Australia grabs PDAC spotlight

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Australia was the big newsmaker at the Prospectors & Developers Association of Canada’s annual conference which took place in Toronto early March, just a few days earlier Western Australia was named the world’s most-friendly mining jurisdiction, by the Fraser Institute Survey of Mining Companies, 2015.

That nomination, coupled with rising gold prices which have increased the relative attractiveness of numerous Australian ore bodies as well as falling oil prices which have been putting downwards pressures on extraction costs, provided good news amidst a sector beset with challenges. 

More than 22,000 geologists, investors, politicians, students and other stakeholders attended the annual Toronto event, which targets the junior mining sector. This year, PDAC also hosted its first International Mines Ministers Summit, which brought together mining ministers from 16 countries.

Many bill PDAC as the world’s largest mining conference. For example BNN, a Canadian business-news channel, notes that this year attendance dwarfed the 7000 participants who showed up at the Indaba gathering in Cape Town last year; the 2100 who attended IMARC in Melbourne, Australia; the 2500 at Mines and Money London; and the 8000 at the China Mining Congress.

International participation amidst a tough economy

More than half of the world’s public mining companies are listed on the Toronto Stock Exchange and Toronto Venture Exchange; so PDAC naturally attracted huge international interest. This included participants from more than 100 countries, notably a strong Australian component. Peru and Ecuador, which are trying to attract increased international investment in their domestic mining sectors, also hosted large delegations.

The mood at PDAC was surprisingly upbeat despite the weak data underpinning the industry in recent months, which was highlighted in a piece compiled by SNL Metals & Mining. The company’s World Exploration and Trends 2015 report, which was released at the conference, noted that non-ferrous exploration fell by 19 per cent to $9.3 billion in 2015. This followed a 26 per cent decline the previous year. “With depressed metals prices and weakening Chinese demand, combined with strong metal production and high levels of political turmoil, investors are shunning the industry,” the report noted.

Mining stocks, pushed down by the tanking prices of coal, iron ore, copper and other commodities haven’t fared much better. For example earlier this year the Bloomberg World Mining Index hit an 11-year low. According to one estimate, more than $1.4 trillion worth of market capitalisation was wiped out, from to the index’s 2011 peak.

Western Australia comes in tops

The boost from the Fraser Institute report could not have come at a better time for Australia’s mining sector, which has also seen its share of woes, due to slumping demand in emerging markets for the sector’s offerings.

Western Australia’s number one ranking is up three spots from its fourth place showing the previous year. Saskatchewan, in Canada, once again came in second place in the survey which measures “how mineral endowments and public policy factors such as taxation and regulatory uncertainty, affect exploration investment.” The US state of Nevada dropped to third.

According to Don Flint, assistant director (resources) at the Western Australian Department of Mines and Petroleum, the ranking is extremely important due to the study’s influence with international investors who are vulnerable when they decide to develop a project, due to the large investments typically required. “The fact that the Fraser Institute is an independent organisation makes its ranking all the more credible,” Flint said.

“Because it’s not just us blowing our own horn.”  

According to one highly-placed Canadian source, who is not allowed to speak on the record to media, Western Australia fully deserved its positive recommendation. The source cited Cameco’s large investment in a Western Australian uranium deposit, during a time that Uranium mining was banned there, as a vote of confidence that mining companies can work with public sector and environmental groups in the region to advance developments in a sustainable manner.

US dollar up, energy costs down

The recent uptick in gold prices since the start of the year is also providing some respite for Australian producers, who hope that the trend spreads to other metals. Gold prices have tended to track other commodity prices in recent years. However its recent spike suggests that the precious metal may be trading more like a currency lately.

That said, experts say that the recent move up is benefitting marginal producers such as Newmarket Gold, a TSX listed company that operates three major properties in Australia. Newmarket, like many Australian and non-US producers, is also benefitting from the fact that the yellow metal trades in US dollars and that operating costs are priced in local currencies, many of which, like the Australian dollar, have fallen against the greenback. This significantly increases operating margins at the mines and mills.

This dual currency dynamic helps almost all Australian mining producers. For example one official at Aeris Resources, an Australian copper producer which recently restructured, noted on background that the price which it is getting for copper – which is at a six year low in USD terms – is nevertheless doing well in AUD terms. The company, like almost all Australian producers is also benefitting from falling oil prices, which for many, comprise a significant portion of the operating costs.

The PDAC bounce?

One example of PDAC’s huge global influence, which sector participants don’t like to talk about too much, relates to the “PDAC bounce,” that gold and many gold company stocks get prior to the convention. In past years, particularly during 2015, investors bid up the prices of both categories of assets prior to the event, in large part due to the buzz surrounding it, only to see them fall after the convention was over.

Whether that will happen again this time around is anyone’s guess. However the 22,000 participants who attended the conference and those that work at the organisations they represent, are crossing their fingers hoping that it won’t.