(Kitco News) – The mining sector appears to be ripe for a black-swan event in 2019 that could bring investors back to the marketplace, according to the president of the world’s largest mining association
In a telephone interview with Kitco News, Glenn Mullan, president of Prospectors & Developers Association of Canada, said that a rise in commodity prices in the final quarter of the year had helped drive momentum within the mining sector ahead of the new year.
“The market is fairly efficient in discounting expected and current prices,” he said. “The market won’t touch new highs on what it already knows. It’s looking for the stories that it doesn’t know and that goes back to the lack of financing, lack of exploration and the lack of new major discoveries.”
Along with the potential for a surprise event, Mullan said that the market is also poised to see a further increase in mergers and acquisitions. He noted that the last significant M&A activity in mining was nearly a decade ago.
Mullan added that he expects depleting reserves will continue to be a critical theme for mining companies in 2019 and will drive M&A activity.
“Some of the best deals are done in the worst markets,” he said. “And this one is pretty bad, so I am optimistic that something positive will come out of these conditions.”
Mullan isn’t alone in his optimism. The PDAC 2019 conference in Toronto is only one month away and he said that is shaping up to be another constructive year. The 2018 conference saw its best attendance in five years.
“All of the indicators we are watching are all favorable for a positive 2019 convention,” he said.
Mullan’s comments come as the mining sector prepares to end the year in the red, the first negative yearly close since 2015.
Major precious-metals producers faired the best this past year. VanEck Vectors Gold Miners exchange-traded fund, representing major gold producers, is down almost 1% this year. Meanwhile, the TSX Venture Index, which is heavily weighted with junior explorers, is down almost 35% for the year.
Major producers have also outperformed gold prices. Although gold futures are trading near a six-month high, the market is down nearly 2% for the year, heading for its negative annual close in three years.
