Yukonomist: Silvertip, Covid-19 and the Yukon economy: Chapter 1

Covid-19 has just delivered a crushing head-down bodycheck to markets.

The Silvertip mine has announced it will suspend operations. Its owners, Coeur Mining of Chicago, say it is because of low prices for lead and zinc. The mine has 167 employees and is located 90 kilometres southwest of Watson Lake.

BMO Economics’ commodities report says that the average price for zinc in February (up to February 24) was 98 cents (US) per pound. That’s well below the level in 2017 when Coeur bought the mine. In 2017 and 2018, zinc prices averaged over $1.30 (US) per pound.

Lead was also high when Coeur bought Silvertip, over $1.20 (US) per pound in early 2018, according to Kitco. It has recently been trading under 90 cents (US).

It’s worth noting that today’s prices for lead and zinc, although lower than the halcyon days of 2017, are still higher than the lows for both metals in the 2010-16 period. There’s no guarantee lead and zinc prices will rebound.

At this point, many analysts would put their heads down to dive into spreadsheets on global supply and demand.

However, Covid-19 has just delivered a crushing head-down bodycheck to markets. Stock markets have tanked, commodity prices have post-holed, factories are on furlough and supply chains are frozen. Forecasters are talking about China’s economic growth not just slowing, but going into reverse.

A prolonged disruption to the global economy, especially one centred in industrial powerhouse China, would be grim news for industrial commodities such as lead and zinc. The Yukon is rich in lead and zinc and has a long list of past, current and future mining properties focused on those minerals.

The story for gold is different. Bad news is often good news for the Yukon’s favourite metal. Investors generally pile into it as a safe haven when global turmoil strikes. Strangely, gold has behaved differently with Covid-19. Gold fell in late February from over $1,650 to $1,585 (US) per ounce on February 28. Some market watchers put this down to a general panic across all markets as the economic implications of Covid-19’s spread sank in.

Then, earlier this week, gold surged back to over $1,650 (US) after the US Federal Reserve announced its emergency 0.5 percent interest rate cut to shore up the economy versus Covid-19. That puts gold substantially higher than the 2017 average of $1,258 (US).

Gold’s next move is anyone’s guess, but goldbugs expect it to maintain its “safe haven” status as investors watch uncertainties from Iran to Covid-19 to the U.S. election over coming months.

This would be good news for Yukon gold miners.

But we shouldn’t chortle over the colours in our pan too soon.

What I’ve told you so far could be just Chapter 1 of the Covid-19 story.

Dr. Jonathan Quick, a global health professor at Duke University and former chair of the Global Health Council, recently laid out two broad possible storylines for the Guardian newspaper. The optimistic one has China getting the Wuhan epicentre under control, and other countries stamping out the smaller “flames” of the virus that have flared up elsewhere.

The pessimistic version is that Covid-19 is sufficiently contagious to go global from its current beachheads and “circulate permanently in the human population.”

In his interview on February 27, he said that the pessimistic scenario “is looking increasingly likely.” Since then, more cases have popped up in more countries. This includes, troublingly, cases where the victims have no clear direct connection to Wuhan or people who traveled there.

Quick says the fatality rate is “just over two per cent,” much lower than the previous SARS outbreak but “20 times that of seasonal flu.”

If the pessimistic storyline unfolds, forecasting the economic outlook for the Yukon and the planet becomes next to impossible. Everything will depend on the success of public health efforts to slow the spread of the disease and reduce the numbers hospitalized and killed.

We would all be wise to prepare ourselves for this unwelcome possibility. Economically, for the Yukon it would mean lower commodity prices for everything except gold mining, less travel and fewer tourists, and a national economic slowdown that would eventually feed through to the Yukon via our transfer payment formula.

Even companies not exposed to mining and tourism should stress test their financials in the unlikely event that, like businesses in Wuhan, they have to close their doors and send employees to work from home.

The latter is manageable if you run a consulting business. Not so much if you own a restaurant.

If you work for a company that may have to lay you off or reduce your hours, you should stress test your own income, debt and rainy day fund.

Let us hope that what the people in Wuhan, Iran and northern Italy are coping with ends soon, and that none of this happens to the Yukon.

In the meantime, we should all remember that public health is a responsibility we all share. Epidemiologists use the phrase “herd immunity” for a reason and, remember, you are a member of our herd. If you haven’t already, you should start visiting the website of the Yukon’s medical officer of health to stay up to date: www.yukoncmoh.ca

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He is a Ma Murray award-winner for best columnist and received the bronze for Outstanding Columnist in the 2019 Canadian Community Newspaper Awards.

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