global copper, lead and zinc stocks are any indication. There is no surplus to meet increased demand or cover production disruptions, TECK COMINCO told the investment community in Reno, Nevada, this week. Lack of confidence in the U.S. dollar also has investors flocking to gold.
High prices have spurred investment in all phases of mining. Never has it been easier for junior companies to raise tens of millions for exploration. A record number of new mine developments have been announced. Reserves at existing mines are expanding. Companies continue to grow and merge.
Before we pat ourselves on the back too hard, we must remember that the stronger Canadian dollar does have a down side. Since most commodities are priced in U.S. dollars, miners are getting a little less for their output, and if their costs are in Canadian currency, those are expensive dollars. The 12-15% difference between the dollars that marginal producers relied on for profits, has disappeared.
Any operation that had allowed production costs to rise as commodity prices increased is going to feel the pinch now. The industry will have to once again boost productivity if foreign currency exchange rates are not to take the profit out of metal production.