Upbeat convention may not disappoint Recovery rates

The empties cleared away, the maps rolled back up, and the carpets steamed; so endeth the latest convention of the Prospectors & Developers Association of Canada.

It’s been usual, over the past few years, to go away from the PDA feeling upbeat, and most of those in attendance seem to be going away happy, if not altogether healthy. Are we right this year, and were we wrong last year?

Let’s dispose of the latter question first: as bumpy as the ride was, 2002 was a pretty good year for much of the mining industry, including the junior exploration companies. The turnaround in the gold business, driven by the liquidation of hedges, weakness in the U.S. dollar, and (it is often forgotten) declining supply, led gold equities to a year where they had few rivals in price performance.

Base metal prices didn’t recover like the gold price, but the five major industrial metals — aluminum, copper, lead, nickel and zinc — all rose in price, if only slightly, over the course of the year. Nickel, of course, posted the biggest gains, partly accounting for the renewed interest the junior explorers have in the metal.

A slow upward trend in the number of financings, and the amount of money going into them, seems to be holding, too.

All that is good news. Much as we might like to see easy money sloshing around in the exploration business, perhaps we should be reassured when slower but steadier growth is what we really get. Money can sometimes be a little too easy to raise.

As for 2003, some signs suggest that another good, if unspectacular, year is in prospect. Share prices have fallen back, particularly among the gold producers, making them better values. The improvement in base metal prices has been spotty, but nickel has continued to be a good performer. The “Iraq” premium seems mostly to have been taken out of the gold price. When the little overvaluations drain quickly away, the big ones don’t have as much of a chance to develop.

What would it take to make 2003 a great year instead of a good one? The indispensable is a good discovery — and the best combination might be a good one without any hype attached to it. In that respect, it’s reassuring to note that Ivanhoe Mines’ big copper discovery in Mongolia has triggered a land play but not a stock-market frenzy, and that exploration successes from Melville Island to Yunnan have not been attended by any sudden great flow of money into the market.

A durable rise in metal prices would be another blessing. At long last there seems to be a floor under gold prices, the vitally important indicator for most of the junior sector. A weaker U.S. dollar always helps the gold price. The greenback’s reserve-currency rivals, the yen and euro, are held in disfavour by many investors, opening the way for a modest increase in investment demand for gold.

Add a gentle upward slope in world economic growth, and recoveries in the demand for base metals, and the ingredients for a good year are in place. Our fingers are crossed.