Mining Millennium 2000 was every bit the grand convention and trade show that its organizers — the Prospectors & Developers Association of Canada (PDAC) and the Canadian Institute of Mining, Metallurgy and Petroleum (CIM) — hoped it would be. About 10,000 delegates from around the country and around the world descended on Toronto’s Convention Centre for the week March 5-10 to catch up on new discoveries and old friends.
Co-chairs Patricia Dillon and Gerald Harper presided over the opening ceremony, which was attended by dignitaries from all levels of government. A laser show, a military band and the flag-waving Millennium Kids provided a festive air to the event. Then it was on to business as usual, which, in this case, meant a flurry of juniors showcasing their exploration projects and majors discussing the mines they planned to place into production. However, industry challenges were not given short shrift.
On the financial front, the baggage-riddled ghosts of past discoveries haunted the convention floor, casting a pall of uncertainty over already-strained efforts to raise capital for projects, particularly in Canada. In speech after speech, the stalled Voisey’s Bay nickel project in Labrador was mentioned as a case study of political interference in the private sector. Considerable frustration was also expressed about the Diavik diamond project in the Northwest Territories, which was placed behind schedule after a government ministry refused to grant a necessary permit to transport material over a short-lived winter road. (The permit was eventually granted, though the ice road was already in poor condition.)
Pierre Lassonde, president of
“In Canada, if the Voisey’s Bay and Diavik experiences are taken as examples, investors are held to ransom,” he told delegates. “Governments have retroactively changed taxation and permitting rules and will change them again farther in mid-stream. Politicians seek political gain by blocking development. Special interest groups will go to the courts to block development as leverage for their larger ambitions. And, of course, everyone wants a bigger piece of the pie.”
Lassonde also discussed the competition for capital coming from technology stocks. “The dot-com sector is acting as a giant vacuum cleaner sucking money from all other sectors, and none more so than our industry.”
This massive shift in investor sentiment has devastated funds specializing in resource companies. Lassonde cited the high-profile Robertson Stephens Contrarian Fund, which, in 1996, had more than US$1.2 billion, mostly in resource assets. “At last report, it was down to US$116 million, a reduction of more than ninety per cent! These decimated funds will not be providing fresh capital to the mining industry. It took our industry twenty years to build up a specialized institutional base. In less than four years, we have dismantled two-thirds of it.
“As for the gold shows,” he added, “if you have been to one recently, it’s like going to church. The crowd is old, quiet and prays a lot. The new generation of investors and the action is all at the technology and dot-com shows.”
The industry’s poor economic performance is also adding to the outflow of capital, Lassonde said. While other industry segments are consolidating, cutting back on production and rationalizing operations, the mining sector continues to do the opposite. “Either the industry moves to get bigger, smarter and more profitable, or it risks being seen simply as a collection of low-margin, mom-and-pop commodity producers in small stagnant market niches. For too long, we have dug deep for our metals and milled, smelted and refined them only to sell the final product too cheaply.”
The ghost of the Bre-X Minerals salting scandal was less prominent this year, though several of the presentations focused on the improved disclosure standards and technical requirements that mining companies are now required to perform.
Aboriginal and environmental presentations were also numerous, providing delegates with useful information about increased societal expectations in both areas.
Projects showcased
Emerging mineral districts underscored the “New Discoveries” sessions of Mining Millennium 2000, and delegates no doubt came away with a more informed and confident appraisal of the seven projects reviewed.
Kicking off the session,
“The discovery . . . represents the first high-grade one made outside the known areas of mineralization,” said Cole. “We have every reason to believe that even more resources will be found in the years to come.”
Discovered during the 1999 summer field season, in the vicinity of an old copper showing, the Anarraaq zone has yielded up to 240 ft. grading 20% zinc and 5% lead, plus 4 oz. silver per ton, in drilling. Mineralization remains open in two directions, which should keep exploration crews busy throughout the upcoming field season.
The discovery prompted management to initiate a US$90-million program designed to bring the mill up to its full operating potential. Cole noted that, starting in 2002, the mine will begin to produce 1.1 million tonnes of zinc concentrate per year with 56% contained metal and 3% silica.
