For the past year, the Canadian dollar has been weakening – falling from above parity with the greenback at the beginning of 2013 to its current price of US91.5¢. The loonie has lost 2.4% of its value this week alone, and Goldman Sachs predicted last year that it would reach US88¢ within a year.
For Canadian miners with operations in Canada, there’s an upside and a downside to a weaker loonie, says Jürgen Beier, national mining leader at professional services firm Deloitte Canada.
On the upside, because all commodities are priced in U.S. dollars, they will get more Canadian dollars for every ounce of gold or pound of copper they sell, Beier says. (For example if they sell an ounce of gold for US$1,240 they will get C$1,355 per oz. at the current exchange rate)
“So there will be a revenue increase from a Canadian dollar perspective — if they report in Canadian dollars,” Beier says. At the same time, the cost of imported commodities, equipment, or anything else priced in U.S. dollars that miners need to operate is going to rise.
“Let’s say they’ve got to purchase Caterpillar equipment or something like that – a lot of that stuff is made in the U.S., so they’re going to have to pay more because the Canadian dollar is weaker.”
The effects will be similar, but less noticeable, on Canadian miners that have operations at home, but report in U.S. dollars.
Meanwhile, Canadian companies that have operations outside of Canada could see their purchasing power improve.
“Their costs tend to be in U.S. dollars so if the dollar is getting stronger, they could arguably see a positive impact because they’re going to be able to buy more for their dollar in the local economy they’re working in,” Beier says.
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