Developers Are Generationally Cheap: Why the Mining Construction Cycle May Be More Valuable Than the Next Takeover Wave

Veteran investor Darren McLean argues that development-stage mining companies are trading at the lowest valuations he has ever seen 0.2 to 0.3 times conservative net asset value creating a rare window in which building mines, not waiting to be bought, could generate the largest returns for patient capital.

Darren McLean has spent a career hunting dislocations in the mining development space. As a long-time investor, former Muddy Waters consultant, and current Chairman of Mayfair Gold, he has watched multiple cycles of discovery hype, promotional studies, failed builds, and eventual consolidation. In a recent conversation on the Money of Mine podcast, he delivered a striking assessment of the present moment: development companies are “almost generationally cheap,” the quality of available assets is higher than he has ever seen, and the market is set up less for a classic mergers-and-acquisitions wave than for a construction cycle in which the act of building itself creates the largest re-ratings. The claim is not made lightly. McLean’s own net-asset-value calculations—using more conservative capital and operating cost assumptions than many published studies—still show high-quality, permitted or near-permitted projects in tier-one jurisdictions trading at 0.2 to 0.3 times those values. In prior cycles, finding even one project that truly “looked like a mine” and was mispriced was rare enough to demand extreme concentration. Today he can identify multiple such assets simultaneously. That abundance, he argues, changes both the opportunity and the correct way to size it. For Canadian mining investors, the implications are concrete. The TSX and TSXV remain the deepest markets in the world for development-stage gold, copper, and bulk-tonnage companies. Many of the projects now in the money were sitting on the shelf only a few years ago because they failed to clear economic hurdles at lower metal prices. The shift has been rapid and broad. Understanding why the dislocation exists, why majors are not yet closing it, and how to navigate the extreme volatility that accompanies it is essential.

Why the Dislocation Exists

Several forces have converged. First, the magnitude of the move in gold and other metals has been large enough to pull an entire tier of previously sub-economic projects firmly into positive territory—with meaningful margin for error. McLean emphasizes that margin for error is critical. In the last cycle, many builds failed not because of isolated operational mishaps but because the underlying ore bodies or cost assumptions left no room for the inevitable surprises in ground conditions, water management, or execution. When the ore body itself could not cover the problems, every delay and cost overrun became fatal. Today the better projects can absorb those problems and still generate attractive returns. Second, the traditional price-discovery mechanism—aggressive M&A by major producers—is largely absent. McLean does not expect a classic takeover cycle at these levels. Developers looking at the possibility of a three- to five-fold re-rating simply by reaching production are rationally reluctant to accept the modest premiums majors typically offer. Majors, for their part, remain cautious, still shaped by memories of value-destructive deals and perhaps sceptical that current metal prices will endure. The result is a vacuum in which assets float at levels that specialist investors find compelling but that lack the external validation of corporate bidding.Third, the pool of capital that understands how to underwrite development risk remains thin. New money has entered the sector, but much of it is momentum-oriented and intolerant of the drawdowns that development equities routinely deliver. When volatility arrives—and McLean notes that recent two-month swings in the GDXJ have exceeded the largest single-day moves in the S&P 500 over the past five years—that capital can exit as quickly as it arrived, amplifying price swings in both directions.

Construction Over Consolidation

The most important strategic insight McLean offers is that this environment favours construction over waiting for a bid. “The best re-rate you can ever get in the industry other than a discovery is execution,” he states. Historical examples from the Australian market—Northern Star, Evolution, Fortescue—illustrate how operational delivery can produce multi-bagger outcomes that dwarf the premiums paid in most takeovers. In the current Canadian context, companies that can advance from permit to commissioning stand to capture that re-rating themselves rather than surrender most of it to an acquirer. This does not mean every developer will succeed. McLean is explicit that the market still contains a large number of projects that only work on paper—optimistic wireframes, understated dilution, heroic recovery assumptions. The filter remains rigorous: real ore bodies that survive conservative scrutiny, manageable site conditions, and, above all, teams capable of executing. In a construction cycle the quality of the owner’s team, the technical leadership, the permitting capability, and the capital-markets relationships become decisive differentiators. “This is the ultimate market for champions,” he observes—individuals and groups who have repeatedly pushed assets forward through thick and thin and who now possess the credibility to assemble capital, talent, and corporate partnerships.

