Some optimism is starting to creep back into the mining sector – although not much.
Sentiment is rather muted so far in the Prospectors and Developers Association of Canada (PDAC) conference, which began Sunday in Toronto. The conference, the world’s biggest gathering of mining professionals, works as a good barometer for the state of the industry, which year’s show is really a reminder that situations are pretty grim.
We, as an industry, wasted the chance provided by the largest and biggest boom in commodity prices
The commodity boom is long over, and metal prices in general remain extremely weak because of oversupply and concerns about China’s economy. Most junior miners can’t raise anything of capital, and share prices are, oftentimes, lower than these were before metal prices started to rise in the first 2000s.
“We, being an industry, wasted the opportunity offered by the biggest and biggest boom in commodity prices,” Mark Bristow, the main executive of Randgold Resources Ltd., told the audience, citing the industry’s inadequate spending decisions and billions of dollars of writedowns.
Miners are an upbeat group naturally, there are a handful of glimmers of hope for the sector which were absent until very recently. Metal prices have shown indications of life in the last several weeks, and gold in particular continues to be hot, jumping back above US$1,250 an oz. A number of gold companies happen to be in a position to raise capital this year, and share prices within the gold space are up sharply from their lows last year.
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When commodities rebounded in ’09 following a global financial crisis, gold was the first one to move up. Companies at the PDAC show are hopeful that history will repeat itself along with other metals will quickly follow.
But for now, raising capital remains extremely hard, if not impossible, for most junior mining companies. Hundreds of options are on life support.
Every single part of this room would take cash whether it was offered to them
“Every single person in this room would take cash if it was offered to them,” said Aubrey Eveleigh, chief executive of Zenyatta Ventures Ltd., which has a graphite project in Ontario.
“But the main city financial markets are still frozen. They’ll come around eventually, but you need to see commodities rise.”
Expert speakers maintained a very cautious outlook on most metals on Sunday.
Paul Robinson, a director at the CRU Group (which tracks commodity markets), pointed to 1 fundamental problem: mining companies are continuing to create increasingly more metal despite muted demand. Unfortunately, CRU predicts that trend continues in 2016, and costs for most major metals will fall further.
“We don’t believe you will see enough supply cuts to regain confidence,” Robinson said in a presentation.
Not surprisingly, the outlook offered for gold was more bullish than most other commodities. Martin Murenbeeld, chief economist at Dundee Capital Markets, predicted it could average US$1,190 an ounce this year and most US$1,300 in 2017. He thinks the U.S. dollar is poised to weaken and noted a significant uptick in gold investment demand so far this season.
The PDAC conference drew more than 23,000 people this past year. The show was busy again on Sunday despite the weak market conditions cheap institutional investors have little curiosity about the mining space at this time. It seems that a severe four-year downturn isn’t enough to dampen all spirits within this industry.
“One of the advantages of the is it’s full of optimistic individuals who can invariably see the light at the end of the tunnel,” said Lee Hodgkinson, national mining leader at KPMG LLP.
pkoven@nationalpost.com
Twitter.com/peterkoven
