How recent currency moves have been an absolute gift to miners outside the U.S. – by Peter Koven (National Post – August 11, 2015)

The National Post is Canada’s second largest national paper.

It is no secret that mining companies are struggling through tough times. Commodity prices are down sharply in the past few months, and investor interest in the space has plummeted.

However, recent earnings reports show that many companies are adapting well to the lower-price environment. And one of the main reasons involves absolutely no work on their part.

It comes down to exchange rates. The sharp rise of the U.S. dollar against most foreign currencies is an absolute gift to anyone mining outside the United States. Since commodities are priced and sold in U.S. dollars and most of a company’s operating costs are in the local currency, they receive significant cost reductions just by doing what they always do.

Of course, a rising U.S. dollar is almost always negative for commodities, since they are viewed as a currency hedge. That has certainly been the case in recent weeks. But the exchange rate movements have offset much of the pain from tumbling metal prices.

“It’s pretty meaningful for us,” Chuck Jeannes, the chief executive of Goldcorp Inc., said in a recent interview.

“If gold stays at US$1,100 and the Canadian dollar and Mexican peso stay where they are today, somewhere around 40 per cent or 50 per cent of the gold price decrease is offset by the FX.”

The currency relief is critical for miners at this moment because they have already cut their operating costs to the bone over the past couple of years. They are under pressure from investors to find even more efficiencies in this low-price environment, but that is a tough task since they have already gotten the low-hanging fruit.

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