PDAC curse or blessing? Fresh from the Letter Writer Presentations track at the Prospectors and Developers Association of Canada (PDAC) conference, The Gold Report asked thought leaders to share their impressions from the annual minefest. Adrian Day Asset Management Founder Adrian Day, Exploration Insights Publisher Brent Cook, House Mountain Partners Founder Chris Berry and The Daily Gold Premium Publisher Jordan Roy-Byrne used terms such as "realistic" and "muted." Eric Coffin, editor of Hard Rock Analyst, posited that the lack of excitement might actually benefit the few companies that rose on good conference-timed news because it removed the chance of a "PDAC curse" dropping stock prices after the event. Let's see if all the voices agree.
The Gold Report: What was the mood at the Prospectors and Developers Association of Canada annual meeting? Did any companies stand out to you?
Brent Cook: There was an overall lack of "buzz" and news releases. Although many companies seemed to time news for the event, not many had market moving news. It seemed most companies were keeping their heads down.
Chris Berry: Most were realistic. It is clear that the days of having the wind at the back of the mining industry based on China's increasing appetite for a host of commodities, is over—or at least paused. Companies across all market capitalizations have written down the value of assets, sold properties at a discount, and instituted strict cost discipline going forward.
Jordan Roy-Byrne: What stood out to me was the muted bullish sentiment or cautious optimism from the industry.
Adrian Day: While crowds were thinner, the mood was a little more optimistic, though realistic. Many companies were looking for projects, joint ventures and other deals.
Mirasol Resources Ltd.'s (MRZ:TSX.V) news of a management transition in the middle of the conference obviously attracted attention. One does not normally expect that kind of news during a major show!
Reservoir Minerals Inc. (RMC:TSX.V), with its fabulous discovery in Serbia as well as an exceptionally strong stock price, received lots of attention.
Eric Coffin: I saw no evidence of conditions that would lead to a "PDAC curse." Traffic was understandably lighter, but generally optimistic. Traders were pleasantly surprised by the lift in gold prices the first few weeks of March, but not overly aggressive. Many of them are worried about a post-PDAC pullback but I think that pullback is unlikely unless metal prices suddenly tanked.
The tsunami of press releases that normally comes out as companies save their news for this event was not there and the ones that did release didn't get really big reactions for the most part.
At the pre-PDAC Subscriber Investment Summit I hosted just before the show with Keith Schaefer and Lawrence Roulston, Columbus Gold Corp. (CGT:TSX.V) announced a pretty good set of holes from its Paul Isnard project in French Guiana. That one did get a pretty good reaction. The company reported good results from one end of the smaller mineralized horizon. This is a 30,000-meter drill program that will generate a lot of news and I think will increase both the size and confidence level of the resource. Columbus has one of the better looking charts.
SilverCrest Mines Inc. (SVL:TSX; SVLC:NYSE.MKT) was also very exciting. President N. Eric Fier is always compelling. With 30% revenue increases, what is not to like?
The market bottomed last summer, as I said at the time, but there were no catalysts to move it much higher. There are more reasons now, with a stronger gold market and seller exhaustion. I think physical demand and renewed ETF buying should be enough for gold to reach my current $1,400/ounce target and I may raise that. We will see 30%+ increases in the TSX Venture Index this year.
TGR: Were conference attendees worried about the impact of geopolitics on mining portfolios?
CB: The crises in Ukraine and Venezuela bring this question to the fore. Additionally, issues like slowing growth in China, inflationary pressures in emerging markets and resource nationalism appear set to provide investment opportunities, but also wipe out unsuspecting or careless resource investors.
TGR: What is a realistic portfolio today?
CB: I still see excess capacity across the industry, with the number of companies exploring for various metals/minerals, in particular. The paradox is that there are some tremendously undervalued opportunities out there, but with so many investors snakebitten from losses in recent years and a distinct lack of M&A activity on the part of the majors, these companies could stay undervalued for a while. I am still optimistic over the medium to long term because of underlying commodity demand. Population dynamics and the ubiquity of technology dictate that many more individuals in the future are poised to live more commodity-intensive lifestyles.
That said, I am a long-term optimist about commodities and emerging market growth and think that as long as investors are selective and have a disciplined strategy and approach, they can take advantage of opportunities.
A key takeaway from PDAC this year was that all commodities are not created equal. Uranium is clearly the belle of the ball right now. Differentiation and diversification among metals and across the value chain are keys to success going forward, if you're investing at this stage of the cycle. It is increasingly clear that large projects are being reevaluated in favor of smaller projects better able to fit into current and future demand forecasts. This is a good development.
On an additional positive note, there does seem to be a flurry of significant financings taking place, with NexGen Energy Ltd. (NXE:TSX.V) announcing a $10 million ($10M) bought-deal most recently. This is good news, specifically for the sustainability of junior uranium companies. If more financings of this type can be completed across various commodities, I think many of the questions I listed above will have been answered with a favorable outcome.
It was also abundantly clear that money is pooling and consolidating assets across a host of metals in the precious and base categories. Private equity money has moved into the mining sector and is intent on consolidating properties, recapitalizing companies and potentially spinning them out. Again, this is a longer-term positive sign for the industry as a whole, but differs from one metal to the next.
You can't rely on Elon Musk (Tesla [TSLA:NASDAQ]) or Russian President Vladimir Putin to boost metals prices sustainably. This may sound silly, but it's true. With the recent announcement of Tesla's gigafactory, share prices of U.S. and Canada-based lithium exploration and development plays exploded through the roof. Similarly, Putin's movement of Russian troops into Ukraine sent gold and silver much higher. These isolated events tell us nothing about true supply and demand dynamics of commodities, and everything about speculation and the fear and greed paradigm in financial markets.
Only organic growth, technological breakthroughs and sound fiscal and monetary policies will provide the basis for increasing and sustainable demand. The travails in the mining markets today are setting the stage for the next move higher, but I continue to believe that a mixed global growth picture and excess capacity have delayed this move into the future. Patience and selectivity are still the most prudent ways forward and can be rewarding in the interim, as we've seen with select uranium plays.
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