World’s top mining firms seek better U.S. exposure

It says something about the reputation of Goldman Sachs & Co.’s annual metals and mining seminar that it attracts senior executives from nearly all of the world’s top mining firms. This year an elite group that included RTZ Corp.’s finance director Ian Strachan, Noranda (TSE) President David Kerr and Metall Mining (TSE) President Klaus Zeitler, thought it was worth their while to be at New York City’s posh Grand Hyatt Hotel for the 2-day event.

The seventh to be hosted by the New York investment banker, the seminar offered speakers the chance to tell their stories to 200 portfolio managers and investment bankers, some of whom had travelled from as far away as Japan.

Although uncertainty in North American equity markets was responsible for a large number of unoccupied seats in the hotel ballroom, the speakers obviously consider such an opportunity too important to pass up.

As Noranda Minerals Executive Vice-President David Bumstead explained after his speech, the Canada-U.S. Free Trade agreement has increased the likelihood of an over-the-counter listing for Noranda in the U.S.

“Getting our message across to the U.S. investment community is increasingly important,” said Bumstead, who expects banks to become more conservative in their lending practices.

To show that they are keeping abreast of the situation, each company was asked to present its views on the changes it expects to see within their industry during the 1990s. Topics for discussion included strategic planning for the next decade, future technical developments and cost improvements.

What emerged was the consensus that as competition for capital increases, mining companies will be increasingly pitted against one another for project financing. “Only those companies with a strong balance sheet and a demonstrated track record in project financing will be in a position to contemplate investments in large- scale modern mines,” said Strachan.

With a market capitalization of $8 billion (nearly three times that of Noranda) and interests in 60 operating mines throughout the world, RTZ has already demonstrated that bigger is better in the mining game.

“I would remind you that we committed to the Neves Corvo and Escondida copper projects in Portugal and Chile respectively at the absolute nadir of the cycle in 1986 when copper was trading at US62 cents per lb.,” said Strachan.

While majors like Teck (TSE) and Noranda are expected to play a bigger role in project management and financing, sheer size isn’t enough, according to Strachan. Mining companies must also retain the financial flexibility required to respond to favorable investment opportunities as they arise.

Teck Chairman Normal Keevil explained the new trend in more direct terms. “Cash and financial strength is king,” he said. As he spoke, Echo Bay Mines (TSE) was adding $5.9 million to its coffers by selling an 8.7% stake in Denver- based Crown Resources (VSE).

Corona (TSE) also announced its decision to sell a 49% stake in Poco Petroleums. Corona President Peter Steen, introduced to the audience as “Ned Steen,” said his company will use the proceeds to finance development of the Eskay Creek gold project in British Columbia. (In her introduction, Goldman Sachs Vice-President Amy Gassman obviously mistook Steen for Ned Goodman who is acting as non-executive chairman of the company.)

Confusion over names of senior executives at one of Canada’s major gold producers served as a reminder of U.S. ambivalence toward gold mining stocks. “Gold is a beast that they (the Americans) don’t understand,” said Pierre Lassonde, president of Toronto- based Euro-Nevada Mining (TSE), who was in the audience. However, the number of questions fielded by Steen after he had spoken indicates that interest in Corona is strong.

While Steen and Placer Dome (TSE) President Anthony Petrina made no other reference to development of the Eskay project, they and other speakers agreed that environmental management is an increasingly significant area of cost and uncertainty.

Concern over the environment is expected to make mining a more expensive proposition as governments require companies to set aside even larger amounts for land reclamation. For instance, under the terms of an operating permit relating to Placer Dome’s Golden Sunlight mine in Montana, security provided for environmental reclamation costs will increase to $39 million from $24 million by the year 2004.

Elsewhere, Placer Dome affiliate Equity Silver Mines (TSE) is making a provision of $30 million for environment-related post- closure costs. The implications for the hundreds of junior mining companies that generally go out and find new mines were not addressed by any of the speakers.

However, Homestake Mining (NYSE) President Harry Conger hinted that juniors should be treated with the utmost caution. Asked if he had learned anything from his experience in dealing with the junior sector, he replied: “Investing in junior mining companies is like dealing with porcupines. You’ve got to look carefully at them before picking them up.”

Other issues addressed during the 9-hour seminar included the need to be a metal producer in a mix of currency areas and investment in Latin America. For the moment, Chile appears to be the South American favorite among international mining firms. “It is stable, has long traditions, honors contracts and has a well-balanced economy and a well-educated workforce,” said LAC (TSE) Chairman Peter Allen.