With the price of gold up 30% since the start of the year, precious metals have, again, caught the eye of investors and a steady rebound is building.
“It is really precious metals going up and not base metals or oil and gas. It’s just one particular part of the mining sector,” Joe Mazumdar of Exploration Insights told Mining Journal.
With the interest of institutional investors piqued again, both events are forecasting records.
The DGF has been a fixture in the calendars of precious metals investors for years and many view it as the most important event of its type on the globe.
Investor signups for this year’s event have already blown away the expectations of the Denver Gold Group (DGG) that organises the DGF.
“We can model accurately to within 5% the number of investors that will come at a given gold price and we use this to maintain a ratio of investors to companies. We budgeted the show at a gold price of US$945 per ounce so at $1,300/oz it is way above what we initially planned and so we have blown through the baseline targets we had,” DGG executive director Tim Wood told Mining Journal.
Some 150 companies have already signed up to present at the DGF with Wood expecting a maximum of 155. Delegate registrations are currently at 950, with attendance capped at 1,200 people. “We cannot physically accommodate any more. We expect that we will be full by mid-August,” he added.
PMS is also expecting a record year.
“In 2015, we had a record 110 companies and so far this year we have 123. We are hoping this will settle down at about 120 as we don’t just want to keep adding companies,” CEO Jessica Levental told Mining Journal.
“In 2015, we had 220 buy side delegates and 80 sell side delegates. The ratio is similar this year and we currently have 50% more signups than were registered at this time last year and the last four weeks [typically] see investor registrations almost double. We have new people entering the space with junior miners and emerging producers really picking up,” she added.
Revamped content
Far from resting on their laurels, both the DGF and PMS will see new presentation tracks this year.
The DGF event will be populated with the 105 core producers that are DGG members, but it has expanded to provide dedicated space to smaller explorers and developers for the first time in the shape of an explorer/developer track comprised of 50 companies, a change responding to member requests to incorporate smaller companies.
“Our core members are focused on corporate development and want to meet with the smaller companies so they asked us to do this. We also had a lot of demand from smaller companies looking for new ways to participate in the event that didn’t exist before. This deepens the number of companies we can serve,” said Wood.
PMS was launched in 2011 by Levental to provide a forum for smaller explorers and developers that traditionally did not qualify for the DGF to meet with investors. Held in Beaver Creek, a ski resort a couple of hours outside of Denver, it provides an intimate setting for investors to see the future pipeline of projects.
Now that DGF is moving back through the project lifecycle to companies with earlier stage projects it will be interesting to see to what extent this impacts the PMS event.
Loosely speaking, DGF has provided a forum for typical TSX mainboard companies while PMS has focused on Venture-listed companies. This year’s events will see that distinction more blurred than ever.
PMS is also adapting and adding a third track of company presentations that will feature even smaller and earlier stage companies than it has in the past to differentiate itself from the DGF event.
""Beaver Creek is probably the best place to get together and see legitimate companies doing legitimate work"
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“We introduced a micro-cap session in 2015 for companies with market capitalisations under US$10 million that were very early greenfield explorers. We are seeing a lot of new blood and have eight new companies this year. Last year we had 12. However, there are not many with less than $10 million market cap now, as many have graduated to our regular 20 minute presentation slots. This year we have some new producers and larger junior miners from Australia that are new,” said Levental.
Brent Cook, founder of Exploration Insights, is a real advocate of the event.
“Beaver Creek is probably the best place to get together and see legitimate companies doing legitimate work. I get to sit down and really talk to them. Institutions will be looking for something new, not this marginal stuff that [some juniors] are bringing back, so this could be the trigger point when the institutions start going down the junior side again,” he told Mining Journal.
That should be of interest to analysts like Tyron Breytenbach at Cormark Securities.
“It's especially relevant for me as I focus my coverage on the pre-production juniors," he told Mining Journal.
"The summit is a great way to rapidly scan for new ideas in the sector and usually helps me outline my coverage additions for the year ahead. It's got a great vibe, very informal and good access to management.
"I also keep an eye out for seniors who may be attending the summit to scan for new assets/ideas. A lot of industry news is published around the event so it allows analysts the opportunity to immediately gain commentary from management following a release.”
Mazumdar said a key benefit of the conference structure was the ability of small companies to gain access to multiple funds of influence without distraction. He also suggested renewed positive sentiment could translate into into deals.
"A lot of larger companies go there to talk about potential joint ventures and a lot of deals are potentially generated in Beaver Creek.”
DGF’s programme is largely made up of producing companies that are its members. The selection process at PMS is different in that most of the companies presenting are not producers but developers and explorers, which allows the conference organisers to showcase up-and-coming companies that may not yet be on the radar of investors.
Levental said she looked for solid companies with management teams that had a good reputation and track record with projects that showed signs of life with an interesting story.
"If a project appeals to early-stage investors like Sprott and other funds that is a good indication. If it has strong catalysts and recent news flow we are interested in getting it in."
She singles out Mariana Resources with its Hot Maden discovery in Turkey, IDM Mining, Azure Mines, Blackham Resources and Southern Silver Mining, Victoria Gold as a prime takeover candidate following Goldcorp’s recent purchase of Kaminak Gold, and Barkerville Gold Mines.
“[Barkerville] is a gold play that was run by a management team that did not have a great reputation and put out a controversial resource with an outlandish amount of ounces. Well, it was taken over by Toronto financiers who changed the board and management and it seems that there is something to the story after all,” she said.
