Downturn, soft prices take toll on exploration budgets, staff

Caught in a cycle that repeats itself every few years, dozens of industry geologists — victims of yet another downturn in exploration spending — are packing up their hammers and compasses. Although the junior sector has been suffering for well over a year, senior companies are just beginning to announce layoffs as they table exploration budgets for 1991. In the last month alone, both Echo Bay Mines (TSE) and Corona (TSE) have laid off close to half of their geologists. Mingold, the Canadian exploration arm of Minorco and Inspiration Resources (TSE), is closing down altogether.

Stretching beyond the average field geologist, the layoffs are even creeping into corporate offices. Neil Muncaster, Echo Bay’s vice-president of exploration, has been let go, although he will be retained as a consultant. His position will dissolve as exploration responsibilities shift to Bob Armstrong, currently vice-president of mining and technical services.

According to the Prospectors and Developers Association of Canada (PDAC), exploration spending will likely drop to $430 million in 1991, compared with this year’s $610 million.

Exploration, which demands spending but provides no immediate return on investment, has traditionally been the first to suffer cuts when economies contract. “It’s always the first thing that gets caught,” said Mingold President Edward Thompson. “We are just one of a list of companies that are shutting down.” Westgold, Mingold’s Colorado-based sister company, will also fold in the coming months.

Thompson compared the current exploration downturn to a similar slump during the 1981-82 recession. But, he added, at least gold explorationists were protected by a relatively high gold price in the early ’80s. This time, gold producers are feeling particularly vulnerable to a double dose of low precious metal prices and recessionary pressures.

By the middle of next year, gold producer Echo Bay will have reduced its grassroots exploration staff to 18 from a current staff of about 35. Its exploration budget will drop to $5-6 million next year from $8 million this year. “The company is tightening its belt in response to continuing low gold prices,” said an Echo Bay spokesman.

But Corona, which recently fired about 30 exploration geologists and trimmed its 1991 exploration budget to $7-8 million from $20 million this year, said its cuts were more a question of strategy. “Corona, since its inception, has always grown by acquisition,” said Brian Hay, a spokesman for the gold producer. “Clearly, history would suggest that it’s the inspired individual prospector that tends to discover something.”

But Hay did say that current metal prices were a consideration. “If the prices of things are falling through the floor . . . its like getting into a bathtub when there’s only a little bit of water,” he said. “It does nothing to encourage you to go explore for more of these low-priced commodities.”

But not all mining companies are slashing exploration budgets. It has been reported that American Barrick Resources (TSE) will maintain its current level of spending, close to US$7.5 million, next year. And the base metal producers, still enjoying relatively high prices for their products, have given no indication of exploration cutbacks.

Both Echo Bay and Corona said that 1991 budgets were not final and could be revised if an appealing opportunity arose. Other gold producers, including Placer Dome (TSE) and LAC Minerals (TSE), in the midst of budget meetings when contacted by The Northern Miner, were unwilling to comment on future plans. Neither, however, has cut exploration staff to date.