The annual gathering of prospectors at the Metro Toronto Convention Centre is the biggest of its kind in the world, and it has grown bigger than ever – requiring a move to the much larger south side of the venue this year – in the midst of a scorching hot global metals boom.
But as an estimated 20,000 mining industry folks stake their collective claim on Toronto this weekend to talk rocks and whoop it up after hours in the hospitality suites, investors have to wonder: Where are all the big discoveries to get tongues wagging and take advantage of these insane metals prices?
Consider that gold is hurtling toward $1,000 (U.S.) an ounce and pretty platinum has topped the $2,000 an ounce mark and is expected to more than double in the coming years.
Even gadget-making metal rhodium is almost $7,000 an ounce, jumping an amazing $1,000 in the last year alone.
While the base metals have corrected amid recent market turmoil and supply increases, they’re still sky high compared to just five years ago. Copper is again nearing a peak of $4 a pound, but it was only worth, well, pennies back then. Nickel is staying strong at $12.50 a pound, slipping from $22 a year ago, but well above the $5 it sat at in 2003. Even lowly lead is fetching $1.50.
"Look at any of them: iron ore, copper, rare earth metals, nickel, platinum, aluminium. The old-timers would tell you they’re all at terrific prices," says analyst Barry Allan of Research Capital Corp.
And sure, there have been a few flickers of hope on the discovery side of this super-charged cycle. To wit: Aurelian Resources’ Fruita Del Norte gold-silver find in Ecuador, the Pebble copper-gold deposit in Alaska, Rio Tinto’s Resolution copper play in Arizona, Ivanhoe Mines’ Oyu Tolgoi copper-gold project in Mongolia and gold in the Cortez Hills of Nevada, which Barrick Gold Corp. scooped up in the Placer Dome takeover.
And, most recently, there’s been big talk surrounding Toronto-based Noront Resources’ Double Eagle nickel find in the James Bay lowlands.
But none of them exactly screams Klondike. And hey, where’s the next Voisey’s Bay?
"There really hasn’t been any major discovery to capture people’s imagination and get them fired up like that for a while now," concedes Tony Andrews, executive director of the Prospectors and Developers Association of Canada, which kicks off its big convention tomorrow.
It’s a real head-scratcher considering global exploration spending hit a record $10 billion (U.S.) last year, nearly triple the total in 2002 when metals started to take off.
And of course in the absence of the next big find to boost supply, metal prices are only expected to head higher with insatiable demand from China and India.
Industry observers say the problem is that not only are sizeable and higher-grade resources getting much harder to find, but there are also numerous above-ground roadblocks unheard of in the so-called old glory days of scorched earth mine development. They range from political risk and community outreach in developing countries to stringent environmental standards and worker health and safety issues that test the will of even the wiliest of veteran mining giants.
"The cost of exploration has gone up significantly. Companies are finding it hard to get their hands on everything from good geologists to drills," Andrews notes.
Only one in 10,000 prospects actually becomes a mine, and he points out that the time frame from discovery to development is taking much longer because so much stands in the way today.
It would be very lucrative for mining companies to overcome some of these obstacles because, as BMO Capital Markets analyst Don Coxe quips: "These gold mines, to use a phrase, are gold mines."
"The industry is at the hinge of history," he told the annual BMO mining investor conference last week in Hollywood, Fla.
"Six years ago I said this was the birth of what will prove to be the greatest commodity boom of all time no teletrak payday loans. It just becomes more and more (of a) reality as other asset classes acquire higher risk characteristics in the markets, and what we’re seeing is commodities looking better and better as actual investments instead of short-term plays," he says.
And because of all the crazy consolidation that has seen the likes of behemoth BHP Billiton take a run at rival Rio Tinto, he figures the mining industry is going to start to look more like the oil sector "where you have a few big oil companies and you have OPEC, and therefore what you don’t have is mindless growth in production and collapses in prices."
Still, as Allan notes, the junior explorers who will populate the major Toronto convention that runs through Wednesday are taking it on the chin, thanks to stock markets that have been rattled by the sub-prime mortgage crisis.
"It’s harder now for a junior to go out and raise money compared to this time last year. It has nothing to do with metal prices, it’s all about conservatism and caution in the equity markets," he says.
"Of course a major new discovery would cause that to change. We haven’t had a true Voisey’s Bay or a Hemlo or Barrick’s Pierina in Peru. These were new regions when they were discovered," Allan says.
There’s the question, too, of having the financial stomach to wait out all the necessary approvals needed before getting a green light for construction. And this over-heated run up in metals prices has created other major deterrents to simply getting the coveted ore out of the ground, such as sky-high costs for labour, equipment and materials like rubber for truck tires.
In fact, costs are skyrocketing to the point where some miners are putting projects on hold. Vancouver-based miner Teck Cominco Ltd. suspended construction of its Galore Creek copper-gold-silver play in northwestern B.C. last November as estimates of capital expenditures approached $5 billion.
Meanwhile, some companies are reopening old deposits that were not economic before metals shot through the roof.
The prospectors’ conference reflects the ongoing hot times in the industry with the fourth move in its 76 years in Toronto. It started out in 1932 at the King Edward Hotel then moved to the Royal York. It later hop-scotched up Front St. to the north side of the convention centre, but this week will occupy the south side of the building.
"Eventually I can see us taking up both sides of the convention centre. We want to keep the event downtown," rather than moving to a bigger venue in Mississauga, says Andrews.
"Our key theme is adapting to growth. Our message is that this growth is long-term and the big driver is the growth of the middle classes in developing countries."
Coxe agrees.
"It’s a once-in-a-millennium metals market that is unfolding. The return of China and India to the leadership of the global economy they enjoyed for the first 18 centuries after the birth of Christ is what historians will write about long after the term `subprime mortgages’ has disappeared from the lexicon."
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