Metals Page: Factors affecting the prices of metals

Other complaints include, “Why is the price still going down?” Where does one begin to answer these questions?

Well, the first thing I must say is the metal market is completely indifferent to your mining and refining cost problems. For most commodity market participan ts, that is a “yawn” subject.

Remember, mine A can produce silver at a cost of $4(US) per oz when the market is at $5. Mine B, however, can only produce silver at $5.25, so it is hemorrhag ing somewhat at a $5 selling price and may consider closing down if the situation goes on too long.

Naturally, there are eager souls on Bay St. and Wall St. who study mining costs, financial health, among other things, but keep in mind always th at their busi ness is selling stocks to the public, pension funds, for example, and they are j udged by their employers solely on the total commissions gained on as many trans actions as possible.

If one mine closes, it usually makes no difference to the world price that day (or very little difference). If 10 mines producing a particular metal close at about the same time, the supply/demand figures are adjusted accordingly and the market soldiers on without emotion.

The greatest single dilutant to base and precious metals prices is that most underdeveloped countries have nationalized their major mines, particularly in Af rica and Latin America, as it is the chief national source of income and foreign (hard) currency.

Their governments do not dare to reduce mine output for domestic political reasons with their greatly expanding populations and so they maintain o utput, produ cing far too much metal when the market is down.

The burden of reducing output and/or closing to adjust to the new, lower world demand falls heavily on the large non-nationalized mines in Canada, the United States, Australia, etc. and their shareholders and employees suffer.

There are many other factors, of course, but this constriction on our mines persists.

Our smaller mines, however, can still produce at a normal rate and sell that limited output in a downturn, as the amounts do not disturb the over-al l supply/d emand status. Nevertheless, their costs vis- a-vis the lower price often become a problem.

The burden I have described for the larger firms is actually a silent, expensive subsidy that we pay — some say willingly — to certain Third World countries.

This cost is over and above the taxes mining companies pay and is also away and beyond the multi-million-dollar grants Ottawa regularly sends to su ch countrie s on behalf of Canadian taxpayers.

When I first entered government service, I was horrified to learn there were influential voices in Canada propagating that. In order to give a clear er field i n the supply sector to the underdeveloped mining nations, Canadian mining should be drastically reduced and the resulting revenue gap be filled by concentrating on “more hi-tech industries.” You can imagine what the Ontario government said about that armed torpedo.

The foregoing reflects part of the post-1960 “norm.” Prior to that, in what are now called the bad old days, Sir Ralph Prain of London would effect ively redu ce the large copper output of Central Africa, which he largely controlled. And J ean Vuillequez in New York would put into effect the same process for South and North American metal, so that the price would stabilize and form a platform for price growth.

These Prain-Vuillequez burdens were applied pro rata to each mining area on afair share basis and so were spread widely. This practice is no longer possible, but wonderful schemes to stabilize metal prices (read “keep them high”) have been proposed in United Nations agencies and many conferences have been held.

In my personal experience, the proponents do not understand the problem. They need a Ronald or a Jean to explain it. Meanwhile, it is futility on that front. T. P. (Tom) Mohide, a former president of the Winnipeg Commodity Exchange, serve d as a director of mining resources with the Ontario Ministry of Natural Resourc es prior to his retirement in 1986.

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