New discoveries needed soon in base metals sector

More favorable times have returned for base-metal mining companies, which are enjoying strong commodity prices, but concern about future supplies of the metals seems to be an issue that won’t go away.

The most recent warning about a decline in reserves comes from the new chairman of the Mining Association of Canada, N. B. Keevil Jr.

Addressing a mining outlook conference in Ottawa, Keevil, president of Teck Corp. (TSE), summed up the situation succinctly with his comment that “today’s challenge is not productivity but exploration.”

While gold reserves in the country have almost doubled since 1981, those of base metals such as copper, lead, zinc and nickel have fallen off drastically, he said. “Unless the decline in reserves is reversed,” Keevil said, “Canada’s prospects for net export trade in minerals will continue to diminish.”

In 1987, copper reserves stood at 13 million tonnes, lead reserves at seven million tonnes, zinc reserves at 22 million tonnes and nickel reserves at 6.8 million tonnes. Five years earlier, reserves for those metals were counted at 15.5 million tonnes copper, 10.3 million tonnes lead, 30 million tonnes zinc and 8.2 million tonnes nickel. Golden target

It is not as if mining companies in the country haven’t been spending money on exploration; their target, however, would appear to have been overwhelmingly gold. Last year it is estimated about $1 billion worth of flow-through funds were spent across the nation on exploration, and while that total is expected to be less this year (because of impending changes to flow-through), junior resource companies should again have geologists out in the field in great numbers.

Keevil’s comments echo earlier observations on the subject, in particular one made by the federal ministry of Energy, Mines and Resources in a monthly report last year (N.M., Oct 26/87) about the mining industry’s heavy emphasis on gold.

“A projection of Canadian base- metal production, on the basis of currently established ore reserves plus inferred extensions, with the addition of an optimistic mix of known promising deposits, shows that, on a national level, production of copper, zinc and lead can be maintained at the current levels to the mid-1990s but, unless some major new discoveries are made soon, it will start to decline soon after that,” wrote the ministry’s mineral policy sector.

According to the ministry, major base metals produced in Canada in 1986 had a value of about 2.5 times the gold produced. The ministry also pointed out that while reserves of copper, lead, zinc and nickel declined between 1981 and 1986, productivity improvements led to overall higher levels of base-metal production during that period.

The metals are all exported, and the ministry made the point that the nation’s export earnings would suffer if production of those base metals was to fall in the 1990s.

The ministry also points out that mine development is not an overnight accomplishment, the average interval between finding a base- metal deposit and production startup being six years. Metals output

Higher commodity prices of late must be a welcome turnaround to base-metal producers after the “lean” years earlier this decade. How these producers are likely to react to the higher prices is the subject of a new study by Metals & Minerals Research Services of London.

Global copper output, for example, is forecast to increase by at least 7.5% in 1988 over 1987 levels, while the rise in nickel output is expected to be 6%. Lead and zinc mine producers look set to keep concentrate production at levels roughly similar to last year.

According to the study, new problems of surplus production, for certain sectors of the mining industry, may become evident from perhaps as early as 1989.

With a possible slowdown in metal consumption growth rates from the end of 1988, markets will be vulnerable to higher levels of output in 1989, in particular copper producers, says the study.

The authors of the study observe that up to now, with notable exceptions, the industry has shown some reluctance to bring back into production idled capacity in case the current boom in prices proves short-lived.

Memories of the latter part of 1983, when prices appeared, at least initially, to be making a sustained recovery following a collapse in 1982, are still fresh in the minds of many in the mining industry, says the study. By early 1984, quotes were once again heading down, a trend only reversed in the opening months of 1987. Overcapacity, leading to surplus production, a change in stock-holding practices and slow consumption growth are blamed in large part for the base metal recession.

The study foresees the current demand for base metals remaining strong until at least later this year. Physical shortages of metal are developing and there is increasing pressure on producers to bring back into production capacity idled over the past few years, says the study, adding that expansion plans are being re-evaluated. Price factor

The vice-president exploration of Minnova Inc. (TSE), David Watkins, believes the decrease in reserves of base metals is tied directly to the low metal prices earlier this decade. He estimates about 65% of his company’s exploration budget is directed towards base metals, and the remainder towards precious metals.

Source of revenue, however, is another matter. Minnova, formerly Corp. Falconbridge Copper, derived about 75% of its revenue, during 1986 and 1987, from gold sales, but Watkins said that situation is expected to start changing this year with the production startup (during the first quarter of 1988) of the Winston Lake zinc mine in northwestern Ontario. Also, the company’s Ansil copper project in northwestern Quebec is expected to be in production early in 1989, and the polymetallic (silver, gold, zinc, lead and copper) samatosum deposit in British Columbia, being developed with Res Gold (VSE), is being prepared for production by mid-1989.

Watkins estimates that by the end of 1989, and depending on prices, Minnova will derive about 25% of its revenue from gold, 30% from each of copper and zinc, and 15% from silver.

A shift in exploration emphasis at Noranda Inc. (TSE) is evident this year. The large resources company estimates total spending in 1988 on grassroots exploration development and project development, by itself and its various partners, will be about $114 million, up almost $26 million from last year. Shift in emphasis

While in 1987 precious metals exploration accounted for $6 to every $1 spent on base-metal exploration, in 1988 that ratio will narrow to about $4 for precious metals to $3 for base metals. Noranda says it has increased its search for base- metal mill feed in eastern Canada in the area of the polymetallic Duck Pond discovery in Newfoundland and in the more established mining camps of northern New Brunswick, Matagami, Que., and Sturgeon Lake, Ont.

In Quebec, provincially-controlled Soquem has budgeted more than $7.5 million this year for mineral exploration and development, with 50% of the funds targeted towards base metals, 25% towards high tech metals such as titanium (rutile), niobium-tantalum, gallium and rare earths, and 25% for precious metals.

Soquem has about 40 mining properties at various stages of exploration-development and it is understood the public company is pursuing forming joint venture partnerships with companies in the private sector for development purposes. Alaskan prospect

In Alaska, Cominco Ltd. (TSE) is gearing up for production in 1990 at its huge Red Dog project where an estimated 77 million tonnes of ore containing zinc, lead and silver will be mined by open pit. A 52-mile roadway linking the port terminal and mine site was completed in February.

In northwestern Quebec, Audrey Resources (TSE) and partner Minnova recently reported the discovery of two new massive sulphide lenses near the producing copper- zinc-silver-gold Mobrun mine. And in Newfoundland, Teck and partner Amax Ltd. have reported a new zinc discovery at the Newfoundland Zinc mine.

Gearing up for production in northern Manitoba at the Namew Lake nickel property are Hudson Bay Mining and Smelting (TSE) and Finnish partner Outokumpu Mines. Hudson Bay and another partner, Manitoba Mineral Resources, also hope to have the zinc- copper Callinan property in northern Manitoba in production by the end of 1989.

One nickel-copper project that doesn’t seem be earmarked for development in the near future is the New Quebec Raglan Mines (TSE) property located in the Ungava area of northern Quebec. The property contains some 11 million tonnes of proven and probable reserves, but its remoteness and the uncertainty of the market appear to be keeping the project on the drawing boards.