EDITORIAL PAGE — The business of risk

It’s not uncommon these days to hear speakers, who like to philosophize and theorize about life’s many different activities, refer to the mining industry in Canada as “mature.” Something along the lines of . . . it has been around for so long that it has learned to adapt to society (or society has adapted to it) and now it is subject to the pressures of the business cycle much like any other corporate entity of advanced years.

There is no argument here that the mining industry is subject to the rules of the marketplace, but whether it is more or less than it was 50 or 100 years ago only an economist may be able to determine. One aspect that is as true today as it was when the industry was a fledgling — and not one usually associated with maturity — is the risk involved in uncovering an economic mineral deposit.

As the Porcupine Prospectors and Developers Association puts it in one of its graphic presentations, “It takes 25,000 claims of grassroots exploration to find 500 claims that are worth diamond drilling to find one mine.” That’s risky. And it brings the discussion around to the topic of ore reserves, and what Canada must do to ensure that mining (in particular on the base metal side) survives well into the next century and beyond. The nation’s mineral resources have served society well and helped to support a relatively high standard of living. The gold, copper and zinc with which most Canadians would be familiar are only a small part of the more than 60 mineral commodities produced in this country.

The mineral industry’s importance is underlined by the following statistics: it accounts for 17% of the country’s export earnings, 4.5% of Canada’s gross domestic product and 2.7% of total direct employment. Indirectly, it contributes to society in many ways, including through its effect on research and the service and supply industries. It has also been a major force in regional development.

Copper and zinc production in Canada during the last 20 years has been fairly level; the two base metals have maintained annual output levels of some 700,000 tonnes and one million tonnes, respectively. That’s the good news. The flip side is that during the 10-year period 1981-91, Canadian copper and zinc reserves declined by about 30%.

One miner who has pored over the data is Minnova Inc. President David Watkins. According to Watkins, Canada will need three more copper discoveries similar in size to the Louvicourt deposit northeast of Val d’Or, Que., within the next 10 years to maintain production capacity, and nine more if Canada is to maintain its relative world standing. For zinc, he says two more discoveries similar in size to Minnova’s Izok Lake deposit in the Northwest Territories during the next 10 years would maintain the status quo and six additional finds would maintain the country’s world standing. It is argued by some that the decline in exploration and mine development has a lot do with the regulatory controls and taxes imposed by government, and that a rise in the risk-reward ratio has led investors to spend their money elsewhere.

The Canadian mining industry has been the envy of the world, with its technological developments, its ability to find new deposits, its low-cost mining methods and its reputable and stable workforce.

It could be that investors have forgotten. Perhaps what they need is a reminder.