Editorial Tomorrow’s gold mines

Developing mineral resources is a tricky business. It depends a great deal on government policy, not so much because of what governments can make happen but for what they can prevent from happening. Changes to policies and regulations can easily, and sometimes quite innocently, dull the incentive to find and develop our mineral resources. Tax reform over the years has had that effect on the pursuit of prospecting. The result is that this fundamental step in finding and developing our mineral resources is now considered little more than a relic from the past. The prospector’s role is probably the most undervalued and overlooked in the business.

The formula for success in any business is to determine a need, then fill it. With mines, although the principle is the same, the practice is just not that simple.

First, it usually takes at least five years to make a mine even after a discovery is deemed to be economically viable. There are exceptions, usually in the case of smaller scale gold mines, but even large gold mines, like the ones at Hemlo that were built at a comparatively break-neck speed, took five years to start producing.

But beyond that, it’s not simply enough to say “the time is right to supply the world with some more gold” and then set about opening a gold mine. Finding deposits that might be worth mining is the result of layers of exploration work done over many years. While Hemlo went from discovery to production in about five years, the discovery was based on work that had been done by several different prospectors and companies during half a century of exploration. In fact, Donald McKinnon says it was information dating back to the seventeen hundreds that prompted him to stake the area back in 1979.

The point is that there’s an awful lot of exploration work that might be considered unsuccessful at the time it’s done by those outside of the industry, but the information gleaned through those unsuccessful forays into the Canadian Shield or the Canadian cordillera become part of the body of knowledge upon which future exploration success depends. It is somewhat like an iceberg, today’s discovery being the tip that rises out of the water. Unseen is the great mass of information and field work, built up over the years, that makes that discovery possible.

“Mines have a specific lifespan, and this is why exploration and the development of new deposits represent an ongoing and self-evident necessity,” said Marcel Masse, federal Minister of Energy Mines and Resources, at a district meeting of the Canadian Institute of Mining and Metallurgy in Thetford Mines, Que., recently.

Not only do they require great capital investments, but they require time. Masse said in his speech: “Today’s prospecting will uncover tomorrow’s metals.”

The key word is “prospecting.” Regardless of one’s image of a prospector — a grizzled sourdough or a university educated geologist — there is nothing that can replace that initial search for mineral value in what others see only as “bush.” Tax incentives and grants can prompt companies to go out and examine some promising-looking finds, but they can’t replace that first look.

That’s why the Prospectors and Developers Association of Canada spoke out loudly on behalf of individual prospectors at this year’s conference of mines ministers in Quebec City.

While the federal government’s plan to replace the mineral exploration depletion allowance with a grant system will likely continue to channel investment money into the junior mining sector, the PDAC makes this point: “Very few prospectors are incorporated and will not be able to benefit from this new incentive program as they did with MEDA.”

It’s not the first time that incentives to prospect have been undercut. Prior to 1972, prospectors could sell mineral property and not pay tax on the proceeds. That might be a huge loophole for the wheeling and dealing that goes on today, but an individual prospector who stakes a claim and does some assessment work on it doesn’t often get much back. That work may lay the foundation for future exploration, but it is usually only after a junior company picks it up and does more extensive work — and promotion — that the big bucks are paid. For the prospector, that tax saving could mean a great deal.

Now, in 1988 and 1989, not only are the proceeds from the sale of a mineral property now taxable, but the rate is going up.

In order to help the individual prospector, the PDAC suggests a life-time $500,000 capital gains exemption for cash and share on the sale of a mining property.

For the sake of making the discoveries that will be tomorrow’s mines, it’s a suggestion the finance minister should take a good hard look at.