Commodities boom, miners’ bust

Canadian resource companies were among the worst performers of the year

It’s been a great year to be involved in Canada’s natural resource sector—unless you happen to own stock in some of the companies. Even with oil trading at more than $100 a barrel and gold hovering just below $1,700 an ounce, Canadian resource companies have been struggling to hit their earnings targets. Canadian mining companies were among the worst performers of the year, according to a recent report from National Bank Financial. They were dead last among commodity-producing countries, the report’s authors said.

Shares of Canadian energy companies have stagnated, while Canadian gold stocks have been on a steady downward spiral over the past 12 months. Energy companies can partly blame a buildup of crude oil reserves in the U.S. Midwest that has kept the price of Canadian oil low. Canadian gold producers, however, have been hit on all sides with soaring operating costs, massive writedowns at major projects, and the politics of operating mines in countries with unstable governments.

Shares of Kinross Gold Corp., the country’s third-largest gold company, fell 20 per cent in January. It was the largest drop in the company’s history and came after Kinross announced a $2.5-billion writedown on its mine in Mauritania along with expected delays at projects in Chile and Ecuador. Agnico-Eagle Mines Ltd. embarked on an ambitious plan to mine a stretch of Nunavut so remote that the company spent $50 million building a road to the nearest town. But after a blaze destroyed the mine’s kitchen in -60˚ C weather —and with operating costs soaring to $1,000 an ounce—the company announced a $644-million writedown last month. Vancouver’s Ivanhoe Mines stock also took a hit after the government of Mongolia said it wanted to renegotiate its agreement with the company over its $6-billion Oyu Tolgoi copper and gold mine, saying it planned to raise taxes and increase the government’s stake from 34 per cent to 50 per cent. The government later backed down, but the damage was done.

Investors, meanwhile, continue to flock to gold bullion as a surefire path to riches—even if they’ve proven they don’t have much faith in the Canadian companies that mine it.