Editorial: Miners Limp Across The Finish Line

The last two trading weeks of 2008 were characterized by miners catching their breath and licking their wounds after a brutal past few months.

• While the first few months of the year saw wild bull markets for virtually all commodities, the year in the end wound up as the worst one for commodities since modern records began.

The S&P GSCI commodities index dropped 46.5% in 2008 — actually underperforming by a little bit the world’s equities markets — while the Reuters-Jeffries CRB Index dropped 36% in 2008, its steepest fall since its creation in 1956.

• The end of 2008 also brought with it some intense credit squeezes for more than a few distressed juniors, as loans came due and various loan covenants needed to be met: Minera Andes was unable to respond to a US$11.3-million cash call; Gold Hawk Resources was unable for the moment to repay its principal debt, which sits at US$9.7 million and was due for repayment at year-end; Belvedere Resources suspended operations at its Hitura and Sarkiemi nickel mines in Finland, which may put it in trouble with Jinchuan Group owing to a US$7.5-million prepayment on nickel delivery from the Chinese group; and Zaruma Resources may not be able to make required debt payments to a member of the Glencore International group.

• Worst of all though, was the bankruptcy of Constellation Copper, which owed its principal lender Investec bank almost US$10 million. The company had no way to repay the loan, having run out of cash and shut down its flagship Lisbon Valley copper mine in Utah. Constellation will now be wound down with common shareholders left empty-handed.

• Predictably enough, the credit crunch is also translating into more quickie mergers between project-rich but cash-poor juniors and those with substantial cash in the till: Fronteer Development Group is scooping up the shares it doesn’t already own in uranium subsidiary Aurora Energy Resources, allowing Fronteer to pool its $81 million in cash with Aurora’s $105 million in cash and equivalents; Linear Gold and cash-strapped Central Sun Mining are merging, which should allow the latter to resume gold mine development work in Nicaragua; and Independent Nickel completed its amalgamation with Victory Nickel.

• At least one major is still on the acquisition trail, too. Vale scooped up the export coal assets of Cementos Argos in Colombia for US$300 million. Argos is one of the largest cement producers in Latin America, with cement, concrete and aggregates operations in the U. S., Panama, Venezuela, Haiti and the Dominican Republic. Vale already has coal operations in Australia, in the Hunter Valley and Bowen basin, and two joint ventures, one in a coal mine and the other in a coke plant, in China. Meanwhile in Africa, Vale has struck a multi-stage deal to wind up with half of Teal Exploration & Mining, in return for a cool $80 million. When the dust settles, Vale and African Rainbow Minerals will run Teal as a 50-50 joint venture, developing Teal’s copper and cobalt projects in the Democratic Republic of the Congo and Zambia.

• Oil consumers around the world got a big break as prices for a barrel of crude dipped below US$36 on Christmas Eve, after having peaked at a record US$147 per barrel in July. While oil prices ended the year on an upswing, it’s the first time in a quarter century that oil has dropped in price year-over-year.

In Venezuela, the year ended with President Hugo Chavez saying, according to an Associated Press report: “We are taking back some (gold mining) concessions that former governments have given, and whose permits are still held by some rich people.”

He said the government needed to lessen its reliance on oil revenue, but Chavez didn’t mention any specific gold companies or projects. His mines minister, however, has already pointed the finger at Crystallex International’s Las Cristinas project. Oil pays for about half Venezuela’s state budget and the government has already nationalized the country’s steel and cement industries.

Chavez started 2009 by suspending the giveaway by Venezuelan state-owned Citgo of oil to the poor in the U. S., a program launched in 2005 primarily as a geopolitical jab to the U. S. government. Citgo gave away about US$100-million worth of heating oil to U. S. citizens last year, under a program run by Citizen’s Energy, which is chaired by Joseph Kennedy, son of the late U. S. President John F. Kennedy.

Send your Letters-to-the-Editor and other op-ed submissions to the Editor at: tnm@northernminer.com,

fax: (416) 510-5137, or 12 Concorde Pl., Suite 800, Toronto, ON M3C 4J2.