PDAC 2018 Takeaways
The 2018 edition of PDAC did not disappoint! Attendance was up from last year and, overall, the mood from most was cautiously optimistic. In my view, this is a good place to be, considering the current overall market dynamics. In my opinion, there's definitely interest and money waiting to be deployed into the sector. The criteria for that money to enter the resource market must be understood before being able to answer or hypothesize when the direction of the resource market as a whole will change.
PDAC introduced me to a few stories that, I think, have a lot of upside potential even if the next leg up in the resource bull market is still months away.
Is 2018 the Year for Mergers and Acquisitions in the Base Metals Sectors?
Before attending any investment conference, I always write out a list of goals or takeaways that I want to achieve by the end of the conference; presentations I'd like to watch, companies I'd like to speak with, people I'd like to meet, and things I'd like to learn or better understand. For PDAC this year, I had a clear set of goals that was headlined by speaking to the major mining companies about the current base metals markets and what might be the catalyst for mergers and acquisitions (M&A). For those who are not familiar, major companies are not usually present at most resource investment conferences, making PDAC very unique in this regard. What are the catalysts for M&A in the base metals markets? None of the major companies would come right out and give me a straight answer or list any criteria for an increase in M&A activity in the base metals market. While I figured this would be the case, going into the conference, I asked the question anyway; it's complex enough that it leads to a lot of good discussion. Here's a short list of commonalities from their answers:- Profits – with the currently strong base metal spot price, most companies are generating good cash flow and believe prices will be higher in the future. My inference from this statement is 'my balance sheet looks great, I'm in no rush to put any wrinkles on it by way of M&A. Additionally, by not developing any further supply, the price will remain high and we will continue to make profits.'
- Risk – Greenfield/brownfield development projects have a lot of risk. This sentiment may have been the most pronounced with all of the major companies. 'Why should I invest in a Greenfield/brownfield development project when I can put the same amount of money into an asset I already own and understand?'
- Lack of quality acquisition targets – Each major company said that they are always looking for possible acquisition targets, but don’t see a lot of high quality projects out there. I view this comment in a number of different ways. First, I don’t disagree, the picking of truly world-class projects is small, and most likely only getting smaller in the future, until we change our criteria for what is world-class. Second, rising metal prices bring a lot of the 2nd tier projects into profitability, and may be the rose coloured glasses that are needed to spur M&A.
