Editorial: Rotten week for miners

Bad news converged on the mining community from every direction during the week ended Aug. 18, the 33rd trading week of 2007.

* Near Huntington, in northwestern Utah, the increasingly grim search at the Crandall Canyon coal mine for six miners trapped underground since Aug. 6 by a roof collapse took an even more deadly turn: three members of a rescue team were killed and six more were injured by a rock burst while they were reopening a tunnel through hundreds of metres of rubble. Much of the rescue effort was halted as a result. At presstime, the situation looked hopeless: there had been no communication with the miners for two weeks, and equipment lowered through holes newly bored into the mine workings have revealed no personnel and little oxygen. But families of the six missing had convinced mine owner UtahAmerican Energy and the federal Mine Safety and Health Administration to bore a fifth, much larger hole into the workings in order to lower down a rescue capsule to where the miners last were, about 450 metres underground and 5.5 km from the portal.

* Markets worldwide were pummelled with across-the-board declines through the latter half of the week, as a rise in payment defaults on subprime mortgages in the U.S. and the subsequent rise in risk premiums caused a contagion effect in the broad markets. By the end of the week, the U.S. Federal Reserve Board had responded with a cut to its discount rate to banks to give at least some relief to fears over tightening credit. The market turmoil caused a rush to higher-quality, more liquid assets. Small-cap companies were thus the biggest decliners, and the short-term market for small caps now looks uncertain, as it will take several months to determine how badly the current credit crisis will slow the overall economy in North America and the rest of the world.

* As if that wasn’t bad enough, Canadian mining companies that had invested their hard-won cash in the country’s non-bank, asset-backed commercial paper (ABCP) market — worth about C$35 billion — last week found out that they could not retrieve their money from the subsector, where companies such as TSX-listed Coventree are major players. Mid-August saw a string of press releases trickling out from miners as big as Barrick Gold and as small as Redcorp Ventures noting that they had many millions of dollars exposed to the ABCP market.

Any retail investor who ever thought the “cash and equivalents” line on a mining company’s balance sheet is simple to understand and gauge is now a little wiser to the complexities of Bay and Howe Streets, and how much vital information remains hidden to outsiders. We’ll probably see a new trend of juniors — if they’re able to — bragging about how safe their cash is and emphasizing that there’s not much point in investing in a gold company as a safe haven if its management has invested its cash in risky bonds and the like. Meanwhile, the CEOs of Canada’s six largest banks have chimed in with a statement that the market was sound for bank-sponsored, asset-backed commercial paper in Canada — a market that’s worth some $100 billion.

* The woes for miners continued overseas, with the Mongolian government articulating a long-feared policy with respect to uranium assets in the country, namely that many of the uranium deposits discovered in the country with the financial or technical help of the state now belong to the state. As a result, Khan Resources and Western Prospector Group reported that the Mineral and Petroleum Resources Authority of Mongolia deemed that some of their exploration licences were invalid, which caused stocks of both companies to be beaten up in heavy trading.

* Back in the Americas, Glencairn Gold said that its deeply troubled Bellavista gold mine in Costa Rica may never reopen after mining was suspended owing to the operation’s heap-leach pads becoming soggy and sliding downhill. Continued movement could potentially lead to a tearing of the pads’ underlying plastic liners, which keep cyanide sprinkled on top of the pads from entering the area’s groundwater.

* Mining investors further up the food chain weren’t immune from the pain: Iamgold dropped a bomb in its quarterlies, revealing that it had taken a US$93.7-million impairment charge in the second quarter related to its Mupane gold mine in Botswana. Thus, Iamgold actually managed to table a whopping second-quarter loss of US$81.4 million during a boom in gold prices. Shares fell 8%.

Send your Letters-to-the-Editor and other op-ed submissions to the Editor at: tnm@northernminer.com, fax: (416) 510-5137, or 12 Concorde Pl., Suite 800, Toronto, ON M3C 4J2.