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Geologists wander throught the Core Shack looking for promising samples

If gold had a fragrance, it would be the whiff of desperation. And come early March in Toronto, someone would bottle it, relabel it as "Hope" and attempt to sell it at a booth at the Prospectors and Developers Association of Canada's annual convention.

For four days every March, Toronto is centre ice in the world of mining. Frankly, it is anyway—nearly half of the world's equity transactions related to extracting goodies from the planet's crust flow through Toronto's exchanges—but it's during these four days that the mining world comes to set up its booths, paste on a smile and make a lot of those deals happen. And then, at the end of each day, because the mining business is hard, the world retires to a hotel suite and drinks as much as humanly possible.

This is how it has been since 1942. That first year, when the price of an ounce of gold sat at $33.85 (U.S.), several hundred prospectors and mine developers decided to gather for a single day in Toronto's King Edward Hotel, talk a great deal about their industry and then head to the bar. Everybody enjoyed themselves immensely, so the next year they did it again. In 1944, attendance was too high for the King Eddy, so the convention moved to the Royal York Hotel. By 2012, a few months after gold had hit its $1,896.50 (U.S.) peak, the event was a four-day affair at the Metro Toronto Convention Centre (MTCC), and the attendance, drawn from 125 countries, stood at more than 30,000. It is the biggest and most important event of its kind in the world.

This year, as sure as the spring runoff, it happened again. Room rates in some downtown Toronto hotels doubled, even tripled, while more than 500 junior exploration and mining development companies, and a greater number of supply and service companies, set up their booths in anticipation of the tens of thousands who'd registered to come.

Amid such a concentrated de-posit of mining-related humanity, an interested observer can learn a few things.


The Mining Industry Gets Marks for Attendance

"Everybody is here," says a woman from Western Potash. Who is everybody? Everybody is prospectors (who don't always look the way you'd expect them to look), junior exploration company executives (who do), Barrick-style bigwigs (who really do), retail investors (often wearing leather jackets, or sweaters) and institutional investors (many in suits, but some of them incognito). Then there are the representatives of drilling contractors, drilling equipment supply companies, companies that advise where to drill (geological survey companies), companies that look at the things that get drilled (assay laboratories), and governments by the dozen who would really like you to come drill (some of whom will give you a nice scarf).

And why is everybody here? Because everybody else is here. James Johnson, deputy CEO and chief of the resources division of Geoscience Australia, is not—a brief conversation would suggest—passionate about many things. But one thing that revs him up is the thought of what would happen if Australia didn't set up an enormous gold-coloured booth in the middle of the trade-show section of the PDAC convention every year. "We are a major mining jurisdiction globally," says Johnson. "If Australia said, 'Well, you know, we can't demonstrate on a strictly quantum basis what we get out of it, we're not coming,' the message that would send would be terrible. It's like, 'Well, Australia's not really interested any more.' We have to have a presence here."

(Note to other industry associations: When you have reached the point when the failure to attend your convention has economic implications for an entire continent, you've really got something.)


Some Prospectors Are Not What You'd Expect

The Prospectors and Developers Association of Canada has, you might be surprised to learn, a somewhat romantic way with names. It groups its exhibiting prospectors in what it calls the "Prospectors Tent." There is no tent. Neither is the "Core Shack"—an adjudicated selection of new and important metal and mineral finds—a shack. And the folks who people these sections of the convention are universally unburdened with wiry beards, leathery hands and eyes gone squinty from the cold northern sun.

But even stripped of whatever foolish expectations you might have had about prospectors, it is still a revelation to meet the Bjorkman sisters.

Jessica, 34, and Ruth, 28, are two of five Bjorkman sisters, all of them prospectors like their father, Karl. They live on a small lake out in the bush, about two hours west of Thunder Bay. And they make their living with grubhoe hammers, GPS units and tiny magnifying lenses. They are prospectors for hire, flown by float plane or helicopter to remote regions where they set up camp and then roam the land for an amount of money they are loath to admit.

"We don't like to say that because it gets published," says Jessica.

"We could probably give him a range," says Ruth.

Jessica and Ruth decide to admit that an experienced prospector can make between $250 and $450 per day.

Are there dangers? Indeed there are.

"Bears," says Jessica."Lots of bears," says Ruth.

Even so, they love what they do, and they are supremely confident in their abilities. "We can cover a lot of ground," says Jessica. "Walking in the bush, not very many people can do that. We're proficient." And they have the curiosity vital to a good prospector.

