That was the subject of this year’s Keynote Address at the Society of Mining Engineers (SME) Annual Meeting & Exhibit, which was held in Salt Lake City, Utah, during February. International Royalty Corp.’s Chairman and CEO Doug Silver delivered the Keynote presentation, The Mineral Supercycle: Past, Present, and Future. Silver gave probably the best keynote presentation in the last 10 years. His presentation was thought provoking and he talked about where the mining industry had been, where it is today, and laid the groundwork with three future scenarios.

As far as then and now, Silver explained that times have never been this good for this long for the mining business and that the industry was experiencing a historic boom. To support that statement he reviewed exploration spending and its correlation to big discoveries. During the 1990s, when no one was spending money on exploration, the mining industry had a handful of discoveries during a decade. Then, he named eight major deposits that have been discovered in the last couple of years. Silver said that the mining industry is in the fifth year of a supercycle that began in 2002.

Trying to define what variables affect the wavelength and amplitude of the mining supercycle, Silver pondered whether it was convergence of unrelated events or the consequence of related events. He seemed to side with the latter. Obviously, the Asian economic drivers (China and India) have had a huge impact, but it’s not the only factor. The emergence of a global middle class is also having a pronounced demand-side effect. Some supply-side issues, such as investor neglect and lack of exploration spending during the 1990s, exacerbated the situation.

The three scenarios Silver offered ranged from good (Supercycle Continues for Decades) to moderate (Major Correction) to ugly (Supercycle Peaked). In the worst case scenario, he described a market where the U.S. mortgage crisis affects hedge funds and they begin to dump ETFs and gold prices plummet. Retiring baby boomers change U.S. spending patterns and China is saddled with a glut of products and raw materials. With a Major Correction, the U.S. enters a recession, but global economy presses ahead. Exports—which only account for 30% of China’s GDP—decline, but equilibrium extends the cycle a little longer. In the best case scenario, U.S. financial woes are minimized by the emergence of a global middle class. Everyone seeks a better life with more energy and raw materials. China purchases 20 million cars, rural areas see electrification, etc. Before the audience could dance off in irrational exuberance, Silver cautioned that significant change is usually brought about by some major unexpected event. He used an analogy of an asteroid hurtling toward earth.

Oddly enough, by the time Silver finished his speech, Vale announced that they had secured a 65% price increase for iron ore. During the last month, gold prices have climbed by nearly $50 to more than $974/oz, platinum prices grew by $450 to $2,155/oz, and base metal prices were up across the board. So, for this month, it’s looking like a correction at least and let’s hope the rest of the world shrugs at the unwise borrowing decisions of some Americans.

Steve Fiscor, Editor-in-Chief, E&MJ