Standing out among the gold projects were Bulyanhulu and Pascua of
“I think Bulyanhulu and the entire district have tremendous potential, and we fully expect to exploit this,” said Alex Davidson, Barrick’s vice-president of exploration.
In March 1999, Barrick acquired Bulyanhulu in a $430-million all-share buy-out of Sutton Resources. It quickly followed this by inking deals with several juniors holding promising ground in the region and launching an aggressive exploration program at Bulyanhulu that, so far, has doubled reserves to 7.5 million oz.
“I certainly have no doubt that reserves in Reef 1 alone will be more than 10 million oz. at the end of the day,” said Davidson.
To that end, ground preparations are already under way for future expansions, and new targets are being tested as potential sources of feed. At Bulyanhulu, such material could include extensions to known zones. New geophysical and geochemical anomalies are being followed up with 15,000 metres of rapid-air-blast drilling.
The US$280-million mine is scheduled to begin production in the second quarter of 2001. Annual production is pegged at 400,000 oz. gold, with total cash costs expected to average US$130 per oz. over a mine life of 19 years.
Meanwhile, exploration crews at the Pascua property, which straddles the border between Chile and Argentina, continue to search for a possible look-alike gold “plum” similar to the one now under development. As at Bulyanhulu, the project is shaping up as a district play, exemplified by a recent 22% increase in its reserves to 17.1 million oz. gold and 560 million oz. silver.
Barrick is developing Pascua in stages, with the first phase scheduled for completion in 2002. This will see 800,000 oz. gold and 35 million oz. silver added to the major’s account.
No discussion on emerging mineral districts would be comple
te without a review of the Tambo Grande massive sulphide project in northern Peru, which, in eight short months, has been shown by
“Gravity exploration has worked very well in pinpointing drill targets for us,” said President Graham Clow.
To date, 15 such anomalies have been outlined on the property. One of these recently revealed itself to be a massive sulphide zone, bringing to three the number now known to exist. Manhattan has five drills turning on the TG-1 and TG-3 deposits and expects to complete a feasibility study on both by the second quarter of 2001.
Clow also noted that relationships with the local people are good and that 4,000 workers have been hired since exploration began last year. This, combined with the region’s unusually good infrastructure, is expected to facilitate development.
Technical sessions
In keeping with a theme that has come to prominence at PDAC and CIM meetings of recent years, one technical session was devoted to resource and reserve estimation and a full day of sessions to mineral property valuation. Mary-Claire Ward of Watts, Griffis & McOuat noted a number of poor practices in resource estimation, including over-precise statements of resource figures and abuse of the concept of “possible” reserves. Joe Arseneau of Roscoe Postle Associates emphasized the importance of an accurate model of the geology in resource estimation, not to mention common sense. “It’s always easy to put faults and folds where they fit,” said Arseneau, pointing out that a preconceived geological model can produce an inaccurate picture of a mineral deposit.
The full-day valuation session was kicked off by Keith Spence of Export Development, who divided valuation into four “approaches”: the cost approach, reflecting previous spending on a property; the income approach, considering the cash flow a property might generate; the market approach, based on comparable transactions or the inferred value of metal in the ground; and the option-pricing approach, which regards a property as an option to be exercised (for example, at the time of a production decision).
All these methods have validity under different circumstances, and Spence’s own survey of actual property valuations found that most appraisers used more than one method to reach a useful number.
William Roscoe of Roscoe Postle Associates reminded the audience of the importance of the idea of time in valuation, stressing that estimates of value are useful only when the effective date of the estimate is clearly specified. He said his experiences with the cost approach had dictated that only expenditures on useful work should be included as part of a “meaningful past exploration cost,” and that even useful exploration work had a shelf-life — perhaps five years — beyond which expenditures should not be counted.
Roscoe’s observation that, for properties at the exploration stage, a cost-approach valuation could most readily be compared with other property transactions or with the terms of recent option agreements, was echoed by Ross Lawrence of Watts, Griffis & McOuat, who also noted that the courts tend to trust comparable transactions as evidence of reasonable valuations.
