What A Soaring Loonie Means for Canadian Miners' Earnings

What does the surging loonie mean for Canadian mining companies and their second quarter financial results?

While many of them sell metal products in U.S. dollars, some of their operating costs are in Canadian dollars. Some companies report in U.S. dollars, but have liabilities that will be paid in Canadian dollars.

These points on foreign exchange exposure from Desjardins Securites analysts John Redstone and John Hughes, are all the more important given that if the two currencies hold until the end of June, the second quarter will represent the largest quarterly increase in the value of the loonie versus the U.S. greenback in at least the past 18 quarterly periods based on current values.

They cite a US$13.6-million balance sheet adjustment as part of Aber Diamond Corp’s (ABER recent results, as an example of the damage foreign exchange can inflict.

But Teck Cominco Ltd. (TCK) is among the most exposed miners, the analysts told clients in a note. They estimate that a US1¢ increase or decrease in the U.S.-Canadian exchange rate over a year, could lead to a C13¢ per share change in 2007 earnings. In the second quarter, Teck’s negative earnings per share impact could be C15¢.

Names like Inmet Mining, Aber, HudBay Minerals and Alcan are listed as the next most exposed, while Thompson Creek, Cameco, Sherritt, Westshore, Aur and Fording also make the list.