Historically in Canada, agriculture and forestry products have dominated the market. Then, technological developments and changing market demands gave rise to an increasing need for commodities, such as copper, gold, and base metals. That said, following a commodity boom in the early 2000s, investor interest in commodities cooled.

Fast-forward to a decade later, and Goldman Sachs Group has released a market outlook that predicts the onset of a new commodity bull market. This is further reinforced by the fact that hedge funds focused on commodities have managed to raise more than $4 billion through October, according to eVestment.

Source: Bloomberg

Today’s article addresses the prospect of COVID-19 kick-starting a new commodities super-cycle and what a commodity boom will mean for the economies and real estate markets in Northern Ontario cities, including Sudbury, Timmins, and Sault Ste. Marie.

 

Key Takeaways

  • Rising prices of copper, zinc, nickel, and gold indicate the onset of a new commodity super-cycle. Commodity prices are at their highest levels in a decade.
  • Commodities are influenced by global economic trends. As the world recovers from the pandemic and makes moves towards a greener future, the value of commodities is expected to rise.
  • Future commodity exploration will benefit from Canada’s financing model, which is in support of junior exploration companies.
  • Sudbury is one of the world’s most significant nickel centres and is also a source of copper, cobalt, platinum group metals, gold, and silver.
  • Timmins is a source for zinc, copper, nickel, and silver, and is the world’s second-largest gold producer.
  • Sault Ste. Marie will soon be home to Noront Resources’ ferrochrome production facility, adding over 1,000 jobs to the market.
  • The economies and job markets in Sudbury, Timmins, and Sault Ste. Marie are expected to benefit from a commodity boom.
  • A commodity boom will benefit real estate in Sudbury, Timmins, and Sault Ste. Marie because real estate tends to appreciate with inflation and commodity prices are believed to be a leading indicator of inflation.

 

What are the signs of a new commodities super-cycle?

Commodity super-cycles hinge on structural change in demand. There are three factors that indicate that we are at the crux of a new super-cycle: (a) global economic recovery in the wake of COVID-19, (b) sudden price inflation of commodities, and (c) Canada’s financing model enabling junior companies to embark on commodity exploration. We dig a little deeper into these three factors below.

 

Economy

Commodities are considered stereotypical cyclical assets. This means that, like stocks, they are heavily influenced by ups and downs of the global economy. As such, as the world recovers from the pandemic, commodities are expected to benefit from the global reflationary. Canada alone is expected to see a 5.5 percent rebound in global economic growth in 2021, according to a Commodity Price Report via TD Canada Trust.

Another socioeconomic factor that is predicted to influence a new commodity super-cycle is the global emphasis on a greener future. Given the global trend in favour of an eco-friendlier future, demand for metals such as copper, nickel, and lithium—which are key components used to make electric-vehicle batteries—will only grow.

 

Prices

Since spring, prices of commodities across the board have risen to their highest levels in a decade. This owes in part to a Chinese buying spree, in conjunction with global macro investors.

One commodity that has experienced notable value appreciation is copper. At the tail end of 2020, an infusion of investor dollars lifted the price of copper to $7,520 a ton, marking a seven-year high. According to TD’s Commodity Price Report, copper, zinc, nickel, and gold have all registered a price increase of over 20 percent, year-over-year.

Source: TD Economics

Source: TD Economics

Financing

Canada has the reputation of being the world’s mining finance capital. This is because their finance model is very supportive of junior exploration companies. Moreover, these exploration companies tend to be publicly traded, increasing their access to capital-raising opportunities, and this capital can directly fund new exploration.

 

What will be the effect of a commodity boom on real estate in Ontario?

Investments into commodity exploration will put pressure on Ontario’s mining centres. Subsequently, this will impact the economies and real estate markets of cities with the potential to excavate commodities, such as Sudbury, Timmins, and Sault Ste. Marie.

Sudbury is one of the world’s most significant nickel centres and a key supplier of electric batteries and vehicle components. The city is also responsible for excavating copper, cobalt, platinum group metals, gold, and silver. Sudbury is home to approximately 320 companies related to mining. The industry employs about 14,000 people. It is predicted that the Sudbury Basin ore deposits alone will last for the next century, at the least. Sudbury also boasts the highest concentration of post-secondary mining programs in the country, also boding well for the industry’s future. Historically, a boom of this nature not only stimulated Sudbury’s economy but added thousands of jobs to the market.

Meanwhile, Timmins is a source of gold, zinc, copper, nickel, and silver. Timmins is the world’s second-largest gold producer after South Africa, and is home to The Hollinger Open pit (one of Goldcorp’s largest projects), as well as the Dome Mine, Hollinger Mine, and McIntyre Mine. Due to the recent hike in gold prices, junior companies are actively exploring the area, effectively adding jobs to the market. Some of these junior companies include Galleon Gold (TSXV: GGO), McLaren Resources (CSE: MCL), and Affinity Metals (TSXV: AFF). Timmins has recently become home to Canadian Nickel. Canadian Nickel’s Crawford mine is poised to become the largest nickel sulfide mine in the world.

Finally, Sault Ste. Marie’s Algoma Steel site could soon be home to a proposed Noront Resources’ ferrochrome production facility. The company acquires, explores, and develops base and precious metals, including nickel, copper, platinum group metals, chromite, iron, titanium, vanadium, gold, and silver. A new billion-dollar facility could employ up to 500 persons directly and over 1,000 indirectly. There are also many active mineral explorations in townships neighbouring Sault Ste Marie, including the excavation and expansion of the Island Gold Mine (in Dubreuilville) by Alamos Gold, Argonaut Gold’s excavation of Dubreuilville’s Magino Mine, IAMGOLD Corporation’s expanding operations at the Côté Gold Mine Project, and exploration north of Sault Ste. Marie by Transitioned Metals, amongst more. Historically, the southeastern shore of Lake Superior has shown signs of possible iron oxide copper gold deposits.

Additionally, thanks to its proximity in the heart of the Great Lakes and near the Canada-US border, Sault Ste. Marie has received official designation as a foreign trade zone (FTZ) point. It will be the first FTZ point in Northern Ontario and one of 15 in Canada. The city will now offer exemptions from duties, tariffs, and taxes for businesses engaged in importing and exporting. This new development will be advantageous to companies importing and exporting within Sault Ste. Marie, as well as companies with import/export operations in the surrounding cities.

The global bull market for metals has just begun, and though we are in early days, the prospect of a commodity boom bodes extremely well for the economies in Sudbury, Timmins, and Sault Ste. Marie. Expanding opportunities for employment, in conjunction with affordable cost of living and increasing livability in these up-and-coming cities, is guaranteed to bolster housing demand. In other words, the effect of a commodity boom on real estate markets will be positive. Finally, commodity prices are believed to be a leading indicator of inflation. And given that real estate tends to appreciate on par with inflation, the bottom line is that now is a prime time to invest in real estate in commodity-rich markets.