Competing for Investment Dollars
In this month’s edition, we offer a profile of the gold mining industry with reporting on the activity among the majors. The difficulties the gold sector faces exemplify the issues affecting most of the mining industry, a lack of exploration and development investment. The reserve base among the gold majors is shrinking and no new major discoveries have been made. That can be directly attributed to a lack of greenfield investment.
There’s no better place to get a feel for mining-related exploration and development investment than the Prospectors & Developers Association of Canada (PDAC) meeting, which is held annually in early March in Toronto, Canada — the mining investment capital of the world. During his presentation at the 2018 PDAC keynote session, Sean Roosen, chairman and CEO, Osisko Gold Royalties, touched on several of the salient factors explorers and developers face. Osisko Gold Royalties was created when Agnico Eagle and Yamana Gold acquired Osisko Mining Corp. and the Canadian Malartic mine.
Mineral exploration today is more difficult. Many prospectors believe that most of the easy-to-find deposits have been discovered and the new prospects lie at depth. While there is some truth to that, the bigger problem facing explorers is a lack of investment. “There is less money available today,” Rosen said. “In the past, people used to invest in prospectors and exploration because they wanted to take a risk and have fun. That money has moved to crypto currencies and ‘weed’ stocks, which is less regulated and more like a casino. We need to take a step back and regain those investors.” Roosen asked the crowd: “How do we get the next generation of investors interested in our space?”
Today, actively managed money is being challenged by passive funds. Billions of dollars are moving into index funds and quant trading, which mostly look backward at historical comparisons. “Without active management, we won’t be able to finance projects,” Roosen said. “You can’t explain why you need $50 million to drill holes over here to a computer.” Tongue in cheek, Roosen said he has tried to schedule meetings with these computers and it’s difficult.
Major mining projects are capital intensive and the money is no longer available. Shareholders are less likely to approve that $15 billion investment. Roosen believes the larger companies will have to return to the old playbook, where mining companies enter joint ventures and syndicate bigger deals. “There is no long-term vision with today’s investors and shareholders,” Roosen said. “Only a few understand the importance of a 25-year investment. They are mostly Chinese and state-sponsored companies and they are buying a lot of things that we should own. Look what has happened in Canada. We have lost a lot of our status. We lost Falconbridge, Inco and Alcan. And, Goldcorp and Barrick are one-third the size they used to be.”
The development of natural resources is vital to the Canadian economy and Roosen is passionate about the mining business. Referring to his experience with Canadian Malartic, he explained that the only way to sustain rural communities, especially those in northern Canada, is to develop assets that live and provide in their world. Future discoveries will require experienced geologists, boots on the ground, drill rigs turning and active investors.
Steve Fiscor, Publisher & Editor-in-Chief, E&MJ