Soaring gold prices and rock-bottom base metals have split the mining sector into camps of haves and have-nots, with the contrast clearly evident at the BMO Capital Markets Metals and Mining conference, which wrapped up on Wednesday.
With gold prices having flirted with record highs this week and mining costs in decline, gold producers in attendance talked up expansion possibilities and tried to sell potential investors on new projects.
It's a two-tiered market: gold and the rest, said BMO analyst Tony Robson, who helped moderate the three-day conference in Hollywood, Florida. He was speaking on a conference call.
Top miners such as Newmont Mining (NEM.N: Quote) and Gold Fields (GFIJ.J: Quote) forecast expanding margins and acquisition opportunities, while Barrick Gold (ABX.TO: Quote) addressed rumors it might sell equity to take advantage of the market's thirst for gold assets, an option it said it might consider.
In contrast, base metal miners focused their discussions on cost cutting and capital preservation, laced with hopes that a rebound in prices could happen late this year.
Freeport-McMoRan Copper & Gold (FCX.N: Quote), for instance, predicted it could cut its production further if the copper price falls from its already depressed levels.
Copper miner First Quantum Minerals (FM.TO: Quote) said there were plenty of acquisition opportunities around, but added it would be cautious given the uncertain outlook for metals demand.
All told, about 100 companies made formal presentations at the conference.
Prices for metals such as copper, nickel, zinc, and aluminum have dropped more than 50 percent over the past year as the global economic downturn has cut demand for steel and other building products.
In contrast, gold has rebounded from a selloff last year, as investors have embraced its safe-haven status and turned to it in the absence of other reliable investments.
BMO analyst David Haughton said industry players were anticipating a further near-term slide or sideways move by base metals, but a rebound might be in the offing late this year or in 2010.
The analysts said optimism on the metals side focused on China, which has become an active player in the sector, as evidenced by Chinalco's offer last week to invest $19.5 billion in Australian miner Rio Tinto (RIO.AX: Quote), and Minmetals' $1.7 billion bid for Oz Minerals (OZL.AX: Quote,).
Robson noted that China's currency has remained strong due to its peg to the surging U.S. dollar, and it has massive holdings of U.S. treasuries.
I think they're taking the decision to swap some of the U.S. treasuries for some real hard assets, being that mining companies are trading at 20 cents or 30 cents on the dollar, he said.
Asked whether China might invest in Canada, Robson suggested it could be a buyer for assets expected to be sold by Teck Cominco (TCKb.TO: Quote), and pointed to a company called Jinshan Gold Mines (JIN.TO: Quote), which is listed in Toronto, but is 42 percent owned by China.
($1=$1.26 Canadian) (Additional reporting by Steve James in New York; editing by Rob Wilson)
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