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PDAC marked by cautious optimism, more austere tone: H.C. Wainwright

The PDAC mining conference this year was marked by cautious optimism, less grandeur than other events in recent memory and a greater accepance of reality, according to analysts at H.C. Wainwright (HCW), who attended the event from March 1-4 in Toronto.

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The PDAC mining conference this year was marked by cautious optimism, less grandeur than other events in recent memory and a greater accepance of reality, according to analysts at H.C. Wainwright (HCW), who attended the event from March 1-4 in Toronto.

The HCW metals and mining analysts visited the Prospectors and Developers Association of Canada (PDAC) trade show this past week, an annual event held at the Metro Toronto Convention Centre that is considered by many to be the "must attend" mining event of the year.

Although temperatures reached record lows, more than 23,500 people attended the show from over 100 countries around the world, braving the weather to get a glimpse of the mining industry and its future. 

"In short, we felt the general mood inside PDAC 2015 was warmer than both the temperatures outside, and sentiment we experienced during PDAC 2014," wrote the analysts in a brief report on the event released earlier Friday.

HCW said that while attendance was lower than in recent years, breaking a four-year streak of 25,000 plus attendees, the figure still beat the firm's expectations. 

Though unsurprisingly, as commodity prices continue to suffer, HCW said that networking events sponsored by companies were "much more conservative, even austere" to events the equities research firm has become accustomed to in the more than nine years it has attended.

"In fact, some companies even went as far as to host cocktail events in their Toronto offices to offset expenses," the analysts wrote.

"In addition to less extravagant events, we noticed that many companies were represented by fewer representatives."

HCW also noted the general mood of companies could best be described as "cautiously optimistic", with many management teams it spoke with continuing to express plans for advancing their respective projects while continuing to search for additional opportunities for growth, including M&A. 

"We noticed that some firms intend on keeping the drill rigs turning at their current projects while others plan to "kick the tires" on attractive, undervalued assets with the thought of acquisition in mind."

Most importantly, however, in HCW's conversations at the event, the firm took note of a lack of companies talking about increasing gold and silver prices, with many businesses beginning to accept reality and shifting focus towards what they can control --- operational efficiencies. 

Many mining companies have suffered over the past year on massive writedowns they were forced to take based on projects that only make economic sense and were acquired based on the assumption of higher metals prices.

"In our view, [the new] mindset should allow quality companies to survive the downturn as the reality of lower prices is beginning to be accepted and worked with, rather than refuted," HCW said.

On the cost side, guidance for the year is beginning to come down, the analysts wrote, as companies have begun to recognize the benefits from both lower fuel prices and labor concessions. Specifically, open pit mines, which attribute a moderate portion of their costs to diesel fuel, have been helped by the recent downturn in the oil market.

HCW estimates that cash costs in 2015 could decline by as much as 5 to 8 percent due to operational efficiencies, coupled with changes in cost inputs.

Endeavour Silver (NYSE:EXK) (TSE:EDR), which reported fourth quarter results on Thursday, suffered through substantial metal price declines in 2014, but the precious metals producer managed to reduce all-in costs and trim net losses, with plans to cut costs further and improve operations in 2015.

The company reported its 10th straight year of growing silver production in 2014 from its three operating underground silver-gold mines in Mexico, while all-in sustaining costs fell 8 percent to $16.79 per silver payable ounce last year.

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