On April 15, gold saw its worst trading day in history, plunging more than 9% on the day alongside slumping silver, platinum and copper prices, and adding woes to an already struggling B.C. mining market.
Karina Briño, president and CEO of the Mining Association of BC, believes that in the big picture, the drop is not out of the norm.
"It's just how the industry works," she said. "Society is dependent upon mining, so the demand for our products will continue."
The recent drop in price is just another stress in what has been a difficult few years for the junior sector in particular.
"[They] have been having difficulty raising capital, and some projects have been put on hold as a result," Said Briño.
Those who are closer to production, she said, will fare better. She mentioned two B.C. mines as an example: the Mount Milligan mine in northern B.C., operated by Thompson Creek Metals Company, and the Red Chris mine south of Dease Lake, which is operated by Imperial Metals Corporation.
Nearer production and forecasting promising deposits, these two mines, she said, are moving against the trend.
For those farther from production, the end may be near, though Briño sees the upsides in this scenario as well.
"This can be an opportunity for investors to come in at lower prices, which gives them a bigger piece of the pie," she said.
Although Michael Cinnamond, B.C. region mining leader and partner at PricewaterhouseCoopers, sees the effects on the Vancouver market now, he's not sure what the future holds.
"It has a direct impact on the companies that are here," he said. "But it's not clear what impact it will have in the long term."
Cash costs have steadily crept up over the years, he said, and some smaller companies are either out of cash or close to it. This is leaving the door open for other, better-positioned companies, to take over.
"For now, it's a buyer's market," he said, adding that less advanced projects are more vulnerable. "Other companies may be interested in taking these projects on, or in making some sort of joint venture arrangement with them.
"You start to see some consolidation as well," he said. Properties with better prospects for development but little cash may find benefit in forming a partnership with a cash-rich company, even if it has less promising mineral deposits.
Yet, mergers among juniors are not as easy to achieve as they once were, according to Lindsay Bottomer, vice-president of business development and a director at Entreé Gold Inc.
"In times past this was a relatively quick and inexpensive process," he said. Regulatory changes have made it much more difficult. And costly. For cash-strapped operations, he said, it may not even be feasible.
For his part, Bottomer wasn't altogether surprised by the drop in gold.
"It's a classic volatile industry," he said. "But the magnitude and the speed of the fall was unexpected."
Asked what the junior companies will be facing in the coming months, Bottomer was unequivocal. "They are facing running out of money." To survive, he said, they may start to look at less conventional means of continuing to finance their survival.
"If they have a substantial asset, then they can mortgage against it, but that's not the preferred course of action, particularly in a depressed market where the [loan] terms will not be very good."
Briño believes bigger operations also need to assess their projects carefully. "For the major [companies] it's about finding cost efficiencies," she said. Those that are already running efficiently will be better able to survive.
Cinnamond concurs. "This dip in pricing will also make companies go back and look at their operations. The low cost producers are the ones that are going to be able to weather the storm better."
Volatile gold:
According to Natural Resources Canada the price of gold skyrocketed between 2001 and 2009, nearly quadrupling in value from a yearly average of $269 per ounce to more than $972. In the past two years, gold price fluctuations have continued to spell volatility for investors (see graph page 27). According to the Vancouver Economic Commission, Greater Vancouver is the base of operations for over 800 global mining and mineral firms.
