SPECIAL – OUTLOOK 1991; Companies learn to cope withall of the

When mining executives look ahead to 1991 they do so having experienced one of the most tumultuous decades in recent history. Uncertainty is now a basic assumption. Increasing volatility — of commodity prices, capital markets and the political environment — is an accepted element in business today.

The experience of the past decade has given miners a new perspective. As this recession deepens, few seasoned companies will be caught over-leveraged with debt as many found themselves in the early 1980s. A more realistic view of the balance sheet prevails.

“While I do not believe the (economic) downturn will be short- lived, the majority of mining companies are in better financial shape than in 1982-83,” says Robert Smith, president of American Barrick (TSE) in a feature story in the February issue of The Northern Miner Magazine.

“The industry will survive, and, I hope, as a trimmer, more competitive industry.”

Smith’s optimism arises from Barrick’s enviable position as one of North America’s premier gold mining companies. With 1990 production of about 565,000 oz. gold at an operating cost of about US$220 per oz. and reserves of about 21 million oz. in the ground, Barrick is in as good a position as any to weather the downturn.

Barrick has also been a leader in using new financing instruments such as gold loans and forward selling to reduce the risk of volatile gold prices.

Others may not be so fortunate. The last few years have been marked by a multitude of mergers and acquisitions. Those are likely to continue, further changing the face of the industry, says William White, president of IBK Capital Corp., an investment advisory firm specializing in the mining industry.

“The jet fuel driving acquisitions by the majors is their cash position,” White told The Northern Miner. “Canada’s top six gold companies, together, have cash of over $1.5 billion available for takeovers.

“In the year ahead, we expect further rationalization in the mining industry in North America in the form of writeoffs of non- performing mining assets, mergers of middle tier companies to create larger, more efficient and better capitalized companies and acquisitions of middle-tier companies by senior producers.”

But changes in capital markets are not the only issue the industry will have to deal with in the coming year.

The Gulf War, increasing instability in the USSR, an imminent European trading bloc and increasingly stringent environmental regulations are some of the international issues facing all companies. In Canada the industry has to contend with the potential for Quebec separatism, the evolution of aboriginal land claims issues, growing effects of the Free Trade Agreement, a new goods and services tax and weak local capital markets such as The Toronto Stock Exchange and the Vancouver Stock Exchange.

War in the Persian Gulf, for example, will have long-term effects on oil prices and the economy and, therefore, on metal prices, but trying to anticipate those effects could be disastrous. Some analysts are bullish on the economy if a long war is averted. Others foresee dire consequences of an expensive war for the U.S. deficit regardless of the conflict’s duration or outcome.

One consequence of the war may be to reaffirm the premium companies place on doing business in an environment of political stability. In the area of risk management, the goal of geographic diversity remains desirable, but the appeal of secure ownership may slow the exodus of Canada mining companies to projects in less stable nations.

What’s more, new exploration techniques and geological theories are making explorationists aware that Canada’s geological potential is far from exhausted.

“Yes, there is still a great deal of northern Canada to explore, and we can expect major finds to come from new geophysical prospecting techniques,” says Walter Curlook, executive vice-president of Inco (TSE).

“Personally, I’m betting that `in-the-hole geophysics’ will greatly expand the horizon for explorationists.”

Curlook was instrumental in implementing new mining techniques and developing new technology that dramatically improved Inco’s productivity during the 1980s. Down-the-hole geophysics was one of the techniques used by Aur Resources (TSE) during early work on the Louvicourt polymetallic discovery in northwestern Quebec in 1989.

Other executives concur that the industry will be placing greater emphasis on research and development to lower costs, improve productivity and maintain the industry’s competitive position while meeting ever tougher environmental, health and safety demands.

“The goal to attain fully automated underground production will be possible, but probably not within 10 years,” says Peter Allen, LAC Minerals’ president and chief executive officer referring to a completely “manless mine.”

A movement toward the “manless mine” poses serious problems for labor relations in the industry, but the payoffs in terms of safety and productivity are potentially immense. While pursuing that ultimate goal, however, all workers in the mining industry will benefit from advances along the way. For example, says Allen, the innovations that have to be made include air and dust control.

Environmental issues are likely to further constrain operations and restrict access to land, but trying to gauge the next move of environmentalists or governments eager to show support for both groups is next to impossible.