Roundup’s success may mean good things Western sunrise

Last year and the year before, the Vancouver mining set’s annual January fixture, the Cordilleran Roundup, offered a sweet-scented promise of spring coming to the mining business. In 2001, there was hope for the platinum group metals, and in 2002, staking rushes in the Otish Mountains and the Coronation Gulf area captured everyone’s imagination.

The essence of wild rose didn’t hang around for the whole year either time, but we’re still optimists here. If junior exploration can sometimes be — like a second marriage — the triumph of hope over experience, then the Roundup is one of the industry’s indispensible ‘meet-markets’; and the mood at this year’s show has us hopeful about a return to good times in the junior exploration business.

For starters, the investment conference preceding the Roundup was expected to draw 2,000 people. As things turned out, there were 3,000, and if they were an indication of retail investor sentiment, conditions in the market may indeed be turning around.

Certainly this year’s Roundup comes at a time when the gold price is riding high, at least in comparison to the past five years. The 2001 Roundup presaged the bottom of the bullion market; that in 2002 came just as gold was crossing into the US$300 range. This year, the gold price has been touching six-year highs, and investors suddenly love the mining business again. And it has been a long time, indeed, since investors heard about gold stocks being among the top performers on the major capital markets.

It’s essential to bring the retail investor back, preferably by making him some money — because “big” money will have nothing to do with a sector until it starts showing some returns. It is received wisdom that professional investors are normally ahead of the game, but when the pros neglect an industry, who but the retail player is left to score?

Retail interest could inject some badly needed money into the exploration business. Certainly financings have been easier to come by since the gold price exploded, and if budgets can be turned into discoveries, some sharp investors may get wealthy. Results like that would be good for the juniors, and would serve notice to larger investors that mineral exploration was back in town.

Maybe just as important, the majors are starting to look once more for reserves and for smelter feed. This has loosed a pack of junior companies with projects that can often be turned into producers in a relatively short space, or can have significant value added through a little well-placed drilling or some new technical insight. It would be premature to say metal prices are firming, but the big fish are painfully conscious of their own looming needs.

Once that consciousness works its way downstream, to the end users of the commodities, there could be a definite change in the attitude sophisticated investors take toward the commodity producers.

That, in turn, could change the producers’ near-term cost of capital, which would have implications for all kinds of projects. One of the hardest hills for “old” economy companies to climb in recent years was the unflattering comparison of their returns to the money that could be made in the booming “new” economy. If there is one way to ensure that a business can’t plan for the future, it is to make that business conform to a sustained double-digit growth model. While nutty business models got a pass on that requirement — after all, they were turning market profits for the shareholders — the traditional industries had to meet the new expectations.

Freed from that fantasy, metal producers may be able to look at projects with a view to making plain old boring money again. This will be good all the way down the industry’s food chain.