LAWRIE WILLIAMS: PDAC Take-Away. Optimism for gold and mining in general
The annual Prospectors and Developers Association of Canada (PDAC) Convention is truly something special. Although unable to attend this year I have been watching reports on the event with considerable interest as it is very much a bellwether of the mineral exploration sector – and that is itself a great indicator of the strength, or otherwise, of the global mining industry and where it is headed. This year’s PDAC took place from March 5th-8th inclusive.
I had been attending the PDAC since 1977 and it has always been one of the industry’s highlights. Back then the whole event took place in the Royal York Hotel and attendance rose to around 7-8,000 at its peak before it transferred to the nearby Toronto Convention Centre, since when it has grown enormously to become what is probably the world’s biggest annual mining event. Numbers of attendees peaked four years back at around 32,000 when the industry – and gold mining in particular – had been riding high, although had been beginning to turn down. Gold exploration and mining has always been the principal driver of PDAC sentiment – and attendance. At the time of the 2013 PDAC Convention the gold price was at just under $1,600 on its way down to a low of around $1,060 by December 2015, and numbers attending the event had fallen accordingly, but this year 22,000 delegates were expected, in line with the 2016 figure, and in the event 24,161 passed through the doors indicating a more optimistic outlook for the industry.
The big attendance driver at the PDAC has been the decision, taken some years ago now, to devote a part of the event to the Investors’ Exchange – a free-to-enter element where junior miners and some ancillary service companies could display their wares at a lower cost than at some of the other commercial junior mining events. As a result the conference/exhibition nowadays completely fills the Convention Centre whereas only a few years ago the whole PDAC could fit into one half of it – initially the North Hall, and then the larger South Hall section, and now both! And still the convention centre seems almost overwhelmed by the numbers of attendees.
The exhibition comprises a standard Trade Show, largely of equipment and services, and also national and provincial exhibits, which is open to paying delegates, and the always packed Investors Exchange available to be visited by investors and potential investors for free as well, of course by the paid delegates. Altogether there were some 900 exhibitors this year, with some Investors Exchange exhibitors having only two day slots. And there is a waiting list for both the Trade Show and the Investors Exchange such is the popularity of the event.
The exhibition is supported by a series of themed conferences, mostly focusing on mineral exploration, as well as special luncheons (some attended by the great and the good of Canadian mining and mining finance) and events, while the evenings see the nearby hotels host a huge number of hospitality functions and suites – a factor which means, for example, that The Royal York does not lose out from the move to the Convention Centre with all its meeting and function rooms booked solid throughout the four days of the PDAC.
So what was the mood at this year’s PDAC Convention? Reading the reports it was an upbeat year. Majors and juniors alike have been talking growth, although among the latter there are still many who are only in it to get rich quick at the expense of investors sucked in to put their hard-earned money into dubious projects which will probably never see the light of day as mining operations. But among them there are undoubtedly some gems which will turn into major money spinners for their risk-taking investors. That is the glamour side of mining and keeps investors interested. But one really needs to do one’s due diligence. Junior mining and exploration is like politics – dominated by spin and ‘fake news’.
As to there being the beginnings of a pick-up in the industry, there are reports that some majors, which have mostly been cutting back on expenditures and admin and operating costs, are beginning to turn with the realisation that without finding new deposits, their raison d’être will be eroded as existing mines grow old and are faced with diminishing grades and reserves. There is also talk that they are now actively recruiting – mining is an aging industry and unless there is a flow of new blood coming in, companies will struggle to meet their commitments. Now may be a good time for aspiring university students look at geology as their major and ride the next boom. Mining is very definitely a cyclical industry and if PDAC sentiment is anything to go by we may well be at the end of a downcycle with the only way upwards – at least until the next downturn. But, of course, when there is optimism in the air, as there was this year, the sharks circle eager to deprive the unwary of their money.
But – as noted above – PDAC sentiment has always been dominated by gold and the prospects for gold exploration. There are some potential huge known low grade gold deposits out there, most of which have already been hyped to the skies, but they would be hugely expensive to develop – several billions of dollars in most cases – and may remain untouched for many years yet unless – or until - there is a massive uptick in the gold price. The appetite among the sources of finance for mega loans in the billions is still not present.
The other problem facing the industry as a whole, and gold in particular, is that most of the easily achievable costs savings have already been made by the existing mine operators. There is still pressure to keep bringing down All-In-Sustaining-Costs (AISC), but increasingly the only way of doing this is by mining to higher grades, thereby increasing output, but at the expense of long term mine life. New discoveries that are still being made, and there are some, are mostly relatively small and likely to have little significant long term impact on global new mined production. Most of the majors are still looking at brownfield sites close to existing operations as the most likely sources for relatively easily exploitable additional mineable ores - but the optimism noted at the PDAC, in part engendered by the positive move in the gold price this year, will indeed give gold explorers something of a new lease of life. Recent PDAC sentiment had suffered from what many had seen as an inexorable downturn in the gold price, while other mineral commodities had also been performing poorly, but this reversed last year, hence the optimism which is beginning to take effect.
Some see the lack of new big gold discoveries as the precursor to peak gold (which may already be with us) as the ultimate panacea, driving the metal price upwards as a shortage of new mined gold develops. With a new mine nowadays taking upwards of half a decade to bring into production this is indeed a reality, but whether that will be a major price driver remains to be seen. With so much gold held in above ground stocks one can argue that gold availability will remain high regardless of new mined production, although will undoubtedly require some kind of price rise to bring it back into circulation. Whether that price rise will be sufficient to re-stimulate the junior exploration sector to its former levels is as yet uncertain – but the optimism at the PDAC this year suggests that at least some kind of resurrection for the gold explorer is already in sight.