Ontario’s mineral sector set to weather downturn

The mining industry in Ontario is financially healthier in 1990 than it was in the early 1980s, but it must keep in step with new global realities and strive to remain competitive if it is going to weather a cyclical downturn in the economy, says economist Maureen Farrow. As a partner with the Coopers & Lybrand Consulting Group, she is studying the relationship between Ontario’s mineral industry and the province’s overall economic health. The study is being done for the Ontario government in conjunction with Micon International.

Speaking at a provincial mines symposium held recently in Thunder Bay, Ont., she said the new decade was rung in with bad news such as mine closures and production cutbacks, indicating a change in the mineral business cycle.

But, she said, there is not likely to be a repeat of the recession that occurred during 1981-82, because the mining industry has better prepared itself for cyclical downturns this time around.

“At the beginning of the 1980s, I would not have been as optimistic about the mineral sector’s ability to withstand global change and economic slowdown, but since the painful 1981-82 recession, the Ontario mineral sector has been a leader in meeting the challenge to remain competitive,” said Farrow.

However, over the long term, she sees six main strategic challenges facing the mineral sector and called on the industry to keep in step with an increasingly global business environment.

“A major challenge will be to pay more attention to the global forces at work, be they economic, trade or industry related,” she said. It is important to monitor how competitors are conducting their research in exploration, processing of metals, in marketing, and in financing, she added.

“Now that the mining industry is in much better competitive shape, the key for the future is learning how to stay competitive.” she said.

The mining industry in 1990 is financially sound, and the industry’s high debt to equity ratios has been brought down to a more manageable level, she noted. The industry is more dependent on equity, rather than floating debts to finance projects now.

“Productivity has risen, high technology has been introduced and the industry is financially healthy and enjoying a competitive cost structure,” she said.

Her study suggests that production costs in Ontario for nickel, zinc and gold are highly competitive with other producers elsewhere in Canada and abroad.

She predicted that nickel prices will be in the US$2.50-3 range over the next year, while copper will be 95 cents -$1.20 and zinc will settle to 50-60 cents per lb.

She said the mineral industry has come through a decade of changes, and its current level of success can be attributed to the mining industry’s greater awareness of global forces and vigorous efforts to remain competitive against mineral suppliers worldwide.

“The mining industry should also look at exporting the leading edge technologies which have been discovered in the last decade,” she said. “As a result of Free Trade, for example, the U.S. is now more accessible to Canadian businessmen and professionals to work on service contracts.”

She emphasized that opportunities also exist for Ontario mining firms that have developed potentially exportable equipment for use in exploration and mining.

The industry could find more ways to apply technologies such as “down-the-hole” exploration methods to penetrate thick overburden in areas of promising mineral potential.

In conclusion, she said it’s time to consolidate the gains made after a decade of change, and move forward to ensure there is a place in the global mining market for Ontario’s $7-billion mining industry.