Teck Resources Ltd. (TCK/B) and HudBay Minerals Inc. (HBM) are among resource companies poised to profit from a sliding Canadian dollar even as analysts call an end to the commodity boom.
Canada’s currency has fallen 5.8 percent to C$1.0515 per U.S. dollar from parity at the beginning of the year in the steepest first half slide since 1984. Miners with costs in Canadian dollars and sales in the U.S. stand to benefit if the slide continues and they repatriate revenue.
A further 5 percent drop would translate into a 25 percent jump in cash flow per share this year for Vancouver-based Teck and a 38 percent gain for Toronto-based HudBay, according to National Bank of Canada. (NA)
“It’s a silver lining,” Paolo Lostritto, a mining analyst at National Bank said in a phone interview from Toronto on June 27. “If the Canadian dollar weakens, the costs of doing business in Canada falls relative to the U.S., and therefore on a relative basis they should outperform.”
The foreign exchange boost, which may also benefit oil companies and other exporters, comes as commodity prices have plunged and growth in China, the world’s biggest commodity consumer, is forecast to slow. Gross domestic product in China will grow 7.7 percent this year, according to the average estimate of economists surveyed by Bloomberg, down from a five-year average of 9.3 percent from 2008 to 2012.
Boom Over
Goldman Sachs Group Inc. forecast in a May report precious metals including gold and silver will drop 4 percent in 12 months, joining Citigroup Inc. in pronouncing the decade-long commodity bull market over. The Standard & Poor’s GSCI Index of 24 commodities has fallen 3 percent this year, with spot gold down 25 percent and copper 13 percent.
Analysts have cut their year-end forecasts for the Canadian currency 5 percent in the last three months, according to data compiled by Bloomberg, as strengthening U.S. growth looks set to leave Canada behind. The U.S. dollar has also gained as the Federal Reserve unveiled a time line for ending monetary stimulus which had been a weight on the currency.
Canada’s annual growth last year was 1.7 percent, trailing the U.S.’s 2.2 percent rate for the first time in five years, according to Bloomberg data. U.S. outperformance is forecast to continue until 2015, Bloomberg surveys show.
As the economies diverge, some forecasters are calling for the loonie, as the Canadian dollar is known, to continue its slide, with Toronto-Dominion Bank, HSBC Holding Plc. and Morgan Stanley all predicting it will fall to about C$1.10 per U.S. dollar next year.
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