It’s always hard to crystalize what I get out of the back-to-back week that is Metals Investor Forum and PDAC in Toronto. It’s hard for a few reasons. One is that I run around a lot, doing panels here, talks there, filmed interviews all over the place, and meetings everywhere in between, so there’s little time for thought. Another reason is that topics of conversation cover 11 such a range, from the details of a company’s drill program to insights into the details of uranium supply-demand following a nuclear fuel conference to the hard-to-comprehend increase in demand for lithium and what that might mean to why the copper price isn’t yet responding to a serious supply crunch that is only two years away to what Colombia’s presidential election might mean for explorers and miners.

Given the range of topics, I’ll do what I always do: a series of comments on things that stuck with me following the 5-day conferencing marathon.

Mood

It was pretty darn positive at PDAC, which stood out given markets were crashing and share prices struggling. Giving it some thought, I decided that the positivity came from two places.

One is a fundamental belief that metals will do well over the next few years. There was a lot of talk about how the greening of the world just cannot happen with a major influx of investor capital into metals. Right alongside that was a lot of talk about gold: how it is doing very well, all things considered, in the current macroeconomic storm and all the forces that suggest it will rise from here. Amidst that was certainly the necessary acknowledgement that mining and exploration equities haven’t benefitted as much as hoped as yet as metals prices have gained (especially in the gold space), but it was matched with belief that the needed flood of investor capital simply has to lift equities soon enough.

The second source of excitement was geologists. Now, geologists are eternal optimists (a lot of scientists are!) and so gathering geos together usually creates excitement as they share what they’ve been doing and learning. But this year that excitement had the foundation of the point above – that metals simply have to do well over the next few years – and with reason to believe there will be money to explore, advance, acquire, and build projects over the next few years, it seemed to me that geologists were especially jazzed.

I love the science of exploration so I find their excitement contagious. For better or worse!

Scale

PDAC says that over 17,000 people attended the conference, which is a big number but to be clear this was a much smaller event than usual. The conference usually takes over the main convention center and the entire North Convention Center, an above-ground building of meeting and presentation rooms. That area, which is usually jammed with envoys from different countries and indigenous nations, was empty. Many governments and indigenous groups did participate but not to the degree that the North Center was needed.

Also empty was a large hall in between the two parts, which is usually full of geologic and environmental service providers. My guess is that most of those operators were simply too busy to attend, summer being prime time to get field work done and processed.

On the topic of ‘busy’, there were also far fewer geologists in attendance. There were enough to create that excitement I spoke of, but those were largely management-level geologists manning booths and taking meetings. Most field geologists, often including even VP Explorations, were out in the field. This also really limits the utility of PDAC – while courting investors is certainly one goal, for most companies, the other key goal at PDAC is for geologists to meet with project partners or potential partners and peers exploring in the same area to share knowledge and potentially ink deals. While there’s no way to count this, I am sure far fewer deals will flow from this PDAC than from others because many of these meetings just didn’t happen.

Letter Writer Panel

I had the pleasure of participating in a 1.5-hour panel with seven other newsletter writers. We covered a lot of ground in that time! Here are the most interesting parts of that conversation.

