EDITORIAL — Another year bites the dust — A look back

With the euphoria of 1996 and early 1997 a distant memory, the mining industry was brought back down to earth in 1998 by the triple whammy of low metals prices, global economic weakness and investor apathy in the wake of a series of scandals from the last bull market. The thud was heard around the world.

Political risk also reared its hydra-head in 1998, as politicians from places as far afield as Newfoundland and the Democratic Republic of Congo (DRC) derailed or sidelined minerals projects that were once investor darlings.

Congolese President Laurent-Desire Kabila, who once chastised Western companies for not having a social conscience — “we want miners with a heart” (and a big chequebook) — shored up support for his embattled government by signing away interests in huge mining projects to military backers in Zimbabwe, Angola and Namibia. If that meant tearing up a previous deal with another party, well, these things happen when rebellions have to be quashed. Meanwhile, the projects that were supposed to move forward in 1998 did not do so, mostly because bankers and investors had sober second thoughts about doing business with the former revolutionary turned wheeler-dealer.

Kazakstan also made a name for itself in the deals-coming-undone department.

Several Canadian companies who thought they had deals there later found they didn’t, or that the terms had changed. International arbitration boards and lawyers were kept busy trying to extricate their clients from this mineral-rich but common-sense-poor nation.

Speaking of common sense, Newfoundland Premier Brian Tobin threw his out the window last year when his government brought forward draconian legislation specifically tailored to keep one company, Inco, under his thumb. The pugilistic premier won’t let the nickel giant develop a mine and mill at Voisey’s Bay in Labrador until it agrees to build a smelter and refinery on The Rock. On the one hand, Tobin deserves three cheers for welcoming the smelter-refinery complex in these anti-mining times. On the other, he deserves many boos for using the weight of the government to make a farce of the whole concept of mineral tenure. His mines minister should also be booed, for having helped create mineral policies worthy of a banana republic.

Metals prices were the biggest disappointment of the year. Except for a short-lived (and artificial) rally in silver, and some upward movement in platinum and palladium prices, metals producers had little to cheer about in 1998. Base metal companies retrenched and gold companies shifted their focus from proving up millions of ounces to proving up only those ounces that could be mined at a profit. This does-it-pay exercise resulted in huge writedowns for some marginal producers. The senior companies focused on their robust deposits and put the rest on the back burner. Investors learned that fundamentals really do matter.

Mergers-and-acquisitions became the only bright spot in 1988 as the big companies with cash fought over assets held by financially strapped juniors.

The corporate raiders also came out of the woodwork, laying claim to underpriced companies through mostly hostile takeovers.

Another bright spot was the work done on a variety of fronts to restore investor confidence by improving the quality of technical work at mineral projects and the quality of disclosure. The recommendations contained in a report by the Mining Standards Task Force were reviewed and widely debated last year, drawing mostly favorable comments.

Other highlights were the opening of Canada’s first diamond mine, Ekati, and the opening of the Raglan nickel mine in Quebec. Both projects set new standards for dealing with the environmental and social concerns of aboriginal communities. New mines went from the drawing table to the financing arena, including the huge Antamina copper project in Peru, while Argentina and Alaska were the exploration hotspots.

Overall, 1998 wasn’t a great year in terms of high share prices and metal prices. But it was a year of industry leadership, shown by efforts to restore investor confidence by setting new standards for industry practices and disclosure, as well as in the development of mines that will serve as models for resource development in the next century.