Mining Market Funk Looks to Wane as PDAC Engenders Sustained Optimism

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"Early 2012 markets have been relatively kind to miners and explorers after a particularly brutal second half in 2011. Will market funk return after this brief gasp of air? Here at the 2012 PDAC convention in Toronto you get the feeling there may be more oxygen in the tank."

As crowds at the PDAC convention in Toronto burgeon, there is a sense, both anecdotal and analyzed, that 2011's mining sector malaise may be dissipating with a strong year ahead.

Early 2012 markets have been relatively kind to miners and explorers after a particularly brutal second half in 2011. But a hard-to-dispel question has hung over the short period of optimism: Can it last? Will market funk return after this brief gasp of air? Here at the 2012 PDAC convention in Toronto you get the feeling there may be more oxygen in the tank.

There are some signs of this confidence in what juniors are not saying.

One: The word "brutal" is not invariably being employed when the topic of financing comes up. That's a notable change in sentiment over last year, when it had become a go-to word to describe attempts to raise cash.

Which is not to say the opposite is now true. As in, it is insanely easy to raise loads of cash if you are a junior. The better descriptors lie in the middle ground. Likely candidates to characterize those willing to finance juniors are "choosy" and "picky." But there is money, juniors are saying, and it can be won.

Two: Juniors are not chattering about holding tightly onto their hard raised cash. Yes, there are many that would like to get more. But those that have it, or are getting it, seem content to spend it at the drill bit this year. That bears out evidence from drilling companies that suggests juniors do not appear to be slowing down on their drill programs.

By way of anecdote, one president of a junior exploration company that operates a slate of greenfield projects in Mexico with CA$10 million (M) in the vault said over cocktails at a CPM Silver get-together on Sunday night that he would drill this year until he had $2M left in the bank. That, he reasoned, was enough money left over to keep the junior out of dire straits. The hope in drilling, as ever, was that there would be enough in the coming drill intercepts to entice financiers to hand over even more cash during another round of financing. And so on as goes the natural—healthy—order of things in the junior market.

Others may take a more conservative approach than his. Some perhaps less. But the point being made is this: Whereas a few months ago it seemed possible juniors might have closed the taps on spending, now it seems they may be loosening it.

Then there is some non-anecdotal evidence. The opening presentation on Monday by Scotiabank's Patricia Mohr, vice-president of economics, was telling. In Mohr's two year outlook on commodities this statement of hers stood out: "I am optimistic we are close to a near-term bottom (in Scotiabank's commodity index)," she said.

Indeed, overall, a big part of her view of 2012 and 2013 was that economic growth would not be totally anemic. Thanks in part for this analysis go to China, which Mohr said has been "engineering a soft landing this year and next." As a sign of this general sentiment, that the economy was not necessarily headed to the pits, Mohr pointed to the fact that at the start of the year shorts on copper—a sign of bearishness on global growth—have started disappearing.

Indeed, copper prices remain strong, and now it would seem people are starting to believe they will continue to do so. Mohr predicted copper would hold near $3.90 per pound (lb) this year and stay around $3.80/lb next year. As for other base metals, she singled out zinc as a potential long-term play, arguing mine supply would hit the wall in the next few years. By mid-decade Mohr suggested zinc could hit $1.35–1.45/lb as a result of the supply pinch.

Such prognostication is underpinned, of course, by that overarching view that economic growth will continue to fuel the metals and mineral exploration markets. That is optimism.

And PDAC convention attendance could be some measure of that. This year the PDAC is absolutely chock-a-block. Investors have come in droves. Juniors fill all conceivable corners with booths. Media rooms are full. The escalators are bottlenecks preceded by crowds best avoided by the claustrophobic. Word is that this year attendance will outstrip last year, perhaps by some 30% to beyond 30,000 attendees.

In jest, a publisher of a leading mining publication asked, "Where are they going to hold the PDAC next year?"

The Skydome perhaps?

Kip Keen, Mineweb

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