Results of exploration financed with flow-through

Every million dollars spent on mineral exploration creates, on average, some 21 person-years of direct employment. In itself, the 3-billion worth of exploration financed with flow-through shares has generated an estimated 63,000 person-years of direct exploration employment in Canada between 1983 and 1988.

Mines on 60 mineral deposits where exploration was financed at least in part with flow-through shares have either come into production since 1983 or are currently being prepared for production. Preparing these deposits for production has resulted in an estimated $1 to $2 billion of mine construction expenditures, plus the many jobs such expenditures have created or will create.

During their commercial life, these 60 new mines will generate about 6,200 direct production jobs and provide 100,000 person-years of work over some 15 years, typically in remote areas of Canada where job opportunities are otherwise limited.

Most of these 60 new mines will produce gold. At full production, these mines will together generate more than 1.7 million troy ounces of gold annually. This annual production alone amounts to one-and- a-half-times more gold than was produced annually by Canadian lode gold mines at the beginning to the 1980s, and to one-third of the record 5.3 million oz of gold produced in Canada in 1941. At today’s prices, the value of the gold from the 60 mines would be some $800 million annually.

While not all the credit for this production belongs to the flow- through share program, the availability of such funds has been a major factor in triggering production from most of these mines.

In 1988 alone, flow-through shares raised over $900 million for exploration. This resulted in an estimated 25,000 direct exploration, development and production jobs, most of which would otherwise not have existed without flow-through shares. The many jobs created indirectly in many parts of Canada would be on top of that.

For most exploration companies, it takes years of preliminary work before prospects sufficiently attractive to warrant more advanced (and more costly) exploration programs are identified. Even when a mineable deposit has b een outlined, the record of the last 40 years shows that, on average, six years elapse before it starts to produce. Given this lag between the start of exploration, discovery of an economic orebody and commercial production from it, the already impressive success of exploration financed with flow-through shares is only the tip of the iceberg.

Since 1983, Canadian mineral exploration has increasingly focused on gold, reaching 80% of exploration spending in 1987. More gold has been discovered in Canada during the last 10-year period than in any other such period since Canada’s first gold discovery was made in 1852. Most of the new gold discoveries since 1983 have been made with the assistance of flow-through share financing.

Very often, it is only years after that fact that a discovery is recognized publicly as having previously been made. Our analysis of mineral discoveries has shown that the number of recognized discoveries rises significantly with the passage of time.

The number of 1984 discoveries compiled in late 1985 was 12, but it had risen to 24 by late 1986, and stood at 29 by late 1987. The number of 1985 discoveries compiled in late 1986 totalled 30, but, by late 1987, it had climbed to 43. For 1987, our count of mineral deposits discovered (the count is still in progress) currently totals over 60, already an all-time Canadian high which will grow significantly still. Although it is much too early to report on the number of mineral deposits discovered in 1988, indications are that it may equal that of 1987.

It will be some years before we can establish fully the number of mineral deposits discovered during the period 1983-88 and, of these, how many were discovered as a result of exploration financed with flow-through shares.

The number of deposits that we consider promising for production in the foreseeable future has grown from about 100 in 1983 to some 1960 at the end of 1988. Half of these deposits may eventually become mines as more exploration proceeds. There is, as yet, not enough public information to assess the relative promise of many of the discoveries made in 1987 and 1988. With time, many of these discoveries will be recognized as potential producers and be counted among the rising number of promising deposits that may eventually become mines.

Because of the very nature of the search for mineral deposits, the benefits from exploration tend to accrue over long periods of time. The passage of time reveals additional benefits, and greatly compounds them. Benefits of exploration financed with flow-through shares are expected to continue to accrue for many years to come. The development of 60 new mines represents only a fraction of the many deposits that, to date, have been explored with the assistance of flow-through shares and that will eventually become mines.

Donald Cranstone and Andre Lemieux are with the economic and financial policy analysis branch, mineral policy sector, of Energy, Mines and Resources Canada.

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