"Gold fever," says Jessica.

"A genetic defect," says Ruth.


One Metal Matters Most

You could walk the floor of the Investors Exchange, the large hall in the south building of the MTCC, where junior exploration companies and large developers set up their displays, and conclude that most of the planet is made of gold. Sure, there are a few copper mines touted here, a zinc deposit mapped out there, a diamond mine or two, and yes, there it is over there…potash. But these are like the single people who snuck into the couples-only hoedown. At the PDAC convention, you can hold a 25-pound bar of gold in your hands. It feels heavier than it sounds. You can buy $1,475 gold-nugget cufflinks. They are more attractive than you'd think (certainly the Russians and the Mongolians would say so). More important, some 80% of the junior exploration companies that belong to PDAC explore primarily for gold. A lot of them have the word "Gold" in their name—Alacer Gold Corp., AndeanGold Ltd., Banyan Gold Corp. and so on and on. There's Gold Canyon Resources and Gold Jubilee Capital Corp. and a number of companies that are "Golden."

The reason for this, no doubt, is that gold gets people excited. And when you are in the junior exploration business, excitement is really all you have. Because…


The Business Model of Mining Is Ridiculous, Part 1

The mining industry lives with extraordinary levels of failure, the kind of failure that would normally eat away at a person until they were dead inside. Let's put numbers to that.

John Gammon seems a good person to ask. He was once the assistant deputy minister for mines in Ontario and has a geoscience library named after him. Also, he is tall and white-haired, with an air of authority that makes him look and speak a little like Gandalf the Wizard, if Gandalf had to cut his hair, wear a dark suit and discuss ore grades.

Every project an exploration company initiates, says Gammon, has but a 1-in-10,000 chance of success. He breaks that down for us: "One in 10 projects makes it to the stage where it's worth bringing a drill onto the property to explore a depth. And one in a thousand of those projects makes it into a mine." A study was once done of Placer Dome's mining operations. At the time, they had 2,700 projects under way. Twelve of them turned into mines. That was considered an unusually high success rate.

This amplitude of failure has business implications, as you might expect: Very few people want to go exploring. Or, at least, very few people want to pay for it. Certainly not most major or even mid-tier gold developers. Exploring for potential mines doesn't make money. Only mines make money. So a number of years ago, the major mine developers, with an eye on their balance sheets and share performance, mostly cut or shrank their exploration departments. The profusion of junior exploration companies that you see at the PDAC convention is the result, many of them headed up by the people who were cut loose from major mining companies.


The Business Model of Mining is Ridiculous, Part 2

The goal of a junior exploration company is not to make money. "This is the problem with junior exploration companies," says the CEO of one of them. "We only ever spend money." That's David Palmer talking, president and CEO of Probe Metals (a spinoff of Probe Mines). Palmer, it has to be said, is a star in his field. In fact, he was given an award as the prospector of the year at this year's PDAC convention. So he has a solid grasp on the "make-no-revenue" model of junior exploration.

The idea is for a junior exploration company—the term is preferred over "junior mining company," since they don't actually do any mining—to spend vast amounts of money exploring until it finds a deposit attractive enough for a major company to swoop in and buy it. This is the very thing that happened with Probe. Already known for its 2009 Black Creek chromite discovery, Probe then discovered gold at a site about two hours west of Timmins, Ontario. It was low-grade ore, though—roughly one gram of gold per tonne—which at current gold prices would have been too costly to mine. So Probe kept looking and, in 2012, it hit a vein of high-grade ore—about 10 grams of gold per tonne. That was enough to interest Goldcorp, which bought Probe for $526 million.

It's the possibility of this kind of payout that drives juniors on. So they'll hire prospectors or send their own staff geologists to "walk the rocks" of claims, looking for signs promising enough to suggest it might be worth hauling in a drill. When they do, each drill hole will cost plenty. The numbers vary wildly, from $30 to $600 a metre, depending on the country being drilled into, or even the depth of the hole. But at an average rate of $150 per metre, it can cost from $50,000 to $100,000 to pull up a single sample core for geologists to analyze.

"If your budget's a million dollars, it doesn't give you much," says Jean-Charles Potvin, president and CEO of Murchison Minerals, as he sits with his sandwich in the 800-level lunch area. It can take years of exploration, decades, before a company strikes something worthwhile. And once it does, says Potvin, the typical ore body requires about 120,000 metres of drilling to gather enough information to put a mine into production. That's $18 million.

