Signs of life emerge at PDAC, but mood remains cautious

March 8, 2016

It’s been a rough year for the mining industry and that is reflected in the mood of things at the Prospectors and Developers Association of Canada (PDAC) conference in Toronto, according to a report in the Financial Post.

PDAC is the largest annual mining conference in North America and when times are good, it can attract more than 40,000 people eager to find the next investment opportunity, but when times are bad, its shows in this conference. Junior mining companies flocked to the show during mining’s Super Cycle. Investment dollars were flowing and exploration budgets were high. Not so much now.

“The commodity boom is long over, and metal prices as a whole remain extremely weak due to oversupply and concerns about China’s economy. Most junior miners can’t raise a penny of capital, and share prices are, in many cases, lower than they were before metal prices started to rise in the early 2000s,” the Financial Post wrote.

“We, as an industry, wasted the opportunity offered by the largest and biggest boom in commodity prices,” Mark Bristow, the chief executive of Randgold Resources Ltd., told the audience, citing the industry’s very poor spending decisions and billions of dollars of writedowns.

While things are bleak, there is a bright spot coming from the gold sector. Gold has been hot of late, jumping back above US$1,250 an ounce. A handful of gold companies have been able to raise capital this year, and share prices in the gold space are up sharply from their lows last year.

When commodities rebounded in 2009 following the global financial crisis, gold was the first one to move up. Companies at the PDAC show are hopeful that history will repeat itself and other metals will soon follow.

But for now, raising capital remains extremely difficult, if not impossible, for most junior mining companies. Hundreds of them are on life support.
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 one fundamental problem: mining companies are continuing to produce more and more metal despite muted demand. Unfortunately, CRU predicts that trend will continue in 2016, and prices for most major metals will fall further.

“We do not believe there will be 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 more than US$1,300 in 2017. He thinks the U.S. dollar is poised to weaken and noted a major uptick in gold investment demand so far this year.


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