An extended programme is not the only change at the DGF this year. Despite its perennial success and the promise of a blockbuster event in 2016, the city of Denver, where the event has been held in recent years, bumped the conference. It will now take place in Colorado Springs where the event was previously held in 2011.
The scale of the event means the DGF has the full run of the Colorado Springs Broadmore resort, where accommodation sold out in July.
""Cash flow is improving but it doesn’t make up for what companies require going forward to replace reserves and build their pipelines"
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The buzz
The DGF and PMS provide the opportunity for investors and fund managers to engage with precious metal producers and developers in 20 minute speed-dating slots. Depending upon their stamina, participants can organise up to 20 meetings a day with companies they are interested in, or watch an extensive programme of company presentations in addition to the general networking opportunities.
These are events where investments are secured, deals are conceived and watch lists created.
Wood said the intensity of the event would pick up considerably due to the rise in the gold and silver prices and, if there was the traditional fall (autumn) increase in prices, that could "really provide another boost".
He expects finance to be a key theme of this year’s DGF.
“The hot topic will be the capitalisation of companies and sources of finance. Cash flow is improving but it doesn’t make up for what companies require going forward to replace reserves and build their pipelines,” he said.
For Levental, Brexit and the future of the European Union will be a key talking point on the sidelines. She also thinks corporate development teams will actively be looking for M&A targets.
“Over the years of the market decline there have been companies that have survived and come through the nuclear winter and are emerging more solid than before having done a lot of derisking of their projects," she said.
"Potential acquisitions will also be an important theme as the market rebounds. Nine companies we had last year have gone because they have been acquired. So there will be the exchange of notes and rumours about who will be gobbled up next."
With precious metal prices picking up, Rick Rule, CEO of Sprott US Holdings, a key investor in the exploration and development space, is looking to see if miners have learned the lessons of their past largesse during the times of high market prices.
“I am hoping the senior and emerging producers have learned some lessons from the last upturn. In the last decade, when the gold price went from $260-1,900/oz cash flow per share declined,” he told Mining Journal. "It took some real skill as an industry to do that!
“My supposition is that the memories of the mistakes made last time haven’t been lost by the current crop of managers and we may be pleasantly surprised that the industry will use price escalation of the underlying commodities to reward their shareholders rather than squander it on ill-fated acquisitions or stupid capital expenditures.
"There is an expectation that the industry will destroy capital, but I think in the next 24-36 months this may not be a problem."
Rule’s sentiment is echoed by Mazumdar.
“Five years ago there was a lot of buzz about M&A and it was an exciting show. We see a lot less of this now as the past couple of years have been depressing with shrinking production and cutting costs. Gold is up and there is a lot of froth in the junior sector but they are not producing anything.
“There is a dose of reality at DGF as companies are working through their debt, generating cash flow and building their projects. It will be about right-sizing their companies and whether there is a commitment to do this and generate return on investment.
"The seniors have written off a lot of ounces but they can come back on quickly if the gold price continues to rise,” he said.
Andrew Kaip, managing director for mining research at leading investment bank BMO, covers the senior miners and sees resource replacement as a key issue that he will look to be answered.
“I am interested in what quality projects are in the pipeline. Some senior gold miners don’t have healthy project pipelines so a number of them will need to acquire to enhance their overall portfolio for the future,” he told Mining Journal.
Keynotes
Both the DGF and PMS feature a number of keynote presentations from leading industry figures who will share their pearls of wisdom and set the tone for the respective events.
Keynotes at the DGF include Ben Kilbey of Platts speaking on the worst year in memory for India's bullion trade and how important fundamentals are to the gold price, Jeff Christian of CPM Group and Miguel Vias of CME Group speaking on understanding the paper gold market, and Doug Silver (pictured left) of Orion Resource Partners presenting on how private equity has bridged the capital gap for mining companies.
Wood said it was important for keynote speakers to follow a general market theme.
"For example, there has been a heavy emphasis on private equity in recent years. The first wave was not very successful but the second wave has been much more so because private equity is now not trying to run the mines and is acting more as a source of capital that is much more flexible than focused funds as it can do debt as well as equity,” .
PMS takes a different tack for its keynotes.
Levental said she wanted to produce a show that was intellectually stimulating to financiers and the smart money.
"So I ask: Who would they be interested in spending an hour listening to?
"The idea is to entertain, interest, provide new perspectives and open people’s eyes to new ideas. We do a lot of panels because I love listening to conversations of bright people with great ideas."
In 2015, Levental pitched two industry giants together with David Harquail of Franco Nevada questioning Rob McEwen of McEwen Mining.
“2015 was very engaging, partly because they are on opposite sides of the fence when it comes to royalties,” she said.
"But much of this wasn’t about mining (McEwen basically talked through his personal history and how he got to where he is now) and it was the best one in terms of audience feedback because it was so genuine and personal."
This year promises equally stimulating and entertaining conversations as Ross Beaty of Pan American Silver and Tom Kaplan of the Electrum Group sit down with Robert Quartermain of Pretium Resources. A second keynote will see John Hathaway of Tocqueville Gold Fund and Ronald-Peter Stöferle of Incrementum fund sit down with Martin Murenbeeld of Dundee Economics.
If the attendance at the DGF and PMS can be treated as bellwethers for the future, the second half of 2016 should be very active in the precious metals space.
*Paul Harris is Latin America editor of www.mining-journal.com
