Plagued by the worst outlook in recent memory, global miners are thinking about one thing more than any other as they gather for the industry's largest annual gathering: survival.
The Prospectors and Developers Association of Canada (PDAC) convention this week in Toronto is the largest international gathering of its kind. As the first of the calendar year, it is closely watched for signs of what's to come for the next 12 months, especially for the junior mining sector, the lifeblood of majors that rely on it to discover assets for them to develop.
"Only the strong will survive," said Ioannis Tsitos, chief executive officer of Vancouver-based Eagle Mountain Gold Corp., which owns a small gold property in Guyana. "What's happening now is part of natural selection."
Metals producers have become accustomed in recent months to tough times, starting with ever-embattled share prices. Multibillion-dollar writedowns on assets touted just a few years ago in bold bets on growing global metals demand, add to the bleak outlook. Equally large cost overruns and massive asset divestitures by industry leaders show that the industry is in clear retrenchment.
The message was loud and clear at the the conference on Sunday, where prospectors Clayton and Sara Larche stood at the top of an escalator flogging mining claims the old-fashioned way.
"Mining Claims for Sale," read the sign stapled to the back of Mr. Larche's suit as he stood at the top of an escalator leading into the convention centre. He and his wife are selling mineral claims to lots ranging in size from 40 acres to 40,000 acres in Northern Ontario. "I've been getting a lot of attention," he said.
As many as 30,000 industry professionals – explorers, drillers, miners, bankers, lawyers, investors – began to converge on Toronto over the weekend, filling up hotels with guests from all corners of the globe ahead of PDAC – a convention, trade show and investor exchange all rolled into one.
Miners are no strangers to adversity, accustomed to price cycles that rise and fall with supply and demand, and take with them the fortunes of explorers and developers. The mining firms enjoy a life cycle whereby smaller companies that search for assets expect to be gobbled up by larger rivals as soon as they discover a worthwhile asset.
At least that's the way it's supposed to work. More recently the cycle has changed as giant new players like China drive demand at rates not seen since the industrial revolution, even as the rest of the world faces one of the worst financial crises ever. Building resource nationalism and the worst cost inflation in decades have made mining far less predictable, driving away investors.
This year, Rio Tinto PLC, the world's third-largest miner, wrote off $14-billion of aluminum assets, fired its CEO and is said to have started a sale process for its Canadian iron ore holdings. ArcelorMittal also sold a partial stake in its iron-ore holdings, underscoring the beating taken by the key steel component.
"This is an extremely grim time," said Don Coxe, a BMO investment strategist, financial historian and a 40-year veteran. "As a matter of fact, it's the grimmest I can ever remember."
Debt and equity markets have slammed shut on the industry, putting explorers on death watch as they burn cash on expensive drilling. Hopes of a buyout dwindle every day as commodity prices wallow after a meteoric, decade-long rise and blue-chip companies put the brakes on growth plans.
"Significant impairment charges or asset writedowns taken in the last two or three weeks have caused the industry to take notice and apply sober second thought to a lot of the investment decisions," said Jurgen Beier, Deloitte Canada's national mining leader.
For the cash-rich, it's a chance to buy on the cheap. Even private equity, which has avoided mining because of long investment horizons, is kicking tires.
"When financing dries up, it can prompt to further consolidation," said Richard Steinberg, a lawyer at the Toronto firm of Fasken Martineau DuMoulin LLP who forecast more strategic deal making this year.