Commodity prices holding investors at bay.

Two years ago there were 60 producing gold mines in Canada. Now there are 20 and half of those, Saskatchewan Mining Association Base and Precious Metals Section Chairman Neil McMillan predicts, will be at risk of failing if gold prices remain low.

The picture across the rest of the sector isn't a lot brighter.

"It's a dreadful situation," McMillan assesses. "It was a tough year in that there was little progress on the development of properties. That lack of investor interest spread into the exploration sector where there was also very little funding."

"There's still a bit of work going on in Saskatchewan but it's an extremely tough climate right now."

With commodity prices where they are, it will take a major shift to bring money back to companies in the business of mining base metals. Investors started to lose confidence last year in new-era companies heavily involved in the new economy, yet they haven't rushed back into traditional investments.

From a historical point of view mining companies in Saskatchewan and around the world are dramatically undervalued. One straw they can grasp at is the idea that people who typically make money investing are contrarian.

"It's hard to do something that is against the crowd, especially in an environment of near-total market capitulation," McMillan says. "There's certainly no momentum in that direction. There is just so little interest in the sector internationally from an investor perspective."

It's extremely frustrating for mining companies sitting on solid properties to wait for a market turnaround. Even more damning for the industry is the difficulty it faces in raising money for exploration. Very few exploration-only companies are still operating in the province and mining companies are hard-pressed to divert whatever profits they have into exploration.

"You have to give the provincial government credit for trying with the measures they've come up with. The new investment tax credit and geoscience initiatives is money very, very well invested," McMillan says. "They've done a good job. Whether it's enough to attract investors remains to be seen."

McMillan predicts the first money to come back into the sector will be from blue-ribbon investors. An awful lot of pension money in Canada used to go into the resource stocks, he says, and a monumental leap won't be needed to send it back.

"It doesn't take that many people to bring it around," he says, pointing out a small number of people in very large investment houses dictate where the money goes.

Future commodity prices don't necessarily hinge on the mainstream economy. McMillan pegs the value of publicly traded mining companies at about $200 billion -- quite small compared to other industries -- and says it has happened before that we've gone into a worldwide recession and commodity prices increased dramatically.

In the gold industry, for example, a period of stagflation could be just what the industry needs to cure its ills. The incorrect perception is there's a world surplus of gold when in fact we've had nearly a decade of consumption outstripping production.

"I can't see how it could go on for another year like this," McMillan says. "People will be shocked at how quickly gold and commodity prices can move up."

The gold price is extremely low yet McMillan, president of Claude Resources, is pleased to announce its Seabee Gold Mine in Saskatchewan will produce its half-millionth ounce of gold later this year, making it by far the province largest historical gold producer.

Another small but bright spot on the horizon is the potential for the platinum group of metals. Prices for platinum and palladium are relatively high, however they are tough to find and are often difficult to mine economically.

Diamonds also offer a glimmer of hope in the gold and precious metals sector even if they are lumped into this section only by default. If the potential for the industry pans out, however, diamonds will dominate Saskatchewan's mining industry.

"The deposits of diamond-bearing kimberlite in the province are monstrous and if it's economical to mine it, watch out," McMillan warns.

There's no evidence that Saskatchewan won't be home to the largest diamond mine in the world, he says. With a stable market for the product and the seemingly innate attraction people have to diamonds, a mine in Saskatchewan would surely be welcomed with open arms.

"It's about as exciting a development as you'll ever see," McMillan says. "I know I'll be excited if the projections prove out."