PDAC 2016: Hope for a new bull market in metals springs eternal at mining conference

TORONTO ? Veteran analysts in the world’s largest mining convention said Tuesday the commodity bear market may be near its end.

The comments were made throughout a panel at the 2016 PDAC conference. Several analysts noted that there are bullish signs accumulating on the market, together with a dearth of new projects, signs of tighter supply and the very cheap level of capital spending in the market.

Bullishness around mining stocks in general has certainly increased this month, as prices for metals such as copper, iron and gold have posted impressive gains.

“New capital spending has been cut, no one is building new mines, no one is searching for new mines,” said Greg Barnes, analyst at TD Newcrest. “We’ll have quite a rally after the decade.”

Every year when miners gather for the industry’s biggest annual convention in Toronto, one of the biggest questions is when the present cycle can come to an end.

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It’s become an existential question previously couple of years as miners have been confronted with a prolonged bear marketplace for metal prices. The has witnessed billions in dollars of assets written off, projects being cancelled or delayed and firms struggling to stay afloat.

Barnes noted that investors have been rushing to sell mining stocks previously few years, while shorting mining stocks was a popular play for hedge funds in 2015.



The past month, however, has seen an encouraging turnaround. Gold prices have risen to 13-month highs this week, while iron ore prices spiked 19 percent on Monday alone. Copper and aluminum have also registered strong gains, with copper up 15 percent since its January lows.

Barnes said that there are signs in a variety of metals, including copper and gold, that supply will tighten in the future years and prices could start upgrading faster.

“Gold supply is starting to rollover,” said Barnes. “Not many new mines are now being built also it could be a supply issue in four-to-five years.”

David Davidson, senior analyst at Paradigm Capital, asserted it is difficult to resolve when the current commodity cycle can finish, but supply constraint is a major story within the sector in the future years if global demand accumulates.

“I’m unsure what’s the trigger, it’s probably not going to be China, but it’s likely to be something,” he explained.

Davidson pointed to the copper market as you area where an upturn appears inevitable. While the marketplace is currently oversupplied, Davidson notes that it’s only oversupplied by 200,000 ounces, something he calls a “rounding error” inside a 24 million ounce market.

While the analysts at Tuesday’s panel were bullish, not everybody shares exactly the same opinion about the recent price moves.

Goldman Sachs warned Tuesday that any optimism is going to be short-lived. The investment bank warned that this year’s improvement in commodity prices is “not sustainable,” considering that global demand remains weak. In particular, data from China shows that the nation, which is the world’s largest commodity consumer, won’t begin to see the kind of economic stability required to increase commodity demand.

“We feel these rallies will also be not based on the broader financial environment in China,” Goldman analysts wrote inside a note.