Motherlode of gloom
Bill Clinton and Elton John won’t be around this time. The fabulous buffet luncheon, hosted for years by the diamond companies and lavishly decorated with ice sculptures, is history, too.
And organizers don’t expect to break, or even match, last year’s attendance record of 20,100 at the Metro Toronto Convention Centre by any stretch.
What a difference a year makes in the topsy-turvy world of mining and for the industry’s biggest blast, known as the Prospectors and Developers Association of Canada convention, which kicks off its four-day run tomorrow.
The metals carnival that has hit town every winter for the past 77 years promises to be a little less glittery next week after the wild ride that has sent prices plunging in recent months, particularly for the base metals such as nickel, copper and zinc.
Even diamonds have lost their lustre as the once-superpopular gem companies have taken a beating along with the rest of the resources market.
The only silver lining is gold, which clawed its way back above $1,000 (U.S.) an ounce a week ago. It closed at $941.50 in New York yesterday.
"We are not invulnerable to this economic crisis. Our industry has been hit hard," says Tony Andrews, the PDAC’s executive director. "The context (of the event) is hugely different. The smaller companies that depend on the equity markets are in survival mode."
Rewind to last March. China’s voracious appetite for metals kept prices strong and Clinton and his mining mogul pal Frank Giustra hosted a star-studded fundraiser at the Westin Harbour Castle featuring Sir Elton, Tom Cruise, Robin Williams and Shakira.
The event raised millions for the ex-U.S. president’s charity and was timed to coincide with the annual conference because the money was being raised to help impoverished countries impacted by mining operations.
But since then, the mining sector has been slaughtered. Share prices for most companies have plummeted as investor interest wanes in an industry that had been going gangbusters for the past six years but recently had the stuffing kicked out of it.
Global stock markets have been hammered since September, but it’s been even worse on the TSX Venture Exchange, where most of the juniors trade. It has plunged a stunning 69 per cent since this time last year.
Ditto for metal prices.
Construction metal copper was nearing a peak of $4 a pound back then, but yesterday it was only worth $1.54.
Nickel, used mainly to make stainless steel, had come off its 2007 record high of $25 but was hanging in at $12.50 a pound at this time last year – more than enough to make mines economic. It’s now trading at $4.40, and several nickel mines around the world, including in Sudbury, have been closed. Even lowly lead was fetching $1.50 a pound and now sits at 47 cents.
"Last year at this time there was already a softening with the juniors, but it really hit the wall in September, 2008" when the markets started to tank, notes Andrews easy to get unsecured personal loans.
But the gold bugs will be out in full force because their fickle commodity is back in vogue, with bullion considered a safe haven in times of economic turmoil. The price of the yellow metal has nearly quadrupled since 2001.
"Investors want exposure to gold because it is money. Gold companies with solid cash flow or a significant discovery are going to be the focal point this year at the convention," muses Ian Ball, vice-president, Mexico, for junior explorer U.S. Gold Corp.
His boss, gold investment guru Rob McEwen, predicts the price will hit $2,000 (U.S.) an ounce by year’s end.
"Everyone is well aware of the economic crisis and mining is a very cyclical industry. We all look around and say, `well, we’ve been here before’," says PDAC president Jon Baird.
While downtown hotels are booked up and convention booths are completely filled – there is still a waiting list to get one – organizers are expecting a decline in traffic. Pre-registration numbers suggest attendance in the neighbourhood of 15,000, or a drop of 25 per cent. The massive gathering pumps $30 million into the local economy.
"We’re past the peak year of this cycle. I’d say this year is more like 1998 or ‘99, when the world was in an economic funk with the Asian crisis" and just after the Bre-X gold-salting saga turned investors away in droves, although there is no such scandal this time around, he notes.
So, despite being an industry renowned for its colourful characters and wild claims, don’t expect the flashy sales pitches and gimmicks of years past, says mining analyst John Hughes of Desjardins Securities.
"I think it will be a bit more subdued on the floor. You’ll be seeing a lot more emphasis on substance than on presentation this time around," he says.
"Potential investors won’t be interested in promises and hope (about a mining play). They will be looking more closely at the latest drill results, balance sheets and costs," says Hughes.
Even though interest in the sector has cooled, the one thing that organizers don’t expect to change is the social side of the event, which is well known for late-night bashes in hotel hospitality suites, among other evening galas and events.
Baird thinks networking is even more important in down times to get a company’s message out and drum up new investment for when things eventually turn around again.
"This is the party of all parties and the largest gathering for mining on the planet. It’s the one time a lot of the guys who crack rocks will even come to the city," jokes Hughes.
Filed under: economics by Specialist