Mining gets back on the bull

B.C. a great place for mining companies, not so great for mining: American investor

Attendees and exhibitors at the Association for Mineral Exploration Roundup conference in Vancouver | Rob Kruyt

In the event your investment adviser failed to mention it, mining is back.

Or maybe you already knew that, but just can’t forget – or forgive – that the mining sector lost billions during an epic mining “supercycle” that should have made investors happy, if not rich.

Which may explain why mining stock has not necessarily kept pace with mineral and metals prices, all of which were up in 2017, and which Scotiabank Economics predicts will continue to be strong in 2018 and 2019, in response to a global economy that is firing on all cylinders.

“Commodities performed relatively well in 2017, but commodities equities did not keep pace,” said resource investment guru Rick Rule, president of Sprott U.S. Holdings Inc., one of the guest speakers at last week’s Cambridge House International annual resource investment conference.

The mining sector has emerged from a brutal four-year commodities bear market that bottomed out around the beginning of 2016. Mickey Fulp, publisher of the Mercenary Geologist, thinks the current up cycle will last a few years: “We’re still at a very early part of the commodity cycle.”

Unlike the last bull market, which was driven almost exclusively by China, the economic growth now driving commodity prices up is more “synchronized” among industrialized countries, according to Scotiabank commodities analyst Rory Johnston.

Rule is more circumspect about rosy global economic forecasts. Even so, he is predicting a commodities and mining bull market and expects things may be different this time around. The last cycle was so devastating that it resulted in “supply destruction,” he said. Mines closed, coal-mining companies went bankrupt and investment in exploration and new mine development slowed to a trickle.

Now that economic growth in the U.S., Europe and other developed countries is pushing up demand for industrial metals and materials – copper, zinc, metallurgical coal – additional supply will take longer to get onto the market, which could be a recipe for higher prices for longer.

Rule also believes the mining sector has learned some hard lessons, after writing off $70 billion to $80 billion in the last bear market.

“For the first time in 40 years, perhaps, the industry is focused on being efficient, rather than merely exhibiting leverage to the price of commodities,” Rule said.

While Vancouver would benefit from a mining bull market, it doesn’t necessarily follow that B.C. will see a flood of investment in exploration and new mine development. As investors, Fulp and Rule are not bullish about B.C. as a jurisdiction for mineral exploration.

“B.C. is not a jurisdiction to explore in,” Rule said.

B.C. might have some good copper and gold deposits, but Fulp said many – like those in northwestern B.C.’s Golden Triangle – are challenged by remoteness and lack of basic infrastructure. Even if some projects get financed and built, Fulp doesn’t think they will be all that profitable. He believes the one project in B.C. with the best prospect of becoming a successful mine is the Barkerville Gold Mines Ltd. (TSX-V:BGM) Cariboo gold project.

“What’s exciting about it is the new discoveries they’re making to the north of Bonanza Ledge,” Fulp said. “As far as I can tell, it’s the best thing in B.C. for the foreseeable future.”

Mark O’Dea, co-founder and CEO of Oxygen Capital – a Vancouver mining house with a track record that includes the creation of nine companies, five of which were sold – does not share Rule’s pessimism about exploration and mine development in B.C.

“The geology of B.C., in terms of endowment for metals, is phenomenal,” he said. “It’s an exceptionally prolific and well-endowed province for gold, for copper, and very large deposits.

“Look at what’s going on in B.C. up in the Golden Triangle. It’s a very, very hot spot right now. You’ve got Pretium [Resources] building a mine, Silvertip just got sold for $200 million to Coeur [Mining], you’ve got other mines going into production, you’ve got Barkerville, which has had a renewed lease on life. So there’s a lot of action happening in B.C. right now.”

O’Dea has put his money where his mouth is, too. Oxygen recently added a B.C.-focused company to its portfolio of companies – Sun Metals, which has a polymetallic (copper, gold, silver, zinc) deposit called Stardust north of Fort St. James. Sun Metals plans to spend about $5 million in 2018 on a drilling program.

While he’s not bullish on B.C. as a place for exploration, Rule has a lot of praise for Vancouver companies.

“Don’t focus on the property so much as you focus on the people,” Rule said. “And your city, Vancouver, is blessed with 10 or 12 teams that – if you will – are headed by metaphorical seven-footers.

“If you look at the success of Bob Quartermain, Robert Friedland, Lukas Lundin, Ross Beaty – serially successful performers. Vancouver doesn’t recognize that a small secondary city in Western Canada is the global leader in exploration and exploration finance.

“If you look at the ancillary dollars generated by mineral exploration in Vancouver, relative to the value of mineral production in the province of British Columbia, what you will see is that mining services, mining technology and mining finance are the best industry that Vancouver has to grow in – ironically an industry that the government is trying to forget.”