Canadian Mining

In: Business and Management

Submitted By sumantra2008
Words 2092
Pages 9
Canadian mining- Impact of cost inflation and volatility and the road ahead
Introduction
With a 9.8% share of Canada’s GDP, the mining sector is critical to the future of the Canadian economy (Deloitte Report). Unfortunately, rising cost inflation, unprecedented volatility in commodity and energy prices and a strong Canadian dollar have negatively impacted the performance of this sector over the last year. This report seeks to uncover the drivers behind cost inflation and evaluate the hedging strategies utilized by Canadian companies to mitigate volatility through a case study of Barrick Gold. We will also examine the impact of tightening margins on the capital expenditure decisions of this company.

Part 1: Cost Inflation Cost inflation in the mining industry has been driven by increases in both Operational expenses and Capital expenditures. Operational expenses have been driven by three factors 1) Wage Increases 2) Energy Costs and 3) Supply cost increases. Wages in this industry have increased dramatically over the past 10 years and the Canadian mining industry now boasts the highest wages of all industrial sectors in Canada. The average weekly pay for a mining worker in 2011 was $1,436, which surpassed the earnings of workers in forestry, manufacturing, finance and construction by 47%, 46%, 35% and 32% respectively (DELOITTE REPORT)

Source: Mining Association of Canada – 2012 Facts & Figures Report http://www.mining.ca/www/media_lib/MAC_Documents/Publications/2013/Facts%20and%20Figures/FactsandFigures2012Eng.pdf Source: Mining Association of Canada – 2012 Facts & Figures Report http://www.mining.ca/www/media_lib/MAC_Documents/Publications/2013/Facts%20and%20Figures/FactsandFigures2012Eng.pdf Wage inflation is a function of a variety of factors. The first is that the industry is increasingly seeking workers with specialized…...

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