Day Four: Focus on Canada
The focus during the final day of this year's Mines and Money conference in London was on Canada, with presentations that included a keynote address from the president of Agnico Eagle, and insights on the country's exploration scene.
The final day of the four-day Mines and Money (M&M) London conference started with a keynote presentation from the president of Agnico Eagle Mines Ltd, Ammar Al-Joundi, who told delegates that the mining industry "has to change". He described himself as "confident" that the market will force a significant restructuring during the next two years because of a shortage of funding and too few quality assets. Without this change "many juniors/intermediate companies will become irrelevant".
The old reality, according to Mr Al-Joundi, included growth at any cost, significant levels of exploration and ready availability of equity finance. He noted that since 2011 gold bullion has underperformed the S&P 500 since 2011, and gold equities have underperformed gold bullion. There has been a 60% destruction in equity values over the past seven years, and this has only partially been due to the underlying metal.
The gold-mining sector has been guilty of two "big sins" over the past 20 years. The first is the destruction of capital value by adding marginal ounces to mine plans. Grades fell for the first 10 years of this millennium and have remained static since 2011 despite a lacklustre gold price.
The second 'sin', according to Mr Al-Joundi, is undisciplined mergers and acquisitions (M&A), with US$80 billion of write downs since 2010, 75% of which have been due to poor M&A deals. Indeed, senior gold producers have collectively lost some US$160 billion in value since 2010; this has effectively destroyed the specialist gold funds.
As a result, Mr Al-Joundi argues that finance is now only available, in quantity, from generalist funds, and these, in turn, have little interest in the exploration sector.
The issue is made even worse by a shortage of good gold projects. Mr Al-Joundi suggested that there are 132 global development projects (quoting data from S&P Global Market Intelligence), of which 85 are owned by juniors (so are available for purchase), with perhaps a maximum of 76 being in the 1st or 2nd cost quartiles and 44 of these being in low/medium-risk environments. Of these only an estimated 19 are likely to be producing over 150,000 oz/y. Mr Al-Joundi suggested that Agnico Eagle believes the actual target is probably only 5-10 gold projects.
Joe Mazumdar, the co-editor of Exploration Insights gave an impressive presentation (which will be covered in a separate report) on the Canadian mining industry. Mr Mazumdar talked of the huge mineral endowment of Canada's mining companies, the country's favourable ranking as a place to do business and the still impressive exploration statistics.
Other speakers on the final day of M&M London included George Fang, an executive director of Zijin Mining, who introduced the company as one of China's largest gold producers and the country's second largest producer of zinc. He stressed, however, that the most important role was Zijin's position as a responsible miner, and quoted impressive statistics on the company's philanthropic foundation and 'green' mines.
Zijin operates in ten countries but Mr Fang emphasised the importance of the relationships with Canadian assets and companies, including Barrick, Nevsun and Ivanhoe. Zijin is focussed globally on gold and copper, with a particular emphasis on large deposits with high grades.