Sentiment muted at PDAC conference despite signs of life in mining industry

Some optimism is beginning to creep back into the mining sector – although not much.

Sentiment is rather muted to date in the Prospectors and Developers Association of Canada (PDAC) conference, which kicked off Sunday in Toronto. The conference, which is 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 things 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 as a whole remain extremely weak because of oversupply and concerns about China’s economy. Most junior miners can’t raise a penny of capital, and share costs are, in many cases, less than they were before metal prices began to rise in the early 2000s.

“We, as an industry, wasted the opportunity provided by the biggest and biggest boom in commodity prices,” Mark Bristow, the chief executive of Randgold Resources Ltd., told the crowd, citing the industry’s inadequate spending decisions and vast amounts of dollars of writedowns.

Miners are an upbeat group by nature, and there are a handful of glimmers of hope for the sector which were absent until very recently. Metal prices show signs of life within the last several weeks, and gold in particular has been hot, jumping back above US$1,250 an oz. A handful of gold companies happen to be able to raise capital this year, and share prices within the gold space are up sharply from their lows last year.

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Battered miners see glimmer of hope as industry gathers at PDAC in Toronto

When commodities rebounded in 2009 following the global financial trouble, gold was the first one to progress. Companies at the PDAC show are hopeful that history will repeat itself along with other metals will quickly follow.

But for the time being, raising capital remains extremely hard, if not impossible, for many junior mining companies. Countless them are on life support.

Every single part of this room would take cash whether it was provided to them

“Every single person in this room would take cash whether 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’ve got to see commodities rise.”

Expert speakers maintained a really cautious outlook of all metals on Sunday.

Paul Robinson, a director in the CRU Group (which tracks commodity markets), pointed to 1 fundamental problem: mining companies are continuing to create more and more metal despite muted demand. Unfortunately, CRU predicts that trend continues in 2016, and costs for most major metals will fall further.



“We do not believe there will be enough supply cuts to regain confidence,” Robinson said inside 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 might average US$1,190 an oz this year and more than 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 year.

The PDAC conference drew more than 23,000 people this past year. The show was busy again on Sunday regardless of the weak market conditions cheap institutional investors have little curiosity about the mining space at this time. It appears that a severe four-year downturn isn’t enough to dampen all spirits in this industry.

“One from the great things about the industry is it’s filled with optimistic people who can invariably begin to see the light after the tunnel,” said Lee Hodgkinson, national mining leader at KPMG LLP.

pkoven@nationalpost.com

Twitter.com/peterkoven