• Gold is set to do well, likely during this period of rate hikes and certainly once hiking ends and it has caused a recession.Of course, there’s no knowing we are heading into a recession but the panellists leaned that way, largely because the Fed has limited impact on so many of the forces pushing inflation (starting with energy prices). And should hiking create a recession, as most expect, then gold should shine as a safe haven.
• The other big gold argument was the end of, or at least dramatic realignment of, globalization, now that Russia’s invasion has pushed China and Russia so much closer together and away from the West.I’ve been reading arguments for the end of the US dollar as the world’s reserve currency for over a decade – the main one is always that debts are too high so dramatic devaluation is the only way out – but there has never been a specific reason to believe it might happen…until now. Don’t get me wrong: any shift away from the dollar as the world’s reserve currency will be slow. But China and Russia have no reason to keep transacting in the dollar – and lots of reasons not to. That 13 the invasion of Ukraine so promoted their relationship and underlined the risks of relying on the dollar (when the US suspended Russia’s access to the Treasury market) added fuel to China’s long and patient game of promoting the yuan and gold as a real alternative to the greenback. This is a big topic but, in short, it stands to reason that gold would necessarily play a key role in any global currency reset.
• Gold stocks, however, are not doing well and haven’t for some time.I’ve discussed this at length. I’m not sure others on the panel shared my rationale completely (that gold stocks are struggling to shine amidst an abundance of high risk-reward opportunities in the Fed-backstopping-risk market) but I also didn’t hear alternative explanations. Instead, I heard reasons to think this might continue, at least for the larger companies in the gold space. The main reason is cost inflation: higher build and operating costs are cutting into gold miners’ margins. This is certainly true. And it’s annoying, to be honest, because over H2 2020 and through 2021 gold miners made money hand over fist, based on a rising gold price and stable costs…yet investors didn’t care (that data point I keep referencing: from COVID through end 2021 $23 billion flowed into gold the metal while $1 billion flowed out of gold miners). I was one of many who said through that time that investors had to notice these profit margins at some point! But they didn’t and now those margins are shrinking. Sigh.
• Speaking of money, another point that got major attention was that access to capital is probably the most important criterion for explorers today.With investor interest limited, there just isn’t a lot of cash around. Yet the last thing explorers want is to slow down when they see a better market around the corner; indeed, those that can advance projects this summer and have news through the fall and winter, when this economic storm will likely start resolving one way or another, will stand out versus those that go quiet. But it takes money to advance projects so access to cash is king right now. There was also a discussion of good versus bad money, akin to what I discussed a few weeks ago.
• There was also consensus that the realignment (end?) of globalization is a very important force to watch for critical minerals. We’ve all heard for years how reliant the world is on China for so many of the minerals that are key to the green revolution, from graphite to processed lithium to rare earths and more. Access to those supplies became a major topic during the Trump-era US-China trade wars and then eased somewhat, mostly because COVID distracted. Now that conversation is coming back to the fore and deservedly so, because a world divided means less access to those commodities. The degree to which this happens is not yet known but this is a story to watch because major fragmentation will end up requiring the West to quickly find, develop, and start producing a whack of minerals – and that would create a major investment opportunity.
• Classic question: which metal are you most confident in / excited about over a one to two-year timeframe? Answers were pretty equally divided between copper and uranium, with one voice pointing to lithium.

Copper

I gave a talk on critical minerals and their potential future roles in Canada, with an emphasis on Canada’s northern territories. It was part of Invest Canada North, a two-day summit on exploration, development, and mining in Yukon, Northwest Territories, and Nunavut.

My talk focused on the supply crunch that so many of these metals are facing in the next two to ten years. That led to an interesting Q&A session, where one gentleman asked:

We’ve been seeing copper forecasts like these – these are the most dire, but of this nature – for years. It does seem the answer is much higher prices…yet the price is sideways to down right now, for instance, and miners are not moving at all aggressively to address the shortage. What is going to change that?

It’s a great question and comes to the heart of why and when to invest in copper.

Just a moment ago I read this in an end-of-trading-day news brief:

I include it here not because I think today’s copper price action matters much, but because it captures so well how the copper market acts. Copper has long been known as the PhD of metals because it is such a clear reflection of the state of the global economy. It is a deep and liquid market for a commodity that is essential to growth and as such it has become traders’ top proxy for growth.

That’s all fine, except that it limits the market to this moment. The copper market bobs and weaves with Chinese holidays, strikes at major mines, government infrastructure spending announcements, and any other news that impacts copper demand in the next few days or months. Of late, talk in the copper market has been all about how much China’s COVID lockdowns and now a slowdown in growth, or even a recession, will reduce demand in H2.

Those factors are real. But if lockdowns in Shanghai reduce China’s copper demand by 5 or even 10% in the second half of this year, it will still do nothing to resolve the supply shortage that’s coming in two years. Even a global recession wouldn’t likely ease that shortage much, because we all know that central banks will ride to the rescue after not too long and governments will follow soon after with infrastructure plans (China is already busy announcing those).

That means the question is really: when or how will the now-focused copper market start accounting for dramatic supply shortages that are a few years out? And the answer is: perhaps not until consumers start actually running out of copper. Now, the copper price has done very well in the last two years so I should note that the overall lack of supply is slowly being accounted. But the only way to address the world’s dramatic shortage of copper in 2024 or 2025 will be through dramatically higher prices. Yes, I mean dramatically higher from today’s already strong levels.

That move might not happen until buyers can’t get their hands on the red metal. So will copper shoot skyward this year? Probably not. Next year is possible. The year after is guaranteed.

It seems crazy to say that I think the world will need to get right to the precipice, to the point where users can’t get copper before the copper market will react to the reality of short supply, but the more I think about it and see headlines about copper the more I believe that is the case.