"Exploration," he says, looking at his sandwich, "is very, very expensive."

When you're a company that has no revenue at all, where does this money come from?


Investors Are Admitted Free

The only way for a typical junior exploration company to generate the cash necessary for exploration is to issue shares and get them bought by investors. Institutional investors, retail investors—really, anyone will do. Patrick Michaels, the Swiss chairman of Zuri-Invest AG, a boutique asset management company based in Zurich, makes a point of dressing casually when he comes to the PDAC convention, purely to reduce the pestering from junior exploration companies. "I like to go without a suit because people don't bother me that much."

The no-suit strategy seems to come naturally to the retail investors at the PDAC convention. You will know them by their cords, windbreakers, sweaters and leathers, and by the look of discerning skepticism in their eyes. They are people like Fred Sutherland, a 71-year-old retired high-school English teacher, who has been coming to the PDAC convention for 30 years and who dispenses nuggets of wisdom in between bites of slightly tough ribs at a Sudbury-hosted gathering.

"I wouldn't want to be more than 10% in the sector," says Sutherland, citing the industry's high incidence of failure. He likes what he calls "pick and shovel" companies—a term, borrowed from the gold-rush days, referring to the companies that supply expertise and equipment to the companies spending the actual dollars. He looks at data, but he prefers face-to-face meetings. "Management," he says, "is a fallible human quotient." Mostly, he just wants to avoid the mistake too many large mine developers make when they descend on a junior with a rare find: "They buy in a state of euphoria."

Well, precisely. For junior exploration companies, promotion is part of the job, and euphoria is the best-case scenario. How else to entice buyers to snap up the millions of 10- or 15- or 25-cent shares that will allow them to explore enough to prove a deposit exists? Some exploration companies are better at creating euphoria than others, of course, which is not to say they're better at exploring. There is a derogatory industry term—"Vancouver promoters"—that refers to companies that promote their finds well beyond their reality.

Most junior exploration companies, however, lure buyers using good old-fashioned hope—the hope of stumbling on a 1-in-10,000 discovery that leads to a Probe-like buyout. And that hope comes packaged—in the form of stories. "PDAC has always the possibility to discover new stories," says Patrick Michaels.

Here is a brief selection of this year's stories:

At Ivanhoe Mines: "We are drilling off a resource that was found 25 years ago and has sat under water for all that time. We have dewatered the mine and are putting drill holes into it with the aim of producing a modern compliant resource. Very high-grade zinc deposit, called The Big Zinc. As it was defined, it's about five million tonnes of almost 40% zinc, which is approaching concentrate grade. If you wander around here and look at zinc projects, they're 5% or 10%, and this is 40%."

At Syracuse Gold (in the Prospectors Tent): "What we have here is Canada's next long-life high-grade ore body. It was one claim that had never been looked at, an overlooked fragment. We bought it in the middle of winter. It was a road sign—44 acres for sale with mineral rights. We went and bought a 65-ton excavator, built a road out on the outcrop. We started stripping it, and immediately we started hitting the veins. You see these textures? This is big gold, all right? This is like world-class-texture quartz carbonate." Is he a geologist? "No, I was in the used-car business."

At Northern Vertex: "This property is in northwestern Arizona. Basically it's an old historic property dating from the Civil War. We've done a 125,000-tonne bulk sample. Open pit—84% recovery on the gold and 40% on the silver. Presently doing a feasibility study. Should be ready in June. And with that 125,000-tonne pilot project, we have credibility. We have proven the concept."

At Golden Star: "We've got a deposit from West Africa. There's not many West African cores being displayed here. Geologically it's very unique. That's iron magnesium carbonate you're looking at. This is the higher-grade stuff. You see that? That's gold. That's gold. Little bit more. Another little flake in there."

At Taranis Resources: "We have a property in Finland. We have indicated $10-billion worth of copper, gold, cobalt and nickel. Seventy-seven drill holes on the one zone. That zone right there, that's 21/2 kilometres long. A kilometre wide. And it's 250 million tonnes of $40 rock. That's $10 billion in that piece. What about all this out here? We'd like to explore it. It's huge potential. Join us. Come on in. Get in and get your feet wet and make some money with us. We'll all make some money."


