Mining News

The Ripple Effect Hits Canadian Banks as Mining Sector Suffers

Posted by Alana Wilson on 7/25/2013 3:10:07 PM

By Ken Greeni

Everyone is familiar with the ripple effect, where one throws a rock into a pond, and the ripples propagate outward from the impact, spreading across the surface of the pond. What people often don’t think about is that the ripple effect is also an economic one: throw a stone into one element of the economy, and the effects ripple outward to other elements.

At Bloomberg News, Liezel Hill and Doug Alexander examine how the downturn in mining industry profits is bleeding over onto brokerage firms and investment banks:

One small brokerage firm, Fraser Mackenzie Ltd., closed earlier this year. Casimir Capital Ltd., a closely held investment bank, has cut jobs on its mining team and is shifting its focus to energy companies. Even Toronto-Dominion Bank, Canada’s second largest lender by assets, has moved investment bankers into other areas. Bill Vlaad, a financial services recruiter, says requests to find bankers to work with mining and natural resources companies are drying up. Those searches now represent less than 10% of his business, down from half of his work three years ago. Mark Morabito, chairman of Canadian mining company Alderon Iron Ore Corp., says he’s getting a steady stream of e-mails from bankers who are getting fired. “I’m now dealing with the top guys, the global heads of mining, because the guys in between are all gone,” Morabito said in an interview. “Toronto is just a dead zone.”

The downturn in the brokerage and banking services stems from a sharp drop in commodity prices that has hammered the mining sector. As Hill and Alexander point out, “Gold futures in New York have dropped 21% this year while copper is down 13%.”

And like the ripples in the pond, the impacts go well beyond banks and brokerage houses:

Signs of strain extend well beyond the lawyers, accountants and bankers that help with financings, said Michael White, CEO of IBK Capital Corp., a closely held investment bank. “It’s also the drillers and geophysical companies, consulting companies, the engineering companies,” he said. “Everybody’s feeling it.”

iDr. Kenneth P. Green
Senior Director, Natural Resource Studies

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