BOOK REVIEW — Study explores mining boom-and-bust cycles — Worldwide Mineral Exploration: Preparing for the Next Boom

Financial Times Energy

London W1P 9LL, U.K.

The complex boom-and-bust cycles that characterize the international mineral exploration industry are elucidated admirably in a concise (146- page) and highly readable study published by the Energy division of the Financial Times of London.

Titled Worldwide Mineral Exploration: Preparing for the Next Boom and authored by Virginia Heffernan, a Toronto-based science and business writer with a background in geology, the study serves as an up-to-date analysis of what is essentially a high-risk, high-reward business. The work is especially informative in showing how the boom-and-bust pattern is reflected in trends within all sectors of the industry, from research and development of exploration techniques to equity financing and metals prices.

While improvements in technology and a greater understanding of mineral deposits have removed some of the uncertainty inherent in mineral exploration, Heffernan avows that an element of luck remains a part of every major discovery. To put the risks in perspective, she estimates that roughly one out of every 1,000 properties passes the preliminary exploration stage and is proven to host economic-grade mineralization. Once discovered, the mineralized body has a 1-2% chance of developing into an economic deposit.

In other words, it takes 1,000 grassroots prospects to make a discovery and at least 100 discoveries to make a mine.

The uncertainty associated with exploration is reinforced by the boom-and-bust phenomenon, which Heffernan explains within the context of recent years.

The most recent boom began in 1993. At that time, most of the junior mining sector was still feeling the aftershocks of the stock market crash of October 1987 and, in Canada, the end of the era of flow-through shares. The 5-year slump came to an end with a series of new discoveries around the world. The Lac de Gras diamond discovery in the Northwest Territories, for example, revitalized the beleaguered Canadian junior mining sector.

Companies quickly established claimstaking teams in the Territories and, by

summer 1992, had staked an area the size of Denmark. The boom quickly gained momentum with several discoveries that gave rise to the current trend toward globalization in mineral exploration. Chief among these discoveries were: the Las Cristinas deposit in Venezuela; the now-discredited Busang deposit in Indonesia; the Voisey’s Bay nickel deposit in Labrador; the Bajo de la Alumbrera copper-gold porphyry in Argentina; and the Sadiola Hill gold find in Mali.

By 1997, budgeted expenditures for worldwide exploration had reached an all-time high of US$5.1 billion — more than two and a half times the 1992 level.

But the bubble inevitably burst, for, as Heffernan explains, just as suddenly the industry can be dealt a blow that discourages further financing. The revelation of fraud at Bre-X Minerals’ Busang property in mid-1997 called into question the credibility of the entire industry and scared investors away from the speculative junior mining sector.

Heffernan points out that the 1993-97 boom differed from previous rallies in three ways. First, it involved record levels of spending. Second, the contribution from the junior mining sector, mostly based in Canada, was unprecedented, accounting for 30-40% of worldwide expenditures in 1997.

Finally, the boom was global, with projects stretching from China to Argentina and from Zimbabwe to Greenland.

This last trend is particularly significant insofar as globalization is making it necessary for many developing nations to revise their mining codes, rendering exploration in these jurisdictions increasingly feasible.

This international trend will prove key to the industry’s recovery, Heffernan opines, as will two other developments: the introduction of new processing techniques that will make previously marginal deposits attractive to investors, and higher metal prices spurred by increasing demand in the emerging nations of Africa, Asia and Latin America. She concedes, however, that a recovery is unlikely to occur until after the turn of the century.

The book will appeal, in equal measure, to those interested in gauging current and future trends in mineral exploration and to those seeking an easy-to-follow analysis of the industry’s financial structure. Property valuation processes, for example, are clearly outlined from early-stage estimates to comprehensive final assessments, with an in-depth examination of the advantages and disadvantages of key project financing options.

Drawing upon her experience as a geologist, mining reporter and scientific researcher, the author presents a sound, well-balanced assessment of the various factors that are key to achieving success in the exploration sector.

The many risks involved — market-related, political and technical — are formidable, and the book highlights the steps that can be taken to mitigate them, while exploiting the many opportunities the industry presents.