Low Canadian dollar benefits Ontario mining industry

Metallic commodities are priced in U.S. dollars and, because of this, monetary exchange rates have a significant impact on the revenues generated by Ontario mining operations.

The mineral sector analysis branch of the Ontario Ministry of Northern Development and Mines has illustrated the magnitude of this impact in the accompanying chart. It is based on the Ontario composite metal price index, which provides a measure of the combined impact of gold, nickel, copper and zinc prices on Ontario’s metal mining industry.

The chart compares the pattern of change in the Ontario composite metal price index based on U.S. dollar prices versus the index based on Canadian dollar prices. Both indices were calculated so that the reference index value of 100 occurs at October, 1991, when the Canadian dollar reached a recent maximum value against the U.S. dollar.

As the chart shows, Ontario’s mining industry has benefited from the recent runup in metal prices, which typically accompanies the later stages of an economic expansion. As of January 1995, the U.S. dollar-based index stood at 119, which is up 20% from its October 1991 level. By comparison, as of January 1995, the Canadian dollar-based index stood at 149 — which is up 50% from its October 1991 level.

The higher gain of the Canadian dollar-based index was due to the decline in value of the Canadian dollar, which went to US71 cents from US89 cents during this period.

The chart also shows that the declining Canadian dollar buffered the impact of the decline in metal prices that occurred between July, 1992, and October, 1993. During this period, the U.S. dollar-based index lost 26%, going to 78 from 105, while the Canadian dollar-based index lost only 17%, going to 91 from 110 in the same period.

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