The Falling Mining Sector Outlook: Not Just An Underground Issue

trouble for Canada's mining sector outlook

Like the economy itself, the mining sector is cyclical. It follows the same grand loop –  diversions and all – that drives the overall economy. When economies are strong, the mining sector usually follows suit.

The Prevalence of Mining Products

At the height of the recession I was working at a mining newspaper. It was eye opening watching the commodity super cycle dip slightly prior to the global financial disaster. But the intrinsic link between the mining sector outlook and the overall economy is quite apparent – after all, that laptop on your desk (silicon, boron, lead, barium, strontium, phosphorus, indium) and the eyeglasses you wear (limestone, feldspar, soda ash) are made of mined components.

A coworker of mine used to have a sticker plastered to the front of his locker that more or less rings true – if it can’t be grown, it’s gotta be mined.

The Consequences Of A Collapsing Mining Sector

So what does it mean when the TSX materials sector is down more than 30 per cent this year, and gold miner stocks have lost 38 per cent of their value since January?

How does the recent collapse in the price of potash – a key component in fertilizer – driven by the break-up of Belarusian Potash Co. (responsible for 43 per cent of global exports) affect you and the economy?

The answer is, in every way.

On a global scale, Canada is one of the top spots for mine exploration, drawing in 16 per cent of the world’s spending in this sector. We’re also one of the most forward-thinking nations when it comes to corporate social responsibility and innovative new techniques for mining. And although the mining industry has made its fair share of mistakes and can take a seedy route at times, for the most part, those principals are exported with the nearly 1,000 Canadian exploration companies active in over 100 countries.

Mining For Jobs

According to the Mining Association of Canada, the country’s mining sector contributed $36 billion to the national GDP in 2010, and employed 308,000 workers in mineral extraction, smelting, fabrication and manufacturing. An additional 3,215 companies supplied engineering, geotechnical, environmental, financial and other services to mining operations.

The Potash Fallout

When it comes to potash, falling prices have their benefits – not for those holding the stocks, of course, but generally speaking. The drop in prices and higher cost of mines coupled with a decrease in demand (for the most part, farmers only need to apply fertilizers made with potash every few years) means some potash mines might modify their plans to increase their capacity which will ultimately help when the upswing finally comes.

The problem with a loop is you never really know when you’ve hit the bottom.

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