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PDAC 2010 was as upbeat and buoyant as last year’s was just the opposite

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TORONTO: Just one year ago, Teck Resources Ltd. was staring into the abyss.

At the Prospectors and Developers Association of Canada (PDAC) annual convention last year, the Vancouver, British Columbia-based company found itself buried in debt as it borrowed billions just as global commodity markets were melting down in epic fashion. Bankruptcy was certainly an option for Canada's largest diversified miner at the time.

Just 12 months later, Teck not only has survived—thanks in large part to Canadian $1.74 billion in financing from China Investment Corp. and an uptick in Asian demand—but has seen its stock value soar by about 540 percent. The coal, copper and zinc producer even supplied the metal draped around the necks of winter Olympians in Vancouver. Talk about a turnaround.

"This year feels a little bit different than it did last year, both to us and I believe to everyone here," Donald R. Lindsay, Teck's president and chief executive officer, said on the sidelines of this year's PDAC convention in Toronto. "We came to PDAC to take advantage of this feel-good factor."

David Anderson, who serves as Canada's Parliamentary Secretary to the Minister of Natural Resources, also sensed renewed vigor and hope among the more than 20,000 delegates. "It's good see that the mood this year is much more optimistic. The mining industry is showing signs of recovery and commodity prices are improving and jobs have been created, and the long-term prognosis is good," he said.

And there was plenty of good news at the convention. Keynote speaker Andrew Keen, HSBC Securities Inc.'s head of metals and mining equity research for Europe, the Middle East and Africa, said that not only are supply/demand fundamentals improved but companies' balance sheets are relatively clean as nearly everyone took dramatic steps to reduce debt and cut capital expenditures during the downturn. "When you put a revival in commodity prices alongside a structural reduction in costs and a repaired industry balance sheet, you get a wall of cash coming through," he said.

With investors looking to spend and companies on the prowl for acquisitions, there could be significant consolidation within the Canadian junior mining sector, which was badly bruised during the downturn. Juniors raised less than C$3 billion ($2.97 billion) on the Toronto Stock Exchange (TSX) venture exchange last year, a nearly 60-percent decrease from a record C$7 billion two years ago.

Gordon J. Bogden, managing partner of Gryphon Partners, said that juniors are now looking to acquire non-strategic or smaller assets shed by the majors, and there should be more merger-and-acquisition movement between juniors and small intermediates.

Paul Murphy, partner at PricewaterhouseCoopers, said the global financial crisis meant that few investors were prepared to take a chance on production and development companies, exploration companies or any company perceived to carry a higher investment risk.

Not so this year. Murphy anticipates a "blockbuster year" for sector M&A as capital from recent financings is deployed ahead of expectations of rising commodity prices. "Specifically, we expect a steep uptick in deal volumes, a tepid resurgence of deals of more than C$500 million ($494.5 million) and a moderate shift in China's focus away from outright acquisitions of Canadian projects," he said.

But that doesn't mean Canada's miners are out of the woods and without challenges. One issue facing the industry is the lack of a strong middle tier, a number of delegates said.

"Currently, there's a big gap between Teck and everyone else," Dave Constable, vice president of investor relations at Toronto-based FNX Mining Co. Inc., said. "The market would be rewarded if we can build more base metal champions (in Canada)." He said that most Canadian juniors are too small to be owned by all the funds, which makes it difficult to raise capital for acquisitions or to move into production.

Many of the companies attending this year's convention were beating the drum against Bill C-300, proposed legislation that would give the Minister of Foreign Affairs and International Trade Canada the authority to investigate complaints about Canadian mining companies in developing nations. The proposed legislation also would deny taxpayer-funded financing to companies that are found to violate human rights or environmental standards.

Tony Andrews, PDAC's executive director, said during a press conference that Bill C-300 does not provide Canadian companies with due process and would seriously harm Canada's leading position within the metals and mining industry.

"Even if a complaint is unfounded or frivolous, an investigation will have to occur to establish that fact," he said. "It's a process that can be easily abused and used as a tactic by anti-mining groups because they know that being investigated by your own government can translate into very serious reputational damage for the company."

But even with the challenges, most PDAC members are looking forward to the rest of the year.

"Even the volume in the exhibition hall is louder this year," said an executive from a Canadian-owned nickel junior. "Last year, there were still a lot of people here but everyone was moping around in a daze. This year, people are on the warpath because there's hope that once again they can make their dreams happen."

TOM JENNEMANN


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