Portfolio Construction in a Target-Rich Environment

The abundance of opportunity has forced a change in McLean’s own approach. Where he once ran highly concentrated positions because truly compelling dislocations were rare, he now runs a more diversified book. Position sizes are smaller relative to past practice, yet the absolute capital deployed across the strategy is larger because the opportunity set can absorb it. The logic is straightforward: when multiple assets trade at 0.2–0.25 times a conservative NAV and each offers a credible path to a multiple of that value upon successful construction, the marginal benefit of extreme concentration declines while the benefit of diversifying project-specific risk rises. Volatility must be respected. McLean describes the current market as having an “extraordinarily high propensity for violence.” New capital that entered during the up-move is quick to head for the exits when prices reverse. Quality can become even cheaper in those moments; low-quality paper that absorbed excess liquidity is simply destroyed. Investors who enter with the expectation of smooth appreciation are likely to be shaken out before the fundamental re-rating occurs. The correct mindset, in his view, is to size positions so that 20–30 percent drawdowns are uncomfortable but survivable, then focus on the operational and permitting hurdles that actually determine ultimate value.

Canadian Specifics and the Road Ahead

McLean’s current focus tilts toward Canadian assets, partly because of greater familiarity with the political and permitting landscape. He notes a meaningful shift in governmental attitude: the instinct is no longer automatic obstruction but a recognition that projects need to move faster. That recognition has not yet translated into uniformly shorter timelines—long-lead electrical equipment and transformer shortages remain real constraints—but the direction of travel is positive. Bulk-tonnage deposits receive particular attention. McLean has long preferred them to high-grade but geometrically complex systems, arguing that most of the mines majors ultimately prize began as large, lower-grade systems that expanded with drilling and higher prices. Several Canadian examples sit in his orbit precisely because they combine scale, jurisdiction, and current valuation dislocation. The same framework applies to the broader universe of gold, copper, and critical-minerals developers listed in Toronto. The question is no longer whether a project works on paper at current prices—many do—but whether the team, the balance sheet, the permitting path, and the execution capability are commensurate with the demands of the asset.

Risks and Realism

None of this is a forecast of imminent, universal re-rating. Metal prices can reverse. Permitting can still disappoint. Construction inflation and equipment lead times can erode margins. New capital can leave as quickly as it arrived, producing further violent drawdowns. Most exploration and development companies will still fail to become profitable mines. The opportunity McLean describes exists precisely because the risks remain substantial and the specialized knowledge required to underwrite them is scarce. Investors who treat the current valuations as a simple “heads I win, tails I don’t lose much” proposition misunderstand the asset class. Those who combine rigorous technical diligence, realistic team assessment, appropriate position sizing, and the psychological preparedness for volatility are better aligned with the actual distribution of outcomes.

Conclusion

Darren McLean’s central observation is that the mining development sector is offering a set of risk-reward propositions he has not seen in a career spent searching for them. Projects that were stranded only a few years ago now clear economic hurdles with meaningful margin. They trade at fractions of conservative net asset value because the traditional buyers—major producers—remain hesitant and because the capital that understands development risk is still limited. In that gap lies the possibility of a construction cycle in which the companies that successfully build capture the re-rating themselves. For Canadian investors the opportunity is domestic as well as thematic. The same exchanges that list the senior producers also list the developers that could become the next generation of mid-tiers and seniors—if they execute. The work required to separate the real from the promotional has not diminished. The potential reward for doing that work, measured against current valuations, appears larger than it has been in a very long time. The market will remain volatile. Belief in the durability of metal prices will continue to fluctuate. Yet the arithmetic of margin, the scarcity of quality teams, and the sheer number of assets now in the money have created conditions that reward a different kind of patience: the patience to underwrite construction rather than wait for someone else to pay a modest premium for the option.

Final Disclaimer: 

 This article is for informational and educational purposes only. It does not constitute investment advice, a recommendation to buy, sell, or hold any securities, or an endorsement of any company or strategy. Mining equities, particularly development-stage and junior companies, involve a high degree of risk, including the potential for complete loss of capital. Commodity prices, permitting outcomes, construction costs, and capital-market conditions can change rapidly. Readers must conduct their own independent due diligence, including review of technical reports and company disclosures, and consult qualified professionals before making any investment decisions. Past performance is not indicative of future results. The author and publisher are not registered investment advisors.