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 2^nd tier projects into profitability, and may be the rose coloured glasses that are needed to spur M&A.

Although the major companies appear to be very confident that M&A isn’t a priority at this point, it’s my thought that it will only take one company to make a move and acquire one of the tier 1 projects and the flood gates will open as everyone else scrambles to buy up what’s left.

For me, I’m willing to wait and am looking to buy quality companies whose value is greater than their price, giving me the best possible odds of success. “When” questions pay, it’s just a matter of time.

 

Concluding Remarks

While I remain bullish on all metal prices, I’m increasingly becoming more selective in the junior companies with which I invest my money. The last year has proven to me, once again, that even though market fundamentals of a given commodity can be screaming for bull market, it doesn’t have to happen right away. Being a linear thinker is a good thing, but can be fraught with frustration and losses if mixed with a short-term view; the market can remain irrational longer than most of us can remain solvent! Therefore, for me, being highly selective in the companies with which I invest gives me the confidence to ride out the short waves of volatility and, ultimately, profit when the market confirms my bullish thesis.

One last thing, there’s nothing wrong with taking profit when it’s there!!

 

 

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Until next time,

 

Brian Leni  P.Eng

Founder – Junior Stock Review

 

 

Disclaimer – The following is not a recommendation, it is an idea. I am not a certified investment professional, nor do I know you and your individual investment needs. Please perform your own due diligence to decide whether attending an investment conference is suited for your personal investment needs. Junior Stock Review does not guarantee success from attending PDAC or any other investment conference. I have not been compensated to write this article, however Junior Stock Review is a media partner of PDAC International Convention 2018.