Michael Lawrence of Sydney, Australia-based Minval Associates, speaking on the Australasian Institute of Mining and Metallurgy’s “Valmin” code, said the code the Australian industry has developed is “not a law . . . it’s better, because the market uses it.” The code, he said, is flexible and workable precisely because it demands transparency and clarity, rather than a single prescribed valuation method: “There is no recipe, just a list of ingredients.”
A long-time proponent of getting the Canadian industry to catch up to Australian valuing standards, Lawrence spoke approvingly of the progress being made by the CIM’s Mineral Economics Society.
Among the papers delivered on technical progress in mineral exploration, geochemical methods appear to be regaining a spotlight. Bruce Jago of Lakefield Research noted that laboratory techniques in diamond analysis had not kept pace with changes in exploration methods, and that new methods of mineral separation could be expected in the coming years. Anne Thompson of Petra-Science Consultants discussed progress with short-wave infrared spectrometry, which (after many years as an academic curiosity) is coming into its own as a means of identifying alteration minerals and detecting changes in their compositions that serve as guides to mineralized zones.
Mary Doherty of BHP World Exploration argued that the return of selective geochemical extractions to routine exploration (for example, mobile-metal-ion geochemistry) provides an opportunity for much more sophisticated interpretation of geochemical surveys, and Patrick Highsmith of ALS Chemex presented a series of results from soil-gas analyses over the Crandon massive sulphide deposit in Wisconsin and the Ruby Star copper skarn in Arizona.
South Africa touted
At a joint PDAC-CIM luncheon,
Thompson described HIV-AIDS cases among Gold Fields workers as a “manageable problem,” adding that mortality rates are currently below 1% annually. He cited studies that show only a US$15-per-oz. increase in total production costs at Gold Fields’ operations using a worst-case 5% mortality rate.
With respect to South Africa’s high crime rate, Thompson said the situation is improving and that the country is “starting to get its act together.”
He went on to say that the military-style command structure traditionally used by South Africa’s mining companies is a “legacy of the past” and that Gold Fields has adopted a new, leaner management style designed to encourage more independent thinking among its workforce.
He also stated that Gold Fields wishes to expand beyond its gold operations into platinum-group-metal and silver projects, and that, while the industry is “as close to death as I’ve seen it,” he remains bullish on gold’s prospects.
Metals outlook
The opening day’s activities kicked off with an outlook on metals.
Richard Wilson of Brook Hunt & Associates predicted that the long-term price for copper would be in the range of US75-$1.25. He suggested that an estimated annual 6 million tonnes of extra copper demand could easily be met by restarting currently idled capacity and by developing greenfield and brownfield projects situated mostly in Chile. Based on forecasts for moderate growth in copper consumption, Wilson predicted that there would no long-term decline in copper prices. He foresees costs continuing to decline, but perhaps not as much as during the 1990s.
Inco’s Gordon Bacon said that with nickel depletion worldwide totalling 500,000 tonnes annually, consumption is not being compensated for by discoveries. Worldwide, he expects nickel demand to rise from 1.1 million tonnes in 2000 to 1.7 million tonnes in 2010, with only part of that growing demand to be met by Russia’s Noril’sk complex. There, an expansion and modernization program will likely boost nickel supply to 290,000 tonnes in 2010 from 233,000 tonnes in 1999.
Noting that 70% of the world’s economic nickel deposits are laterites grading 1.34% nickel whereas the remainder are sulphides grading 0.58% nickel, Bacon said laterite mines will only grow in importance and that old-style nickel smelters will have to compete more aggressively for concentrate.
Although nickel is currently selling at a 4-year high of about US$4.60 per lb., Bacon expects the long-term price to be US$2.75-$3 per lb. and that cobalt will average US$7 per lb.
Commenting on zinc’s future, Geoffrey Mason of CRU International said “mines will drive zinc’s fortunes” and that, with zinc demand hold
ing firm and smelter capacity growing, a surplus in zinc concentrate is looming.
Mason predicted that although zinc inventories will probably continue to fall through the first half of this year, the trend will likely reverse in the second half and put downward pressure on zinc prices.
