EXPLORATION 1999 — Senior producers bulk up with mega-projects — Antamina, Pascua among properties with large-scale promise

The pressure to expand is prompting senior mining companies to seek out huge, low-cost orebodies that will give them a leg up on their competitors.

Around the world, Canadian miners are pumping hundreds of millions of dollars into “mega-projects,” even as the price of most commodities sinks to historic lows.

The risks associated with these aggressive deals are great, but the risks of maintaining the status quo are even greater.

“The world has changed again,” said Inco (N-T) Chairman Michael Sopko, while addressing shareholders at last year’s annual meeting. “If we are to survive and prosper, we must change with it. We must increase our efficiency and focus on investing in projects with the highest return.”

In 1997, Inco won the right to develop the rich Voisey’s Bay nickel deposit for US$4.3 billion, the highest price ever paid for a mining property. Although development is being prevented indefinitely by a stand-off between Inco and the government of Newfoundland, the world’s largest nickel miner still regards Voisey’s Bay as vital to its future.

Executives of other senior producers are expressing sentiments similar to Sopko’s, and most have equally lofty plans for growth. Rio Algom (ROM-T), for instance, is aiming to quadruple its annual copper production to 1 billion lbs. per year, while Placer Dome‘s (PDG-T) annual objective is to increase reserves by twice as much as it mines each year (about 2.5 million oz.).

To meet these targets, the majors must explore for or acquire large, shallow deposits that are easy to process.

One of the biggest in this category is the Antamina deposit in the Andes mountains, about 380 km northeast of Lima, Peru. The project, co-owned by Noranda (NOR-T), Rio Algom and Teck (TEK-T), carries a US$2.2-billion price tag for development and the promise to become one of the largest producers of copper and zinc concentrates in the world.

Once the mine is up and running in early 2002, it is expected to churn out 600 million lbs. copper and 360 million lbs. zinc annually at relatively low cash costs of about US35 cents per lb. copper.

Somewhat smaller in scope is the Pascua project in neighbouring Chile, where Barrick is spending US$950 million to bring a multi-million-ounce gold deposit into production. Pascua is expected to start producing in 2002 at the rate of about 675,000 oz. gold per year.

Barrick has been among the most aggressive North American companies in its quest for growth. In 1996, the gold producer bought Arequipa Resources, owner of the Pierina deposit in Peru, which is now a 750,000-oz.-per-year producer. In 1997, the ill-fated Bre-X Minerals, once thought to control the world’s largest gold deposit, was briefly the target of Barrick’s affections. Last year, the company joined forces with Anglo American (ANGLY-Q) to explore for gold in Africa, and it has since launched a $500-million-bid for junior Sutton Resources (STT-T), owner of the Bulyanhulu gold deposit in Tanzania. Another recent bid, for junior Argentina Gold (ARP-V), failed.

Placer Dome is also betting on Africa as a centre for growth. In early 1999, the Canadian gold miner formed a joint venture with South Africa’s Western Areas to develop the South Deep orebody, the largest undeveloped gold deposit in the Witwatersrand Basin. Placer Dome Spokesman Hugh Leggatt says the project requires US$300 million in additional capital in order for the shaft to be deepended to 3 km and for full production of 750,000 oz. to be reached by 2002.

Meanwhile, Placer is in the final stages of arranging financing for its Las Cristinas gold deposit in Venezuela, which is expected to produce an average of 450,000 oz. per year, beginning in 2001.

In the base metal sector, Rio Algom stands out as one of the most growth-oriented companies. It has three copper-zinc mega-projects slated for development: Antamina in Peru; Spence in Chile; and Crandon in Wisconsin.

Rio is currently performing bulk metallurgical tests to determine the best way to process the mixed oxide and sulphide ore at Spence, and is in the midst of a lengthy permitting process at Crandon.

If all goes well, Spence will be ready to enter production in 2002 — the same year Antamina is scheduled to start up. The rich deposit, discovered by Rio’s exploration team, will provide the company with an additional 136,000 tonnes of copper on an annual basis. Crandon will follow, once permitting and construction are complete.

Meanwhile, Falconbridge (FL-T) is geared for growth at two mega-mines that recently entered production: Raglan in northern Quebec, and Collahausi in Chile. The base metal producer is in the envious position of having most of its capital spending behind it at a time when raising bank financing for mining projects is proving challenging for some of its competitors.

Meanwhile, rival nickel miner Inco will remain in limbo until talks resume on Voisey’s Bay and until tests on the pressure-leach technology for the Goro nickel laterite deposit in New Caledonia are complete. Inco will begin on-site testing and staff training this summer in preparation for a production decision on Goro next year, a spokesman said.