Diamond drillers face the 1990s with uncertainty

But there’s also the fear that a shakeout in the industry is imminent as the good times begin to slow.

Exploration diamond drilling accounts for a major part of the industry’s livelihood along with underground drilling done on a contract basis for producing and developing mines. Since the early 1980s, diamond drillers have seen their fortunes grow at an unprecedented rate as mineral exploration — particularly gold exploration — hit record levels. In the 5-year period ending in 1988, there was an estimated 220% increase in drillhole footage put down by diamond drillers nationwide.

Much of that increased activity, however, was due to the highly successful flow-through share financing mechanism that channeled unprecedented amounts of money into mineral exploration. Flow- through still survives, but in 1988 it was drastically altered from a tax- reducing mechanism to a grant.

It is still not certain how well the new flow-through structure will act as an incentive to investment, even though it provides virtually the same financial benefits to investors in a different form. But that very uncertainty surrounding the new program has already led to a reduction in drilling activity.

Tim Bremner, general manager of Logan Drilling and president of the Canadian Diamond Drillers Association, says he expects the association will suffer from declining revenues this year because members’ dues are based on the number of hours worked.

“The number of hours will be down, there’s no doubt about it,” said Bremner at the association’s annual meeting held recently in Quebec City.

Along with the impact of an altered financing scheme for mineral exploration companies there has been a downturn in the price of gold — not enough to cause a panic among gold explorers, but enough to dampen investors’s enthusiasm for the yellow metal. That means less investment in junior exploration companies and therefore less work for diamond drillers. It has only been exacerbated by a generally lacklustre stock market since the market crash of October, 1987.

Already, as drillers vie for fewer contracts, quotations from contractors have been cut in half from the hectic heyday of 1987 when drilling rigs were scarcer then hen’s teeth. A few years ago diamond drillers were turning away work because of the heavy demand.

Those active days saw a number of new companies start up and a number of established companies invest heavily in new equipment in order to meet the heightened demand. For those who managed their balance sheets prudently, that investment will pay off. There are others, however, who won’t be able to make ends meet as work becomes more scarce and bidding more competitive.

But if exploration work is relatively quiet compared to 1986-87 (exploration is still fairly active compared to 1982-83), what is likely to keep drillers busy for the foreseeable future is underground work at the great number of new mines now in production or being developed. What’s more, prices for copper, zinc and nickel, now at record highs, stimulated more exploration for those commodities among mineral exploration companies.

And if diamond drillers are facing uncertainty regarding their financial future, they are investing greater amounts of money and effort into improving their professional stature.

The role of the Canadian Diamond Drillers Association is probably the greatest effort in this area. Now in its 47th year, the CDDA is spending unprecedented amounts of money to improve training, increase health and safety awareness and generally act as a lobby organization for the industry on political issues.

The CDDA, for example, played a key part in the campaign to pressure the federal government into retaining its flow-through investment tax incentive. The campaign was only partially successful — flow- through was saved but in a much altered form — but it proved to be a valuable learning experience for the association.

“Representation before governments, whether it has to do with compensation, labor laws or finance, are all enhanced when the majority of an industry speaks as one,” said outgoing president of the CDDA, John Halsall, at the association’s annual meeting.

As a result of the CDDA’s efforts to better represent that industry, membership has grown to its current level of 52 active members, 38 associate members and six mining members.

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