VANCOUVER (miningweekly.com) – There is a noted general perception among the investment community, including private equity firms and high-net-worth individuals, that there is some money to make again in the rebounding mining industry, PearTree Securities president Trent Mell tells Mining Weekly Online.

“Following three years of net outflows from the precious metals sector, things have certainly reversed, to an extent, and that capital is being deployed. The several years of tough decisions not to . . . increase output at all costs and instead focus on cash flow metrics have reinstalled some of the faith in the investment community,” states Mell.

According to him, the industry as a whole has worked hard at gaining that trust back and, while he does not believe the industry to be there yet, there are certain signs it is improving.

Mell notes that, in Canadian dollar terms, the gold price is only about 5% off the all-time high, which bodes well for Canadian producers.

While attending recent mining conventions in Canada and the US, Mell noticed that all of the major gold miners attending had their development teams on site to get a better sense of what the juniors were doing.

Majors are looking for potential opportunities. Denver Goldcorp and Agnico have been talking openly about growth capital, with Agnico to spend $2-billion in the growth pipeline over the next five years, mainly in Nunavut, and Goldcorp talking about focusing on six to eight gold camps, looking for district plays, Mell says.

He adds that, a year ago, there was no real talk about the exploration pipeline, but that it has become acceptable to do so again. Further, companies are again dusting off deferred projects as the investment confidence tide rises, with certain companies such as Barrick Gold having another look at the Argentina side of Pascua Lama.

He says this trend has acted as the bellwether for market improvements in the precious metals sector so far this year.

UNCERTAINTY AHEAD
Mell points to improved money inflows, and the equities that are up 200% to 400% so far this year in the gold space, as evidence that things have been improving. Year-to-date, there has been an uptick in activity, though base metals are lagging behind somewhat.

However, the full impact of the market shift remains to be seen. For the moment, Mell believes investors have paused to wait and see what happens next regarding the US elections outcome and whether the US federal reserve will raise interest rates before year-end.

He says private capital had something of a steady presence over the worst of the commodity price downturn.

“As we enter the recovery period, there is some action behind the scenes, with a couple of big funds raising money to launch a new fund in the $500-million range, two of which will come together in the next few months – so the capital is there and has been there."

He adds that the issue with private equity over the past four to five years was that people were not commodity-centric and were having a hard time regarding an exit strategy, as it is dependent on the cycle.

Mell further highlights that people have been saying they still have money and that they are looking to deploy capital before things start getting expensive again.

According to him, private equity investors did take advantage of the downcycle and might want to harvest returns as markets improve.

FLOW THROUGH PLACEMENTS
PearTree has been a significant supporter of the Canadian federal flow-through financing placements and aims to provide significant support to the chronically underfunded junior exploration industry in the country.

The tax credit, in its various forms, has been a part of the Canadian exploration scene for decades, with the most popular flow-through credit being the 15% Mineral Exploration Tax Credit, which was first introduced in Canada in 2000 for mineral exploration that takes place in Canada.

PearTree has been championing a new variation of the tax credit, which entails charity flow-through financing, whereby an investor subscribes for flow-through shares but then donates the shares to their chosen charity. The charity then sells the shares to an institutional investor to receive their funds, and a tax receipt is issued to the original donor.

As markets turn, PearTree has recently strengthened management with appointed president David Donato, who has more than 16 years of senior advisory and mergers and acquisitions experience.