He also said that growth in zinc demand — a strong 2.8% in 1999 and a forecasted 2.6% in 2000 — will thereafter fall below 2% per year through 2008 as the U.S. economy experiences a cyclical slowing. Still, Mason predicts that, beyond 2004, zinc prices may go higher.
Profits
Michael Doggett, a geology professor at Queen’s University in Kingston, Ont., gave a sobering lecture on profit trends in the mining industry since the Second World War.
Between 1950 and 1999, he said, $79 billion (in 1999 dollars) was spent globally on exploration, while $3,100 billion in gross value of production was generated in the gold and base metal sectors. Over those 50 years, the cost of exploration was therefore 2.4% of the gross value of production, whereas, in the 1990s, that figure was 6% for gold exploration and 2% for base metal exploration.
Confirming what everyone in the industry has sensed, Doggett showed that during the 1990s both exploration expenditures and mineral consumption reached unprecedented levels while the total, real-market value of mineral commodities stagnated at 1970s levels. As a result, exploration expenditures ate substantially into mining companies’ profits during the past decade.
He concluded by saying that in the coming decade, with increasing production and continuing downward pressure on prices, the potential for substantial real increases in the gross value of production will be limited. Thus, in order to remain profitable, substantial real increases in exploration expenditures must also be restricted.
Mergers and acquisitions
While the value of mergers and acquisitions in the mining industry reached a record US$35 billion in 1999, a host of speakers called for a stepping up of consolidation efforts, if only to avoid disappearing altogether from the radar screens of the large funds, which now consider any company with a market capitalization below US$2 billion to be a “low-cap” stock.
While some consolidation has taken place in the copper and aluminum sectors, speakers complained of a lack of dynamic leadership, particularly in the gold sector, where production levels remain at all-time highs despite chronic low prices.
Still, Magnus Ericsson of Sweden’s Raw Materials Group pointed out that, with respect to mining mergers, there seems “little evidence that larger companies are operationally more successful than smaller ones.” He predicted increased concentration of ownership for separate metals but not yet for the mining industry as a whole.
Deborah Leckman of the OMERS pension fund gave a stinging rebuke of sell-side market analysts, saying they had become “increasingly unreliable” because they protected their business connections at the expense of objective analysis. As an example, she cited the constant stream of “buy” recommendations made by analysts in support of the troubled Eaton’s retail chain — even as its share price plummeted to $5 from $15.
She also cited a recent American study of analysts’ recommendations on 6,000 U.S. stocks, which showed that only 1% of these recommendations were of the “sell” variety whereas a disproportionate 60% were “buys” and 33% were “holds.” Leckman cautioned that U.S. brokerage houses and their infomercial style of market analysis will only grow in influence in Canada.
“Everyone has an interest in maintaining the status quo, except the retail investor,” said Leckman. She summed up by saying that it’s the “companies that call the tune, and the analysts that dance,” and an “unethical analyst will profit handsomely” in the current environment.
Social issues
Technical sessions on aboriginal and social issues stressed the importance of sustainable development and corporate responsibility.
“People are more important than rocks and machinery,” said Marcello Veiga of the University of British Columbia’s mining department. “Sustainability is an ethical commitment.” He added that the future of the industry hinges on its relationship with local communities affected by exploration and development.
Veiga pointed to the Ok Tedi mine as an operation that has benefited local communities (despite reports that the continued disposal of tailings into the Ok Tedi River will flood the surrounding lowlands).
In operation since the 1960s, the mine has become the largest employer in the Western province. According to Veiga, the mine’s scheduled closure in 10 years will cut off 2,000 employees and their families from schools and hospitals. These buildings are more than bricks and mortar, said Veiga: “They are education and enlightenment.”
Speaker Ian Thomson said the recent trend toward partnerships between mining companies and local communities has become “a pressure point on the industry.” Thomson, formerly of Orvana Minerals (an explorer in Latin America), now runs his own Vancouver-based consulting firm.
He said companies in remote regions must be willing to share information with locals and be flexible to their requests. “First impressions are long-lasting. Explorers are ambassadors and must be responsible. Respect these people as potential partners.”
He added that social issues are becoming part of due diligence and that, more and more, companies are having to provide “exit strategies.”
