Mining firms navigate uncertainty of trade war, currency crises

Vancouver-based First Quantum Minerals Ltd. entered the summer with copper prices on the rise, and investors enthusiastic about its stock.

But the summer has not been kind to Canadian miners, and the company is now contending with plummeting copper prices — which have fallen 19 per cent since June to about US$5,820 per metric ton.

As the U.S. dollar rises in value, and fears of a U.S.-China trade war take root, many Canadian mining executives are seeing ripple effects, as the commodities they produce, from copper to gold, and currencies in some of the markets where they operate, get pummelled. It’s all creating a difficult environment for mining companies.

“I don’t remember times anything like this,” said Clive Newhall, president of First Quantum for more than two decades. “These are one-offs.”

“Our view of the future copper price is still a very positive one,” he added, “but in the short term, there’s obviously a lot of noise.”

The company’s stock is down nearly 25 per cent since early June to $17.24.

Newhall largely attributed the dip to the strength of the U.S. dollar, a development that has also had positive economic consequences for his company.

First instance, First Quantum sells much of its copper and other metals on the international market, and receives its revenue in U.S. dollars. That means that as the U.S. dollar became more valuable — and the Turkish lira fell — First Quantum will actually lessen some of its costs, including for labour, Newhall said.

The Turkish lira has lost nearly 40 per cent of its value, amid a growing rift with the U.S. over the detention of a U.S. pastor, that could lead to new sanctions against the country; and there are also concerns that Turkish President Tayyip Erdogan, who opposes raising interest rates, will exert influence on monetary policy.

“You don’t want to see the economy being trashed,” Newhall said, “but it has no significant impact.”

That’s also true for companies such as Toronto-based Alamos Gold Inc., which is building a mine in Turkey; according to its chief executive John McCluskey, more than 65 per cent of its costs are denominated in Turkish lira.

But even though the lira is falling, McCluskey said some of those gains are offset by higher inflation. His stock, like many of his peers has also been suffering, trading down 25 per cent since early June to $5.72.