Loonie nears parity with greenback again

A resurgent Canadian dollar topped financial headlines during the tenth week of trading, as several economic indicators lined up in its favour.

• The loonie-greenback relationship is always watched closely by Canadian miners, who usually sell their product in U.S. dollars but incur many expenses such as wages and benefits in Canadian dollars. The good news is that, compared to many other industries, most miners have the ability to hedge their currency risk if they so choose.

Just in time for March Break vacationers heading south, the Canadian dollar closed the week at an 18-month high slightly above US98¢ as more signs appeared that the Canadian economy is recovering well from the recession. Canada’s fiscal position is strong relative to competitors, the value of exports is picking up with rebounding commodity prices and the nation’s employers added another net 21,000 jobs in February, pushing the unemployment rate lower to 8.2% — well down from the mid-2009 peak of 8.7%. At presstime the dollar had surged to US98.57¢ on surprisingly strong manufacturing sales and productivity numbers.

The last time the dollar reached parity with the U.S. dollar was in 2007 and 2008, when oil prices surged as high as US$147 a barrel. The loonie hit a modern-day high of US$1.1024 in intraday trading on Nov. 7, 2007, in response to the Chinese government announcing it would diversify its US$1.43-trillion foreign exchange reserve away from the greenback.

• The week saw a couple of friendly deals in the junior gold sector.

Kinross Gold continued its aggressive stance on grassroots acquisitions with a bid for wildly successful gold explorer Underworld Resources, offering shares and a bit of cash that value the junior at $139 million. It was only in January that Underworld tallied its first resource estimate at its flagship White Gold project in the Yukon, drilling out almost 2 million oz. gold in all categories in two high-grade zones.

In Eastern Canada, a financially revived Apollo Gold has tabled a bid to merge with Halifax-based Linear Gold to form a mid-tier gold producer with advanced gold development projects. With Apollo paying a 20% takeover premium, or about $102 million in shares, the new company will be 57.1%-owned by current Apollo shareholders and 42.9%-owned by current Linear shareholders, on a fully diluted basis.

• The Prospectors and Developers Association of Canada convention proved to be another blowout, with a record 22,000 attendees. The mood was upbeat, especially compared to last year, when the recession was in full swing and commodity prices were plummeting.

In tandem with the PDAC, PricewaterhouseCoopers unveiled its latest study Junior Mine: Trends in Junior Mining -2009 that sorts out the devastation that the year ended June 30, 2009, wreaked upon junior mining companies in Canada, as market capitalizations dropped by more than 50% compared to 2008 levels.

Looking ahead, PwC expects juniors and mid-tiers will rejoin seniors in raising equity capital, and all miners will capitalize on a strong appetite for equities by spinning off projects or business units in separate offerings. The consulting firm foresees a “tepid comeback” in initial public offerings in mining but rising junior-senior board graduations.

In terms of major financings, PwC predicts senior miners will be able to tap into a healthy corporate bond market even as miners of all stripes get “back to basics” by re-employing alternative financing structures including royalty, off-take and streaming agreements.

PwC ends on a high note, saying it expects a “blockbuster year” for mining-sector mergers and acquisitions as capital from recent financings is deployed ahead of expectations of rising commodity prices. Specific traits of the coming year will include a “steep uptick in deal volumes, a tepid resurgence of greater than $500-million deals, and a moderate shift in China’s focus away from outright acquisitions of Canadian projects.”

• Halifax-based Metals Economics Group (MEG) chipped in with its annual World Exploration Trends report. It shows how non-ferrous mineral exploration budgets for 2009 totaled US$7.32 billion compared to US$12.6 billion in 2008, resulting in the “steepest one-year decline in more than two decades.” Of note, uranium exploration expenditures fell to US$660 million from US$1.15 billion year-over-year. The MEG polled 1,846 companies accounting for 95% of worldwide commercially oriented non-ferrous expenditures.