PDAC 2009 Convention – the Mining Bust of a Generation? – by Stan Sudol

(L to R) Ontario Deputy Minister of Northern Development and Mines, Kevin Costante; Timmins Mayor, Tom Laughren; Ontario Minister of Northern Development and Mines, Honourable Michael Gravelle; Ontario Mining Association President, Chris Hodgson; Ontario Prospector Association Executive Director, Garry Clark

What a difference a year makes at the Prospectors and Developers Association of Canada (PDAC) annual convention, the largest on the planet. The PDAC is where the world’s mining analysts, investors, prospectors, exploration managers, government representatives and anyone else connected to this industry come to meet, do business, attend lectures and of course party. There is also a large Investor’s Exchange that the general public can attend to find out about the newest exploration plays or interrogate company presidents about their stock performance.

Needless to say, the mood was somewhat somber as everyone is trying to cope with commodity prices and metal demand that over the past six months have fallen off the proverbial cliff. The rapidness of the crash, along side with the unprecedented turmoil in credit and capital markets that has dried up funding for most exploration and development work has sent a legitimate fear throughout the entire junior mining sector.

A PricewaterhouseCoopers survey found that the market capitalization of the top 100 TSX-V junior mining companies plummeted from $20.2 billion on June 30, 2007 to $4.1 billion by November 2008. Investors are shunning higher risk exploration companies like the plague.

In a very bleak presentation during the investors forum, Micky Fulp of the Mercenary Geologist, predicted that 50 per cent of the 1,750 juniors on TSX and Venture exchanges would be culled.

Another report by Ernst & Young indicates that after three years of sustained growth the market cap of the top 100 major mining companies in Canada fell starkly in 2008. The number of companies with a market cap of more than $1 billion fell to 23 in January 2009 from 42 in July 2008, leaving many vulnerable to a takeover bid from those with access to cash.

But much of this bad news has already been felt in Sudbury with the massive layoffs of the past few months at Xstrata Nickel, Vale Nickel, FNX and the supply and service sector.

However, there are a few glimmers of hope in all this carnage. Gold is doing well helping some of the juniors with promising projects. And most analysts insist that once we get through this recession, the first sector “out of the gate” will be the minerals industry. Considering the dire state of Ontario’s auto and manufacturing sectors, the importance of the mining sector to the provincial economy will significantly increase in the next decade.

Ontario Minister of Northern Development and Mines, Honourable Michael Gravelle

As Minister of Northern Development and Mines Michael Gravel said at the opening of the Ontario pavilion, “Despite the recent economic downturn, Ontario clearly remains a leading mining jurisdiction in Canada and a major player in the world. … Mineral exploration in Ontario pays off. More new mines were opened here than anywhere else in Canada over the last decade.”

Despite the Minister’s optimism, there was a mixed record in Ontario’s performance in 2008. For the first time ever, the value of Ontario’s mineral production declined – ever so slightly – to second spot with a value of $9.6 billion. The number one spot was taken over by Saskatchewan with $9.7 billion worth of minerals dug out of the ground while British Columbia came in at number three with a value of $6.6 billion. A key cause of Ontario’s number two position was the drastic decline in the value of nickel production which fell 40.2 per cent to $5.9 billion last year.

But the province’s standing in the annual Fraser Institute Survey of Mining Companies did go up from 2008’s 18th spot to number ten this year. The Fraser Survey rates the investment attractiveness of mining jurisdictions around the world and is closely watched by provincial mining ministries. Over the years, this survey has significantly influenced mining policies for the better.

The top three mining jurisdictions are Quebec, Wyoming and Nevada, while the bottom three are Guatemala, Ecuador and Venezuela. The difference among the top and bottom ten are not that significant. Occasionally, it only takes one particular incident to move a jurisdiction down or up. Last year’s imposition of an unexpected diamond royalty in Ontario caused the province much grief.

One exploration company president said, “Ontariostan introduces without discussion [and] unilaterally a royalty on an industry weeks away from opening a diamond mine after capital expenditure of $1 billion.”

