The world's largest mining convention was not a
mother lode of pessimism, as some might have expected
considering the majority of participants were junior and
intermediate mining companies, many on life-support.
Undoubtedly, this year's Prospectors and Developers
Association of Canada (PDAC) four-day conference in Toronto in
early March was a more subdued affair than in recent years,
when commodity prices were charging to all-time highs and
financing options were plentiful.
About 18,000 people attended this year's
conference, not too far from last year's record 20,100, and
most convention booths were full, albeit perhaps with bargain
hunters seeking the ultimate "buy low" opportunities. And while
the many face-to-face meetings might be a prelude to a wave of
merger and acquisition activity that's been predicted for the
sector, it was gold that lifted spirits in the short term. The
shiny metal reached $1,000 an ounce just before the conference
and had many juniors talking up the precious metals components
of their holdings. Although some juniors were predicting prices
of up to $2,000 an ounce later this year, the outlook presented
by conference speakers was less bright.
Long-time metals analyst Jim Steel with HSBC
Securities in New York said gold was in jeopardy of losing some
of its recent luster. Steel said that jewelry demand is easing
around the world, with Indian consumption in particular
nose-diving whenever prices creep above $900 an ounce. Steel
said that bullion has been rallying in a disinflationary
environment as investors seek a safe haven, a condition
unlikely to persist much longer, given that investors usually
buy gold as a hedge against rising inflation. "Our view is
we're going to continue to see a steady but modest decline in
the gold price," he said.
The outlook presented for nonferrous metals wasn't
much rosier. Alan Williamson, chief economist with Trafigura
Group unit Galena Asset Management based in London, told
delegates that consensus metal consumption forecasts are too
optimistic, given the fall in industrial production in major
economies. Although he saw limited downside going forward, he
believed any fundamental improvement in prices would have to
wait until 2011.
If those predictions didn't seem sobering enough,
delegates heard Marc Faber-author of the monthly investment
newsletter "The Gloom Boom & Doom Report" and infamously
known as Dr. Doom-conclude the conference with a luncheon
presentation speculating that the financial crisis will spark
war-like actions between the United States and China and that
the Dow Jones Industrial Average may end up lower than the
(current) gold price. But even Dr. Doom ended on a positive
note, predicting that prices for commodities would eventually
recover with growth in the Chinese economy and a lack of
investment in new resources.
Other veins of optimism were evident throughout the
conference. Executives with producers such as FNX Mining Co.
Inc. and HudBay Minerals Inc. were more bullish than the
analysts. Both the Toronto-based diversified miners believe a
recovery in base metals is in store, probably in late 2010.
That type of rebound wouldn't surprise PDAC
president John Baird, who has spent more than three decades in
the mining business and said the current downturn is just part
of its typical cycle. "The strength of this industry is that
this is normal and we know how to carry on," Baird said in an
interview with AMM. "When you go around the convention and you
meet people who are veterans, no one is concerned."
That's not to say these aren't rough times, Baird
said. But the industry will get through it. "We'll lose some of
the juniors, others will merge and others will do very well,
thank you very much."
Baird pointed out that due to the recent commodity
boom, many mining companies are not as heavily indebted to the
banks. In the past, banks insisted on keeping mining operations
running because they wanted their interest payments. Now,
producers can curtail output in a constructive fashion,
benefiting the market by reducing oversupply.
Baird also noted that mining financings are
starting to show some life. Indeed, according to TMX Group,
which operates the Toronto Stock Exchange and the TSX Venture
Exchange, about $1.5 billion in global equity was raised in the
sector from the start of the year up until the March
conference. It's an impressive tally, considering that during
the last downturn in 2000 global miners raised only $3 billion
during the full year.
"There are all kinds of private placements being
made. There are so many bargains in assets in the mining
industry today, and that's why investors are here," Baird
There are silver linings, it seems, to even the
"bust" part of a boom-and-bust cycle, bit it may take much more
than a mining conference to coax investors into putting money
back in the sector. Darcy Keith