Economic News/Trends and Analysis — March 8, 2010

Canada's top 100 mining companies back with a vengeance: Ernst & Young

Gold continues to shine as prices outperform general equity markets

TORONTO, March 8 /CNW/ - A new Ernst & Young report reveals returned economic strength in the mining and metals sector, with the top 100 Canadian mining companies succeeding in reducing debt levels and increasing cash.

"The mining sector has been buoyed by a renewed optimism that's being driven by increasing demand and renewed interest in the commodities market - particularly with respect to gold and the general economic recovery," says Tom Whelan, Leader of Ernst & Young's national mining practice.

The report, which highlights the top 100 mining companies (based on market capitalization) listed on the Toronto Stock Exchange (TSX), shows that these companies have bounced back with notable resilience:

    -   The aggregate market capitalization of the TSX 100 increased 74% from
        $187 billion in January 2009 to $325 billion (as of December 2009).

    -   The capitalization requirement to be included in the top 100 was in
        excess of $430 million, up 230% from last year's $130-million
        requirement.

    -   While more than two-thirds of the companies saw their stocks rise up
        to 300%, 13 were rewarded with appreciation in excess of 500%.

    -   While companies in the top 100 were active in only 6% (129) of the
        total Canadian mining transactions, they were responsible for 65% of
        the overall transaction value.

It's clear that the events of the credit crisis have fundamentally changed how mining companies and mining transactions will be financed in the future. Following a year of excess leverage and limited cash flow, equity is coming largely from new sources like strategic equity investors, including cash-rich Chinese companies and sovereign wealth funds. Most notably, China has emerged as a major global player.

"Canadian companies have been particularly open to foreign investment, which puts us in a unique position on the international stage for 2010," says Whelan. "And we're not expecting a decrease in international appetite for Canadian mining companies, as Canada's strong mining reputation translates to lower perceived risks for overseas investors."

The top 100 list includes 19 new entrants this year; four were new listings on the TSX, and the remainder attained the coveted position through increased market value. Gold-focused companies dominate the list of new entrants, representing more than 40%. In fact, of the total 100 companies in the TSX top 100, 50 are gold companies.

"The increase in demand for gold as an investment has been inversely proportionate to the decline of the US dollar," says Whelan, "As a result, gold spot prices are expected to remain strong and have been outperforming the general equity markets."

In 2009, 442 mining and metals transactions were completed in Canada or by Canadian firms abroad. While the volume of transactions grew by 50% year over year, the total value of these transactions was down 70% in 2008 at $10.2 billion, reflecting fewer megadeals and generally lower average deal values in 2009.

The report highlights that perhaps the most profound effect of the global financial crisis on the metals and mining industry is that the world has lost as much as two years of growth in the supply of scarce resources. If demand rebounds back to its long-term growth rate as anticipated, there will have to be higher product prices, for longer, before the sector responds with new capacity, leading to metal prices increasing sharply - with the potential for deal prices to follow.

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For further information: Samantha Goldsilver, samantha.goldsilver@ca.ey.com, (416) 943-3458; Brooke Morris, brooke.morris@ca.ey.com, (604) 899-3597; Marie-Ève Graniero, marie-eve.graniero@ca.ey.com, (514) 874-4313

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