While a consulting company vice president said, “Ontario deals up front with emerging issues and is honest about problems.”

Notwithstanding problems in Ontario, the province,  according to the federal Department of Natural Resources still garnered the most exploration and deposit appraisal expenditures at $666.8 million in 2008. Quebec took second place with $439.9 million while Saskatchewan came in at number three with $430.8 million. But everyone in the industry expects exploration activity to be almost cut in half next year.

Paul Reid and Steve J. Gossling in front of Sudbury Booth

Regardless of the current metals bust, business still goes on including Sudbury’s marketing efforts at the PDAC. “More to Dig” was the new catchy slogan on the city’s marketing display booth that was designed by TTC Advertising. The striking display featured a profile of a saxophone player against a bright yellow background with a row of images at the top representing different aspects of the local economy. Business Development Officer, Paul Reid said, “the new slogan may be based on mining, however, it links to the many other facets of the community, including education, research, the supply and service sector and the great quality of life.”

He feels that while the attendance is down this year, the serious players are still visiting the exhibitor’s area. A visit to the Investor Exchange which has free admission for the general public saw a much busier crowd. Surprisingly, overall attendance figures for the convention are about 18,000, only down about ten per cent from last year’s 20,000 visitors.

Sudbury-based, clean-cut Gordon Salo is far from the stero-type of the old grizzled prospector of the past. He has been attending the PDAC convention for almost 20 years and this is the first time he has noticed a significant number of empty booths at the Investor Exchange, clear evidence of the financial problems most juniors are facing.

However, he was quite optimistic about many of the 400 claim units he holds in the Sudbury basin. Mr. Salo explained that there are three major types of deposits in the basin: contact, footwall and offset dykes. The offset dykes intersect the oval shaped basin in many locations, like spokes on a wheel, as well as running parallel to it in some areas.  Two of the richest ore deposits have been located on the Copper Cliff and Frood Stobie offset dykes. Mr. Salo said, “Historically, companies have focused on offset dykes in close proximity to the traditional Sudbury basin boundaries. One of the geological mysteries is how far do these mineral-rich offset dykes extend from the traditional boundaries.”

Gordon Salo - Sudbury ProspectorSalo feels he has discovered that the mineral rich Copper Cliff offset dyke extends at least another eight kilometers further from the Sudbury basin boundary than previously thought. Two previous junior miners have done some work on his claim units, however they let their options expire due to financial reasons.

“That is the main reason I have a booth at the Investor Exchange,” says Salo, “trying to find another company who will option these properties and conduct further exploration work. My prospecting and follow-up geo-physical work has confirmed some very promising drill targets.”

In another booth at the Investor Exchange, local junior explorer Wallbridge Mining Company Limited announced some positive drilling results from their Parkin offset dyke properties, located on the northeast side of the Sudbury basin. Unlike many juniors, Wallbridge has established strong joint venture partnerships with major mining companies such as Impala Platinum  Limited and Lonmin PLC, the second and third largest platinum producers in the world, respectively. In addition, Wallbridge, the third largest land holder in the Sudbury Basin (712-square kilometers), has also formed joint ventures with Xstrata Nickel, Vale Inco, Crowflight Minerals, Pele Mountain Resources and Champion Bear Resources.

Alar Soever, Wallbridge Mining President

The Parkin offset dyke was a joint venture with Impala Platinum Limited. Commenting on the drill results, Wallbridge President Alar Soever said, “In addition to intersecting nickel, copper and precious metals mineralization, these latest results along with previous drilling, confirmed that the mineralization occurs in portions of the dyke with complex structures. In this respect, the Parkin offset dyke is similar to highly mineralized environments on the Copper Cliff and Worthington offset dykes, which have been historical producers of copper and nickel for nearly 100 years.”