There Are Troubles Behind Those Smiles

This is a bad time for miners. How bad? Let's ask Francis McGuire, president and CEO of Moncton-based Major Drilling, the world's second-

biggest drilling company: "Would, uh, horrible be a good word?" says McGuire. "Just absolutely effing horrible. How'd you like to lose 60% of your market and have, at the same time, a 35% price cut?"

It's been bad now for about three years, mainly because the price of gold has fallen so far from its peak, while U.S. equities have become so enticing, that investors have turned away. The money for exploration has dried up. Mining is a cyclical industry, and this is the trough. Everyone at the PDAC convention knows it.

"The intensity is down," says Murchison's Jean-Charles Potvin. "There's no buzz. When the market's excited, you feel it."

Attendance at the 2015 convention fails to reach 24,000. Here and there, booths sit empty, abandoned by junior explorers who paid as much as $3,600 for a 10-by-10-foot space but never made the trip. (There are always a few no-shows, says PDAC executive director Andrew Cheatle. But he admits "there are more booths empty than I've seen before.") In others, CEOs populate their own booths where in previous years it was pretty "investor relations" reps hired for the occasion. (Or Chinese representatives, the year a number of companies wanted to cater to China's sudden need for iron ore.)

And there's something else noticeable about the booths this year.

"It's the same tray of brownies going around," says one investor. "Last year they got some refinancing to stay afloat. I haven't seen a whole lot of new stuff. Some of the stuff is relabelled."

"Look up and down at all the garbage," says the head of a junior. "I walked through the other side and I'm like, seriously? Again?"

Patrick Michaels of Zuri-Invest is more sanguine, but he agrees. "After the painful years, there are not many new stories." He knows a few lucky companies have managed to drum up enough investment to explore. But "some that are here, unfortunately, they are just chewing on their last one-hundred or two-hundred thousand." What with listing fees, auditing fees—it costs exploration companies tens of thousands a month just to sit idle—that might take them to the next quarter. "What then?"


A Mine's Dark Hole Is a Metaphor

John Gardiner, president of Taranis Resources, admits the junior exploration business is like an expensive dice game. It's always risky, but some people are better at it than others. "There's people in this business that spend decades exploring for things," he says, "and they're very good people, and they come up with nothing."

For some reason, it occurs to an observer just then to ask whether people in the junior exploration business are ever driven to kill themselves.

"Absolutely," says George Kent, a director of Taranis and Gardiner's father-in-law. At 85 years old, Kent has been involved in mining since 1952. One friend slashed his wrists in his backyard. Another shot his head off with a shotgun. "What brought it on, I don't know," says Kent. "But they were in exploration just like we are."

Death came once to the very centre of the convention. In 1987, in the lobby of the Royal York Hotel, a man named Timmins Bissonnette approached Guy LaMarche, a flamboyant mining stock promoter who Bissonnette claimed had bilked him out of as much as $150,000, and shot him twice, once through the heart.

Today at the Royal York, which remains the centre of PDAC socializing, this tragedy makes for a good anecdote. A man exiting a cab tells the three women he's with, "So the guy comes downstairs and he gets shot!" Another regales a group of friends, "It happened 50 feet from me. Right here. I was dressed in a tux."

But mostly, in the Royal York and in bars and clubs within a short cab ride, the prospectors and miners of the PDAC drink their after-hours and troubles away. Bill Kellaway, an exploration geologist based in Cardiff, United Kingdom, who describes the previous evening's Irish night as "legend," says the convention is known around the mining world for its non-stop after-hours boozing.

"There's this whole sprawling mass of humanity that is going from one party to another," he says. "It's very PDACesque, that is. You don't get it at other conferences." The behaviour runs mostly to student-level silliness, although the participants are largely middle-aged. Reports were that one year a miner woke up with a road sign in the bed beside him.

Kellaway no longer brings younger colleagues with him to Toronto. "We've brought young ones, and it's broken them." You need a certain level of maturity to pace yourself through this convention, says Kellaway, and that means no kids. "We don't want to be bailing them out of jail."

At one of the dozens of presentations run during the convention, hundreds of middle-aged men in dark suits gather in a large room at 9 a.m. to hear Josh Wolfson, VP and senior mining analyst for Dundee Capital Markets, speak on the economic implications of grade. Wolfson begins his speech thus: "Thanks to the brave souls today bearing hangovers to hear today's discussion."

These days, the term brave souls applies to just about everyone in mining.