EDITORIAL Small can be beautiful

A mine doesn’t have to be big to be a winner. A small, well-managed mine that makes money is better for shareholders than a big mine that struggles to get out of the red. The bottom line is profitability, not the number of tons milled. There are lots of examples in Canada of small mines, most of them gold mines, that provide a good return on investment. Three examples are Cheni Gold Mines’ Lawyers mine in British Columbia at 550 tons per day, International Mahogany’s 70% owned Jolu mine in Saskatchewan at 400 tons per day and Bond Gold’s Golden Patricia mine in northwestern Ontario at 250 tons per day.

By the same token, there are many projects that have failed in recent years because the operator had great ambitions to move a lot of rock. They started to believe their own promotion of “world- class” operations rather than let the deposit itself govern what size of mining operation would optimize profitability.

It’s not hard to understand why. The success of Hemlo in the 1980s and the spectacular gold deposits in Nevada have made it tough for smaller projects to generate any excitement. During the 1980s, if a project wasn’t going to turn out 100,000 oz. a year, it was unlikely to raise more than a yawn from investors.

Some of the blame for that can go to flow-through financing and the easy money it spawned. Flow-through money resulted in so much exploration and promotion by the companies spending the money that it took a huge operation to gain anyone’s attention.

But those times of easy money are gone. Now investors have to be sold on the potential for share prices to appreciate because a discovery is going to be a mine, not merely on the tax deduction that will result from buying the shares.

And maybe that’s going to bring back some sense of reality to what a mine can be expected to produce. There’s no shame in producing 40,000 oz. of gold a year if operating costs are $200 an ounce and gold prices are $400 an ounce. There’s no need to prove up a mine life of 20 years if capital costs can be paid back in three.

In short, those very factors that made Canadian gold mining so successful in the past should once again become prime considerations — grade and good management.

It doesn’t matter if some new Canadian mines are relatively small. With some adjustments in the tax structure to eliminate the existing penalty for investing in mineral exploration, investors should once again be eager to back some of the good plays right here where they know what they can expect to get in return.