Some are comparing 2001 with the first half of the 1980s, the last time metal prices were so bad. Others are comparing it with the depression after the crash of 1929. And so far, nobody has compared it with 1996. Except for the platinum group, prices for most metals are near lows nearly two decades old or worse.
Gold had a tough year, even when the September terrorist attacks gave it a classic 1980s-style spike. The high valuation of the United States dollar kept the yellow metal’s greenback-denominated price low, and the shakeout among the smaller producers continued unabated. Glimmer, Bissett, Beaufor and Sigma all suspended production or shut down during the year.
Among the big gold miners, a trend might bear watching — unloading large, low-grade gold deposits that are currently uneconomic to juniors willing to take a gamble on them. Placer Dome (PDG-T) sold the Salamandra property in Mexico to National Gold (NGT-V), which turned around and did a joint-venture deal with Chester Millar’s Alamos Minerals (AAS-V). Salamandra’s Mulatos gold deposit, with 68 million tonnes grading 1.6 grams gold per tonne, is just the kind of deposit the majors need to shed in order to concentrate on their high-quality ounces. A change in the gold price could make Mulatos much more attractive, which is precisely what National and Alamos are betting on.
Energy prices, especially the run in electricity prices at the beginning of the year, provided some opportunities for miners. Teck Cominco (TEK-T) cushioned the fall in the price of zinc by halting production at its Trail, B.C., smelter and selling its power instead. Sherritt International (S-T) played the energy game by taking over profitable metallurgical and steam-coal producer Luscar Coal. Cameco (CCO-T) took a 15% interest in the Bruce nuclear complex in Ontario, and made a deal with majority owner British Power to become the operation’s exclusive fuel supplier.
The restructuring of TVX Gold (TVX-T) pointed up one trend in the gold industry — debt holders are increasingly in control of a number of mid-tier gold producers. TVX, whose balance sheet had been burdened by a US$250-million issue of convertible notes, sought and received shareholder and noteholder approval for a plan to convert the notes into shares — biting the bullet on dilution but cleaning up the company’s finances.
Similarly, Echo Bay Mines (ECO-T) was able to retire a note series on which it had been deferring interest payments for three years. Franco-Nevada and Kinross Gold (K-T) had together held nearly 90% of the notes and agreed to exchange debt for shares. It is a measure of the state of the mid-tier producers that the two noteholders now control 61% of the company’s stock — or to put it another way, the shareholders were left with control of 29%.
Mid-tier gold producers were not the only ones sharing the misery in a down year. Zinc producer Breakwater Resources (BWR-T) restructured debt, announced it would close the Nanisivik mine on Baffin Island in Nunavut, and took a $54-million writedown that reduced the carrying value of the Caribou project in the Bathurst camp to zero. Breakwater’s lenders, soothed by guarantees from major shareholder Dundee Bancorp, have put repayments of principal off until the end of 2002; in the meantime, Breakwater will look to the equity market to cover the upcoming payments. Dundee has committed to take a third of any offering.
One of the less remarked-on deals of the year actually may turn out to be among the most interesting: Placer Dome’s foot in the door for the privatization of the Pueblo Viejo project in the Dominican Republic. The deposit is enormous; it has already produced 5 million oz. gold and 22 million oz. silver, and has a resource of 544 million tonnes running 2 grams gold and 11.7 grams silver per tonne, with 0.55% zinc.
Placer has won only the exclusive right to negotiate for a deal to buy Pueblo Viejo, and it may share ownership with the government, but an option on a deposit as large as that may prove very valuable if gold prices at last turn skyward.
Less so Placer Dome’s other acquisition, the Getchell project in Nevada. The company wrote down a massive US$292-million carrying value on Getchell and conceded the deposit was uneconomic at current gold prices. And at last Placer Dome bid goodbye to the Las Cristinas project in Venezuela, selling its 70% interest to Vancouver junior Vannessa Ventures (VVV-V). In short order, Vannessa found an interest in Las Cristinas is not a simple thing. Corporacion Venezolana de Guayana (CVG), the para-statal company that owns the other 30% of the project, is pushing for rapid, large-scale development of the project (which would conflict with Vannessa’s plan to operate a relatively small mine to build up cash flow) and questioning Placer’s right to have disposed of the majority interest. As usual, Crystallex International (KRY-T) is circling and making loud look-at-me noises about its pretence to ownership of the property.
Another South American development seemingly stuck in the mud is the Tambo Grande base-metal project in Peru. Owner Manhattan Minerals (MAN-T) faces opposition from some local landowners and from non-governmental organizations around the globe. The opponents are adamant that the development must not force the relocation of the town of Tambo Grande or of agricultural land. Manhattan has thrown its lot in with a consultation process mediated by the national government and by the local Roman Catholic archdiocese, under which it will produce an environmental impact study for examination by the people of the area.
Development of the Pascua-Lama-Veladero camp in the Chilean and Argentine Andes is supposed to get a shot in the arm from the merger of Barrick Gold (ABX-T) and Homestake Mining (HM-N). The two companies had reason enough for a business combination in the fragmented gold business, with or without the project, but much of the merger’s success may be measured in whether the new Barrick can realize the expected cost savings at the Andean projects. Pre-merger feasibility studies on Veladero indicated a thin 7% rate of return on the capital needed to put it into production, so the cost savings may have to be large indeed.
Another long-running development soap opera seems to be no further ahead after another year. The Voisey’s Bay nickel deposit is still firmly attached to the rest of Labrador as Inco (N-T) and the government of Newfoundland and Labrador remain at loggerheads over whether Inco will build a smelter and refinery, a hydrometallurgical plant, or nothing at all at the Argentia site on the island.
Comments earlier in the year by Premier Roger Grimes had stirred some hope that the two parties were moving closer to an understanding on development of Voisey’s Bay, which the government has said it would block unless Inco agreed to process Voisey’s Bay nickel concentrates in Newfoundland. But by mid-year, Inco had already unveiled plans for development of the Goro nickel-laterite deposit in New Caledonia, complete with tax breaks and aid from the French government. The government’s attitude has stiffened in recent months, too, with Grimes echoing his predecessor Brian Tobin’s position that all Voisey’s nickel concentrate must be turned into nickel in Newfoundland.
The Newfoundland government doesn’t seem to have the same problem with the Duck Pond deposit, recently sold to Aur Resources (AUR-T) by joint-venture partners Thundermin Resources (THR-T) and Queenston Mining (QMI-T). The partners get $6 million out of the deal, a 50% premium over what they spent on development; Aur gets a nice successor to the Louvicourt mine whenever that deposit is depleted; and the Mineral Belt gets a 10-year mine with resource p
otential.
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