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Cautious optimism at Diggers and Dealers after five #&%@ years for miners

Day one of the 2017 Diggers and Dealers forum in Kalgoorlie, WA.

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Survival has morphed into revival for the Australian mining industry, a change obvious with the near-record roll up of 2100 delegates at the annual Diggers and Dealers forum in WA’s historic goldmining centre of Kalgoorlie.

From an overflowing airport on Sunday night as hundreds of delegates flew in, to a packed Goldfields Art Centre on Monday, to full-house signs at every hotel, motel and caravan park, it is clear that five downbeat years for miners have been replaced by an outbreak of optimism.

Will it last? Perhaps is the only possible answer, but the evidence of rising metal prices, expanding profits, and an all-important increase in exploration, the lifeblood of mining, points to the start of a fresh upward cycle.

If a single company could tell the story of the change it would have to be Silver Lake Resources (ASX:SLR). Once a star before a near-death experience, it is now back, smaller than before, but profitable and starting to attract low-key investor interest.

It was a different story five years ago when Silver Lake rode a surging gold price into a series of ill-timed acquisitions and mine-expansion moves which devastated its share price, suffering a 96 per cent fall over three years from a high of $3.90 in mid-2012 to 15c in mid-2015.

Today, the stock is back to 45c with its chief executive, Luke Tonkin, able to deliver an optimistic presentation including news of a 22 per cent increase in profit to $69 million for the year to June 30, earned from the production of 137,000 ounces of gold.

The outlook is for more of the same this year with Silver Lake seeming content to work with the assets it has, including its flagship Daisy mine, rather than embark on a re-run of the destructive expansion of five years ago.

Compared with Australia’s gold leaders, such as Newcrest, Northern Star and Evolution Mining, the Silver Lake story is modest, but it is an example of how the small end of the mining sector is rebuilding thanks to reasonable commodity prices and, more importantly, much lower costs than during the boom years when it was costs more than prices which destroyed corporate balance sheets.

Growing organically rather than seeking deals for the sake of doing a deal is a common theme from delegates, including Jake Klein, chief executive of Evolution Mining (ASX:EVN) who told Stockhead in the lobby of the Goldfields Arts Centre just before the official opening of the conference that he was in no hurry to engage in merger and acquisition activity.

Klein’s caution was evident in conversation with the other conference delegates, and keen observers on the sidelines, including the owner of Diggers and Dealers, Kate Stokes, who was simply delighted to see delegate numbers back to where they were before the industry slowdown drained enthusiasm for the long trek to a small outback city.

A crowded venue is one measure of the improved mood for mining, a more important test is whether the sentiment is leading to concrete improvement, and the answer to that question is actually more positive than most conference delegates might appreciate.

Investment in mine development projects has been accelerating for the past 12 months, in a variety of metals and minerals.

In iron ore the sector leaders, BHP and Rio Tinto, are spending billions on new mines after several years of a strict focus on costs. New goldmines are being developed by companies such as Gold Road and Dacian. Sandfire has just started digging at its new Monty copper mines, while lithium mines are being developed by Pilbara Minerals, Altura Mining, Kidman Resources, Mineral Resources and Tawana Resources.

While not a major theme at the gold-heavy Diggers and Dealers conference, the advent of lithium as a significant new mineral for Australia promises to cement the country as the world’s biggest supplier of a key element in the world of battery storage technologies which are powering the electric vehicle revolution.

An event designed for small-to-medium mining companies, Diggers and Dealers is not the place to find anyone from BHP or Rio Tinto, though it is somewhat surprisingly the place to find big-name guest speakers, with this year’s keynote address from a former president of the World Bank, Robert Zoellick, who warned that global interest rates were on the cusp of significant change.

Abnormal interest rate settings since the 2008 global financial crisis which have pushed up asset prices and pulled down rates were coming to an end, Mr Zoellick warned.

“We tend to assume that the current situation will continued, bit it won’t,” he said.

And in a not-so-gentle dig at his fellow central bankers he said that people tended to see central bankers as wizards, they’re not: “Most are simply making it up as they go.”

The sobering theme to Mr Zoellick’s talk was that investors should prepare for a pullback in asset prices, a comment directed at all asset classes, from gold to property.

 

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

Categories: Mining

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