Struggling miners see silver lining in FX, cheaper oil

Mon Nov 10, 2014 4:01pm EST
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By Susan Taylor

TORONTO Nov 10 (Reuters) - Global mining companies stung by slumping commodity prices are looking forward to a modest consolation prize - weaker local currencies and falling oil prices that will help trim their costs.

Metal prices have plunged to multi-year lows as the U.S. dollar strengthened against a basket of currencies. But for miners paying labor and other expenses in local currencies, this also lowers production costs on metals typically sold in U.S. dollars.

At the same time, a near 30-percent fall in global oil prices since June will make it cheaper to operate mines and equipment, a benefit to the bottom line that for investors may at least partially neutralize the pain from weaker metal prices.

"It's definitely a silver lining," said Chris Mancini, analyst at Gabelli Gold Fund. "The gold stocks have been so severely damaged, and their valuations relative to the price of gold, that I think any good news could surprise the market."

Agnico Eagle Mines Ltd, which produces two-thirds of its gold in Canada, estimates that local currency declines could reduce its U.S. dollar-denominated cash production costs by 5 to 6 percent, Chief Executive Sean Boyd told Reuters.

Since the end of June, the Canadian dollar, Australian dollar and South African rand, have slipped 6-8 percent against the greenback. Other currencies, from the Russian rouble to the Brazilian real, have also weakened.

Meanwhile, gold is at four-year lows, and down 13 percent since end-June. Metallurgical coal is at its lowest in seven years, while copper prices are not far from four-year lows reached earlier this year.

Teck Resources Ltd estimates that for every 1 Canadian cent weakening in the exchange rate, some C$60 million ($52.87 million) is added to its annualized pre-tax earnings, providing relief for the world's second-largest shipper of steel-making coal.   Continued...