November 2009

A meeting of mines

The Toronto Resources Investment Conference

By J. Borsato

While deflation and inflation assume top billing in the financial media, it is easy to overlook the broader issues that affect precious and base metal mining; namely the financing and labour expertise required to fuel an ever-growing demand for new discoveries. With mining at the forefront of environmental efforts to manage large-scale projects while respecting local ecology, it is increasingly important to evaluate the business of mineral exploration and production as more than just a reflection of the price of the underlying asset.

The 2009 Toronto Resource Investment Conference (TRIC) that took place at the end of September brought together an extensive lineup of junior mining and exploration outfits representing the broad spectrum of precious, base and rare earth metals. Held at the Toronto Convention Centre, it was hosted by resources investment conference organizer Cambridge House. Over 150 companies were on display alongside an assembly of industry analysts and mining experts of all stripes who gathered to discuss the fundamentals of mining-related investments over the course of the weekend.

Paul van Eeden of Cranberry Capital imparted his thoughts on some of the biggest challenges facing junior exploration and mining. “Raising capital will be their biggest hurdle going forward,” said Van Eeden. “In the event of another round of risk aversion in capital markets, mining companies — particularly those with smaller market capitalization — will find themselves in a difficult climate.” According to van Eeden, the role of China in metals markets was balanced against popular media claims of stockpiling. “China is interested in purchasing resources, but they are not ‘stockpiling’ as has been suggested, nor would they be able to divest over two trillion in U.S. debt into the relatively small metals markets even if they wanted to,” he said.  Asked if he felt speculation was fueling much of the run up in metal prices as of late, van Eeden was quick to agree and added that while he was bearish on metals and markets in general, value could still be found in specific equities.

Lawrence Roulston, a long-time mining commentator and analyst, attracted a hefty crowd to his Saturday afternoon presentation. Stressing the big picture of mining markets and not the day-to-day gyrations in metals prices, Roulston pointed to the recovery of precious and base metal shares as a demand-driven reality in a globalized economy. Agreeing with van Eeden that Chinese stockpiling is largely a myth, he acknowledged their dominant presence in a host of markets. Citing the rise of domestic demand via increased infrastructure spending and automobile purchases, Roulston pegged China as the single biggest contributor to rising metals prices.

Jay Taylor, the author of J Taylor’s Gold, Energy & Tech Stocks news­letter, was available to offer a macro-economic perspective of gold. Citing the rise of the yellow metal’s purchasing power relative to virtually all other commodities, Taylor pointed to greater prospects of returns in mining stocks than the metals themselves during the current upswing in prices.

While gold and silver mining companies took centre stage for much of the talks at TRIC, there were some welcome additions of the lesser known metal miners. With over 90 per cent of laptop batteries featuring lithium ion batteries and an explosion in battery-powered automobiles, the exploration and mining of lithium and other rare earth elements (REE) are critical to future technological innovation and environmental conservation. The largest supplies in the central and southern United States have given way to China as the dominant source for REE discoveries.

Rodinia Minerals is one such supplier of REE, with lithium and uranium projects in Arizona and Utah. With interests in the only active lithium mine in the United States, its Nevada-based Clayton Valley project is of particular interest to those that envision an energy-independent U.S. Energy policy in the United States has emphasized greater independence from Middle East oil. With China considering limiting REE exports, domestic production is all the more critical.

There was no shortage of African-based exploration and mining companies at this year’s TRIC. Hosting approximately 30 per cent of the planet’s mineral reserves of precious metals, Africa also continues to be a major producer of a wide variety of base metals. Much of the mineral exploration within Africa has focused on gold and diamonds, but the rise in base-metal prices has allowed for an increase in new projects across the continent. A host of new mines and exploration projects have been fueling a mining boom in spite of regional instability and geo-political concerns.

Richard Buzbuzian of Zimbabwe-based New Dawn Mining Corp. was on hand at the conference to highlight the benefits of mining in a nation known more for its runaway inflation than for its geo-strategic gold mines. New Dawn’s main projects are its Turk and Angelus mines in the resource-rich Bulawayo-Bubi Greenstone Belt. Providing at times up to 50 per cent of Zimbabwe’s earnings, gold mining languished for over a decade before the Zimbabwe Mines and Minerals Act (MMA) and deregulation of exchange control policies began, allowing producers to sell gold directly to foreign buyers in the currency of their choice. Buzbuzian highlighted that currency risks were among the chief concerns to most investors and, in spite of domestic inflation, currency risk has been effectively removed by sales of gold in U.S. dollars.

While South Africa, Tanzania and the Democratic Republic of Congo dominate the African mining industry, other states have begun to attract the attention and funding needed to explore new opportunities.  One such mining company was Riverstone Resources. Based in Burkina Faso, Riverstone has exploration projects in a lesser known mining nation on the western edge of the African continent.  The standout Karma project consists of four contiguous permits in the Birimian Greenstone Belts that cover large swaths of Burkina Faso’s resource-rich regions. 

In the early part of the decade, TRIC was smaller and hosted a variety of small cap tech companies alongside exploration and mining names.  The run up in metals prices, even in spite of last years credit crisis, has seen a return to the core components of resource investments:  precious and base metals, REE and a host of exploration projects around the globe. 

The all too familiar “perma-bull” outlook that once pervaded the floor of many mining conferences was replaced by a range of opinions offering bull and bear scenarios for the metals.

Labour, energy costs, environmental impacts and displacement of local inhabitants require more than just picks and shovels to succeed.  Canada is a leader in the mining world and possesses a rich history of innovation. As we continue to leverage our strengths in the field, we are reminded of the complexities of creating wealth from hard assets. The TRIC was an exciting reminder of Canada’s pivotal place in the mining world, but also of the magnitude of ongoing efforts to explore and extract mineral wealth around the globe.

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