Although global organizations and some governments provide guidelines for mining companies operating near indigenous settlements in remote areas, Thomson said the companies are often left to devise their own strategies. He applauded
Also on hand was John van Nostrand, president of the Toronto-based consulting firm Planning Alliance, which was hired by Goldfields in 1996 to relocate 20,000 residents from three communities near the Tarkwa mine site in Ghana to make way for an open-pit expansion.
Van Nostrand, together with colleague Janet Fishlock, offered a bare-bones account of that process — from negotiations for compensation and the building of new structures for displaced villagers to the development of small businesses following resettlement.
As is common during such negotiations, Goldfields made separate deals with each of the three communities near the mine.
The Akontansi settlement, which drew people from all over Ghana, sought only financial compensation. The Apinto group, mostly farmers, wanted compensation for their crops. Negotiations with the town of Atuabo were more complex, and resulted in the building of a new town away from the mine. The company spent $19 million on the constuction of more than 460 houses, two 18-room schools, six churches, three mosques, and a community centre, among other facilities. In addition, the Atuabo residents who had to resettle were offered loans with which to start their own business, as well as financial advice.
Van Nostrand stressed that negotiations, in order to be successful, must have the support of the company, the community and the government.
At the Royal York Hotel, several mayors of Canadian mining towns delivered talks of varying interest.
David Lovell, mayor of Yellowknife, spoke compellingly of how his jurisdiction has transformed itself into a diamond-mining town from one concerned chiefly with gold mining. Sustained periods of low gold prices have rendered some mines in the territory uneconomic or forced them to close, and Lovell said the new Ekati diamond mine and the recently approved Diavik development project will pick up the slack.
He added that the number of junior and major companies exploring in the region show that “the future is diamonds.” Yellowknife is a base for explorers and has experienced new growth as a result of the burgeoning northern diamond industry. It also boasts Can
ada’s only diamond polishing and cutting facility.
George Farkouh, mayor of Elliot Lake, spoke about his town’s progress since the closure of its last uranium mine, in the late 1990s. Once a seminal mining town, Elliot Lake was home to 10,000 mining jobs in 1990. Today, with the mines closed, the town has been forced to reinvent itself.
“Don’t rely on the boom, because it will go bust,” warned Farkouh.
The town, near the shores of Lake Huron, is in the process of transforming itself into a retirement community and tourism destination.
Industry awards
No mining convention is complete without social events, and the highlight of MM2000’s multitude of events was the awards night ceremony, held March 9.
D. Grenville Thomas, founder of
Thomas graciously acknowledged those who contributed to his success, including Charles Fipke, who made the first diamond discoveries in Canada’s North, and his daughter Eira, a geologist who made a name for herself in diamond exploration.
While accepting the Viola MacMillan “Developer’s Award,” Thomas Pugsley, vice-president of projects and engineering for
Ralph Cheesman, retired general manager of the Saskatchewan Mining Association, won one of two Distinguished Service Awards for his work on behalf of the mining industry in Saskatchewan and western Canada. The other went to Peter Dimmell, for the many years he has represented the exploration industry and the PDAC in Newfoundland.
The PDAC’s Special Achievement award was presented to Robert (“Dutch”) Van Tassell, a former executive at Goldcorp who is now retired. He was honored for his lifetime contribution to the industry, including his work for United Keno in the Yukon and for Goldcorp in Ontario.
The CIM also presented some of its awards that night, including the Inco Medal, which went to mining executive Norman Anderson for his role in revitalizing Cominco and developing both the Polaris and Red Dog mines. Giorgio Massobrio was honoured for his tireless work at CIM with a Distinguished Service Medal, and Sandy Laird was awarded the Selwyn G. Blaylock Medal for his efforts in developing Placer Dome’s worldwide reputation.
Other CIM award winners were: Thomas Schroeter (Julian Boldy Memorial Award); Romain Lathioor (McParland Memorial Award); Michael Chender (Robert Elver Mineral Economics Award); Richard Marshall (Coal Award); John Parker (J.C. Sproule Memorial Plaque); Audrey Michener (Order of Sancta Barbara); and Arthur Soregaroli (A.O. Dufresne Award).
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