During a session about Aboriginal participation in mining, it was clearly shown that First Nations communities saw great potential with this sector. However, as Mitch Diabo from the Webiquie First Nation – which is only 60 kilometers from the highly prospective Ring of Fire exploration region in northern Ontario – explained that the provincial and federal governments have to do much more to help build the capacity in their small, impoverished communities in order to fully benefit from mineral development.

At that same session, Assembly of First Nations Chief Phil Fontaine said, “Our objective in partnering with your Association [PDAC] and others has been the alleviation of First Nations’ poverty and the building of hope in our peoples. …First Nations are strong allies when treated with respect and understanding. Let us build on our common bonds during this period of duress so when the global economy rebounds, which it will, First Nations also rise economically with the next commodities tide.”

(L to R) Joan van Kralingen, Manager, Policy, MNDM; Lynda Bloom, President & CEO Halo Resources; Patricia J. Dillon, Director, Employee Communications and Engagement, Teck Ltd.; Patricia Sheahan, Consultant; Jane Werniuk, Mining Writer/Geologist; MaryAnn Mihychuck, Director, Corporate Relations, HudBay Minerals Inc.

Women In Mining (WIM) held an international reception at the PDAC convention where slightly over 400 women and some men, including many university students attended.

“WIM is becoming more important than we ever thought, especially in this depressed mining cycling, as the organization is providing a valuable networking base for skilled women in the mineral sector,” says WIM President MaryAnn Mihychuk and Director of Corporate Relations at HudBay Minerals.

Diane Francis, National Post Editor-at-Large; MaryAnn Mihychuck, Director, Corporate Relations, HudBay Minerals Inc.

During the event keynote speaker Diane Francis, National Post Editor-at-Large, spoke about women in the corporate sector. While there is still a glass ceiling in many businesses she highlighted that any organization in the country that excludes women at the senior levels cuts its IQ in half. However, she stressed that the biggest challenge for women is to learn how to adapt to the male business/corporate culture if they wish to succeed at the top.

WIM networks in Toronto and Vancouver are aiming to raise $250,000 for The Township Project, a registered Canadian charity that supports microfinance institutions in the township areas in South Africa.

Yvonne Radinku, Executive Director, Tetla Financial Solutions; Martha Deacon, CEO and Founder of The Townships Project

Martha Deacon, founder of the Township project says, “Micro-credit has been proven to be one of the most effective frontline fighters of poverty. I am thrilled that the WIM have chosen to support the Township project.”

Steven Coates CEO and President of South Africa-based Homeland Energy has previously announced a $50,000 donation to the Township Project. Other contributors include Agnico-Eagle Mines and its employees, FNX Mining, Mountain Province Mining, Barrick Gold, Khan Resources and Watts, Griffis & McOuat. To date the WIM have raised $75,035 for the project. The reception was sponsored by Golder Associates, HudBay Minerals, McMillan LLP and Smith Nixon LLP.

Catharine Shaw, Golder Associates Ltd.; Jeannette McGill; Marika Kovalcikova, AMEBC; Kim MacDonald

Internationally respected financial adviser Donald Coxe – who originally predicted the commodity boom way back in February 2002 – was unable to attend the convention but forwarded his commentary on the state of the industry.

Donald Coxe said, “Although we’ve had a tremendous setback, it will still prove to be, from the sweep of history, the greatest commodity boom of all time. But we’ve had a big – terrifying – interruption. … All major governments and all major central banks are reflating their economies, so base metal demand will come roaring back. In fact, the financial crisis has put off so many projects, that when the global economy comes out of this mess (as it will) what we know is that prices for the metals will be much higher than they would have been otherwise.”

Mr. Coxe also noted that the Chinese are coming back into the market to buy metal assets giving further proof that this current downturn may be shorter than many think. Hope, optimism and stubborn determination to survive would certainly sum up the 2009 PDAC convention. Canadians are a global powerhouse in the mineral sector. We will survive this economic downturn and come roaring back. The same can also be said for the Sudbury Basin.

Stan Sudol is a Toronto-based executive speech writer and communications consultant.

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