Happier prospects

We’ve mentioned before in this space that the annual convention of the Prospectors and Developers Association of Canada is the best place to judge the mood of the mineral exploration business, but not always the best place to gauge its health. We confess that this is an industry hard-wired for optimism, and optimism is generally what you’re going to get.

And optimism there was, by the truckload. There were 9,000 delegates, a bigger crowd than ever before, and the convention’s Investors Exchange — the exhibit hall where junior companies show off their projects to investors — was packed. It looks like retail investors are back. Money is sloshing around the junior sector once more, too, and it showed.

More than that, though, people sounded and acted confident, in a way they hadn’t since the mid-90s. (We say “mid-” and not “late 90s,” and mean it: the cockiness of the last junior mining bubble still hasn’t come back, and a good thing too.) In the recent past, the only optimism on show was the cautious kind, the nervous, tentative feeling that comes from spending too much time at the bottom of the industrial cycle.

We’re glad the more potent stuff is back, and look forward to some of that confidence rubbing off on the investing public. If there’s one axiom to take away from the last few peaks and valleys in the market, it is that nothing brings money in like a show of strength. Look weak or tentative, and the people holding the purse strings want nothing to do with you.

At the same time, overconfidence has been the bane of this industry more than once, and we’d all do well not to promise anything more than we can deliver. Fortunately, the rules are better, and clearer, than they ever have been, and by watching who follows them — and who doesn’t — the discriminating investor may stand a better chance than ever of choosing the right story to listen to. It’s been said that bull markets climb a wall of worry; we worry when markets start climbing a wall of bull.

Sometimes in the past, cautious investors, and careful scrutiny, have been treated like this industry’s enemies. The truth is that critical and skeptical investment are the mineral exploration business’s best friends. Prudent money goes into good projects; easy money goes everywhere. And those last few retread projects at the bottom of the barrel are the ones that sour investors on the whole idea of making money in mineral exploration.

We didn’t go through the last trough without making a catalogue of warning signs, some of which are popping up. A few old disasters have been pushed off the cliff in the hope they will fly again; some very promotional phone calls have come our way; and the over-the-counter market in the United States — now the most poorly-regulated market for resource stocks — has seen a few new mining companies making breathless promises. But the promotions stick out like sore thumbs at this stage, which probably means the sober and honest projects are still the norm.

Let’s be glad the present market favours intelligent and prudent investors — not just because scams drive everyone away but because successful investment in good projects brings more people in.

Last, we hope — not without reason — that the “toppy” feeling of the recent PDAC is not a sign of unhappy times to come. Here we should draw a distinction between the industry’s mood and its health. In the past, we’ve seen plenty of optimism even though it wasn’t justified by prices or economic prospects. Healthy economics, though, seem to have had the lead over a happy outlook in the last couple of years.

Even in the last bull market, cut short by some of our own failings as an industry, we got three very good years out of the cycle. This one has some definite fundamentals on its side, not least the shortage of good projects in some commodity sectors.

The flip side of that shortage is the need for a good discovery. This time around, some of the good discoveries have been largely out of the market’s sight — witness, for example, the large Toki copper-porphyry field in Chile, discovered by Codelco. Seeing investors make good money on a new discovery makes exploration quite a bit more popular.