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It's been a painful year for investors in Canada's resource businesses, but Scotia Capital's head of global investment banking, Adam Waterous, believes there's still good reason to be an optimist.

Mr. Waterous, probably the world's busiest banker when it comes to energy deals, is expecting to be very active in 2009 as the drop in the price of commodities leads to a merger spree, particularly in the oil sands.

But he's not expecting prices to stay down for long given how fast producers of everything from oil to copper have cut back production.

Why are you still feeling optimistic in the face of the biggest decline in commodity prices on record?

My view is Canada is the indirect beneficiary of the greatest social policy ever implemented on a global basis: globalization.

Something like 300 million people have been lifted out of poverty by globalization in the last 10 years. Because it's been so powerful and so many people have enjoyed the fruits of that policy, I think it's very difficult for governments to turn materially protectionist.

If you believe that, you have to become a fairly long-term believer in the growth of emerging markets like the Chinas and Indias of the world. They have a voracious need – as they move their populations' income levels up – for more natural resources. And if you're a bull on natural resources you have got to be a bull on Canada.

What about the short term, when Canadian companies are cutting workers, closing mines and shelving projects?

You're seeing fantastic amounts of supply coming off the market very, very quickly given low prices. That's the great thing about capitalism, you've got an immediate rationalization of the least efficient producer.

You're getting that up close and personal across Canada in different sectors. That will lead to a fairly quick rebound.

Considering we're still measuring this commodity pullback in a period of a few months – it's not even half a year – it's remarkable how efficient the reduction in supply has been. That bodes well.

What did the big runup in commodities teach us?

In a strong global economy, people will pay a lot for commodities. That is a really big fundamental insight that we did not know even 12 or 18 months ago.

There was less demand destruction for oil in June [when oil was heading for its peak] than there was in September and October [as the economy slowed], meaning that if people have a job, they will pay $4 a gallon in the U.S. for gas.

What advice do you give to the head of an oil sands company who has ambitious growth plans?

These are very trying times for the oil sands business. We have had an astounding amount of capital projects shelved, deferred, scaled back. But the positive benefit is these are very long-term projects. Most of the owners of these assets appreciate that.

The oil sands is the best place to look for the strong getting stronger. Super capital-intensive sectors are going to be consolidated the fastest.

The independent oil sands producers will be very challenged and, generally speaking, wouldn't expect to have long lifespans in an environment like this.

Is that such a bad thing?

This capital crunch is just an accelerant to the consolidation that was going to happen anyway because of the amount of capital that's going to have to be raised.

In some respects that's a positive for the industry. We like to think about assets having their rightful homes, and the rightful home for many of these junior resource plays is with very large, well-capitalized players. They are ones who will be able to marshal the engineering, capital, technical expertise to get these developed, which is what we want as citizens of the country.

If that's true, why haven't we seen the deal making really get going?

This is still very fresh. As a consequence there's always a bit of an adjustment. That adjustment is happening pretty quickly, more quickly than a lot of people appreciate.

A fair number of boards of directors, while certainly unhappy about their share price and what's happened, are becoming increasingly realistic about the prospects going forward, and that will lead to an increase of mutual agreement between buyer and seller on what is fair value.

We haven't been able to see a new equilibrium, but when we do, you'll see a lot more deals.

You'll still have deals done in the depths. If you go back to the last major consolidation in the oil business, it was in 1998 and 1999, the depths of the oil correction. Oil doesn't have to go from $45 [U.S.] to $90 to give people confidence. Just some stability will really help.

Will oil go back to $90?

First of all, I'm not in the forecasting business. But here's how I would think about it: If you're producing 85 million barrels a day and you have a five-million-barrel decline, that's a massive decline.

The oil sands were always talked about as a filler for that lost production. It depends on what the oil sands project is and what stage of development it is, but you could have a range of $60 to $90 to justify those projects.

That makes you pretty optimistic that for any material length of time it is very difficult for oil to remain below that trading range.