Mining conference reveals sector’s renewed optimism

TORONTO — For the mining industry, the good times are definitely back.

Spirits are very high at the Prospectors and Developers Association of Canada conference, which kicked off Sunday in Toronto, as experts offer up generally bullish views on commodity markets for the year ahead.

Their research inevitably comes back to China, where demand has been phenomenal over the past 12 months.

“The worst of the demand cycle is now behind us,” Andrew Keen, head of metals and mining research at HSBC Securities, told a large audience. He said high single-digit economic growth in China will be enough to keep metal markets tight.

Last year’s PDAC conference took place at the absolute bottom of an extreme bear market, and the mood at the conference was more muted. There were even a few empty booths.

This year, pre-registration is up 11 per cent from 2008, which was the prior record.

More than 20,000 people are expected to attend.

While there are continuing concerns about high metal inventories and sluggish demand in the West, those points are taking a back seat to China.

The bullish sentiment at the conference is bolstered by reports that BHP Billiton Ltd., the world’s biggest mining company, has settled a three-month coking coal contract with Japanese steelmakers at $200 US a tonne, up 55 per cent from 2009 prices. That settlement, which provides a benchmark for the rest of the industry, is viewed as proof that Asian demand for bulk commodities remains strong.

The PDAC conference is primarily the realm of junior mining companies, which were hit hard by the commodity meltdown in 2008. At this time last year, they were hoarding their cash and just trying to survive. Now, many of their projects are back in the limelight.

One example is Baffinland Iron Mines Corp., which wants to build a multibillion-dollar iron ore mine in remote Baffin Island. It is not a story many investors wanted to hear about a year ago. But contract prices are expected to rise more than 50 per cent in 2010, and Baffinland is getting interest from potential strategic investors in Asia.

Gord McCreary, Baffinland’s chief executive, said that China imported 444 million tonnes of iron in 2008, and 628 million last year. He suggested that projects such as Baffinland’s will need to be developed to meet the incremental demand growth worldwide.

“The numbers are so big you can’t possibly get your mind around it,” he said.

The makeup of companies on the conference floor at PDAC provides a good indication of which commodities are hottest. To no one’s surprise, the clear winner in 2010 is lithium, which is red-hot because of its use in hybrid cars.

Gold also remains extremely hot, even though it underperformed the base metals and bulk commodities in the last year.

Martin Murenbeeld, chief economist at DundeeWealth Inc., offered weighted gold price forecasts of $1,172 US an ounce in 2010, $1,234 US an ounce in 2011, and $1,280 US an ounce in 2012.

“What’s really good for gold is reflation,” he said, noting that he expects plenty of it in the years ahead.

Canwest News Service

pkoven@nationalpost.com