Following in the footsteps of other oil and gas giants, BP Canada says it’s ready to sell its mining interests.
“Selling the mining division reflects the realities faced by the natural resources industry in these times of depressed prices and turbulent markets,” said David Claydon, chairman and chief executive officer. “We have decided that it is in BP Canada’s best interests to focus our attention on its major business — oil and gas.”
During the 1980s, many oil and gas companies, including Chevron and Exxon, drastically reduced their mining interests after several unprofitable ventures. BP and Shell are the only two major oil producers to carry vibrant mining sectors into the 1990s.
Approximately 22% of BP’s $1-billion worth of assets rest with its mining division. These include: Hope Brook Gold, a Newfoundland gold mine where operations are currently suspended; Texada, a lime producer near Langley, B.C.; and, most importantly, a 61.1% interest in Selbaie, a zinc-copper mine in northern Quebec.
The portfolio also includes a number of high quality exploration plays such as the Tulks Belt base metal project in central Newfoundland and the Chuchi Lake copper-gold property in north-central British Columbia. Recently, BP and equal partner Digger Resources (VSE) extended the strike length of mineralization at Chuchi to 1,000 metres.
In 1990, record income of $34.2 million from the mining division (after the $78.8-million sale of its Mount Milligan interest) boosted BP’s earnings to $29.2 million (58 cents per share), an increase of more than $20 million from 1989. Grassroots exploration expenditures reached $7.3 million. “We continue to view our mining investment as an appropriate balance to the oil and gas business,” Claydon said at the time. “While the potential is limited for discovery of sizable new oil pools in the Western Canada Basin, the mining industry can be expected to make significant new discoveries.” But since then, BP has been plagued with environmental problems at the Hope Brook mine and a steady decline in the price of gold, zinc and copper. During the first six months of 1991, the mining division lost $17.2 million. Mining at Hope Brook was suspended indefinitely, while contributions from the 10-year-old Selbaie amounted to $2.9 million, down from $8.4 million during the same period last year.
Zinc and copper prices, which averaged 84 cents per lb. and $1.32 per lb. respectively in 1990, dropped to an average of 55 cents and $1.08 respectively in the second quarter of 1991.
BP says it will try to sell the division as a package, but recognizes this will be a difficult task in today’s depressed markets. “We realize it will be a challenging time to sell mining assets, but we’d like to sell them as a division,” said Larry Thiessen, chief financial officer for BP. BP’s mining division, based in Toronto, employs about 730 people, including 535 at Selbaie.
The most likely bidder for BP’s Selbaie interest, and perhaps for some of its advanced exploration projects, is Billiton Metals Canada. Billiton, a subsidiary of the Royal Dutch/
Shell Group, has a 38.9% stake in Selbaie and a preemption right on BP’s interest. In a an interview with The Northern Miner last December, Billiton President Andrew Flett expressed the company’s desire to become a major player on the mining scene in Canada, subject to a host of investment criteria.
“We are very interested in Selbaie and any of their other properties,” Flett said after the sale announcement. “But not all of them meet our investment criteria, and some of them might not meet our long-term objectives.” Flett explained that the company is looking for advanced projects with long-term potential. Because Billiton’s international affiliate has facilities for refining and marketing both copper and zinc, these metals are particularly attractive.
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