COMMENTARY — The drift to South America

One of the most significant features in the gold mining business during the past two years has been the growing interest in South America as a place to explore and develop gold mines.

Aside from the obviously increasing levels of unproductive exploration in North America, there are several good reasons for North American gold miners and explorers to increase their level of activity outside Canada and the U.S., including:

— tightening regulatory requirements,

— high labor costs,

— creeping taxation (direct and indirect),

— complex property ownership issues and

— environmental permitting delays.

Now, with an even tougher environment expected under Bill Clinton and Al Gore (incoming U.S. presidential and vice-presidential team), South America is looking particularly attractive to gold miners and other investors. The arena was more or less ignored throughout the 1980s in favor of Nevada and other hot spots, while the continent suffered through a severe shortage of risk capital. The last round of serious gold exploration in the region was carried out in the 1970s, when gold was at much lower levels (below US$200 per oz.).

Today, investors are willing to recommit money to Latin America. Recent estimates of net foreign investment into the region show a jump from US$16 billion in 1990 to US$40 billion in 1991. Mexico and Chile attracted the bulk of this capital but interest is growing throughout the continent. Aside from the ongoing economic rehabilitation and the improving political and economic environment, there are good fundamental reasons why foreign miners are attracted to the region.

The lack of a strong group of local miners, except for some

commodity-specific companies (Codelco in Chile for copper and CRVD in Brazil for iron ore), has created a void. Foreign miners are being welcomed, to various extents, by the governments of Guyana, Suriname, Uruguay, Bolivia and Argentina, as well as the established mining nations such as Chile and Mexico. As a result of this exploration activity, we believe that gold production is set to grow, perhaps by up to 40%, in the next 5-7 years to 290 tonnes from its current level of 210 tonnes.

— From a recent Gordon Capital

report.