Editorial: The PDAC-saw

The first week of March was dominated by the Prospectors and Developers Association of Canada’s mega-convention in Toronto, with 30,147 investors, analysts, mining executives, geologists, government officials, students and international delegations converging in downtown Toronto, just slightly off last year’s record numbers.

The floor was again overwhelming, with more than 10 interesting things going on at any given time for four days straight, and so many people circulating that you could no longer count on just bumping into someone you wanted to meet.

Not bad at all, considering the sharp downturn for junior miners over the past year. Still, the mood was much more sombre than during the giddiest peaks of 2006 and 2011, and a few juniors couldn’t scratch enough money together to buy an airplane ticket and occupy their hard-to-come-by booths.

Lack of funding for juniors was the number-one topic for speakers and delegates. Number two was the dismal share price performances of so many juniors over the last years, as the term “penny stock” has once again become an accurate description of many companies’ shares, rather than a quaint phrase from another era.

There’s a discernible mental exhaustion in the industry these days, in that so many of the big ideas that powered the mineral exploration industry over the past 15 years have played themselves out, having years ago generated a cascade of price rallies for just about every element on the periodic table, and share-price lifts in the junior explorers looking for them.

(About the only mined mineral commodity left that hasn’t boomed over the past decade is halite. You can almost hear the Howe Street pitches: “Did you know that the Chinese are using 5% more salt in their diet every year?” . . . “I heard McDonalds’ off-the-books salt stockpile doesn’t really exist.”)

The factors driving mineral commodities have remained the same for many years now: the U.S. fiscal fight, the deep cracks in the eurozone, Chinese economic growth rates, emerging market growth, inflation, central bank action, general fiscal policies among the big players, the U.S. dollar and general political risk.

People who have the mental habit of singular fixation will tend to pick one of these above factors to explain everything (hello, gold bugs), but in fact, they’re all contributors to setting commodity prices, with their relative influences ebbing and flowing.

At a nitty-gritty level of people just trying to run a junior mining company, one of the hardest truths to bear over the past couple of years is that the financial model and sales pitches to investors that ‘mining juniors are leveraged to the price of the commodities they’re chasing’ hasn’t been born out since at least 2006 for gold, and early 2011 for base metals.

No wonder so many investors feel burned: It’s one thing to have your gold shares drop 50% over one year, even as the company carries out its business plan exactly as envisaged. It’s quite another to suffer these losses when gold prices are still trading around historic, all-time highs.

And new for 2013, so far at least, there is another reason not to invest in mining stocks: the soaring U.S. stock market.

The best news for the suffering mineral exploration industry, and the main reason the blues haven’t seeped in too deep among this inherently sunny bunch, is the undeniable forecast that overall demand for minerals will continue to be strong and grow for decades to come, as urbanization rates, infrastructure investment and general wealth increase across the globe.

Meanwhile, political and environmental constraints were front and centre on many PDAC delegates’ minds.

The Ring of Fire session on the potential of building a chromite mining complex in northern Ontario perfectly encapsulated how a project can get bogged down for years, as relationships grow cold between mining companies and locals. 

When Cliffs Natural Resources’ Cleveland-based vice-president of operations for global ferroalloys, Kenneth Pavlich, (the only one of the session’s six speakers who came from an actual mining company) stood up to describe his company’s activities in the Ring of Fire, he described the project as being “in the middle of nowhere.”

The next speaker was Elsie MacDonald, former chief and current councillor of the local Webequie First Nation, who quietly but firmly rebuked Pavlich by saying: “What you call the middle of nowhere is my backyard.”