Drilling industry caught up in a changing world

Last year when I took over the presidency of the Canadian Diamond Drilling Association, I mentioned that I was born during worst year of the Depression. It seems ironic that the past year may become known as the worst year for the diamond drilling industry in Canada.

However, we can’t dwell on the negative and must make every effort to maintain a positive attitude. One thing that is certain is that our industry is in the midst of change, because our country and the rest of the world is in the midst of change.

As recently as three years ago, who in this room would have predicted the collapse of communism throughout the world? Who would have predicted the collapse of the Soviet Union, with Russia itself left as an economic basket case? And what about the shift in wealth in the world to southeast Asia? Remember the little island country of Formosa off the coast of China where Chiang Kai-Shek fled the communist mainland to establish the last bastion of Chinese democracy? Well that little country, now more commonly known as Taiwan, has nearly half a trillion dollars in its treasury. That means it could buy out the total national debt of Canada (now more than $400 billion) and still have money left over. Does this not imply that there are major changes taking place in the world that are going to affect us? Yet in spite of this huge amount of wealth in some countries, we in Canada have a country with abundant natural resources and, as citizens, enjoy one of the highest standards of living in the world. Taiwan, at present, can make neither claim. And if you don’t believe we have one of the highest standards of living, then I suggest you take a trip to some of the countries of eastern Europe, the Indian sub-continent or any number of Latin American countries. I recently returned from a trip to a Central American country, and one of the first things I did when I arrived home was to go to the kitchen sink, turn on the cold water tap and pour myself a glass of cold, clean water. Most Canadians can do this anytime, but you would be amazed at how small a percentage of the world’s population can do the same.

While I may have made the point that there are lots of people in the world who are worse off than we are, there is no doubt that we are mired in a serious recession that is affecting us all. And we must do all that we can to help bring the country out of it.

But it is not simply economics that is affecting the diamond drilling industry. There is tremendous pressure on mining from environmental groups which have strong lobbies, and much of the recent pressure is coming from groups with strong support in the U.S., as evidenced by Senator Gore’s outspoken criticism of the Windy Craggy project in northern British Columbia. Sadly, when our leaders should be turning to the resource sector of the economy for re-establishing the generation of wealth, they all too frequently lean toward our outspoken critics, who in spite of their ignorance of our industry have large followings, and large followings represent votes to a politician.

We, here today, representing a small segment of Canada’s mining industry, are struggling to cope with these problems and are making every effort to establish greater environmental responsibility among our members. But what is happening to the major mining companies in Canada? They seem to be taking a different attitude. They appear to be leaving. Most of the majors are spending greatly increased exploration budgets outside of Canada. They are going to countries where the geology is attractive, tax incentives are substantial and environmental pressures are minimal.

I don’t wish to imply that these companies are shirking their environmental responsibilities, because there is nowhere in the world you can get away with seriously damaging the environment anymore. Nevertheless, in many other of these countries it is far easier to acquire environmental permits, without getting dragged through a lengthy, costly process with an uncertain conclusion.

Environmental activists are almost non-existent in many of these countries. And perhaps most importantly, the governments of these countries recognize mining as an important generator of wealth and they strongly support the industry.

Many of the larger contractors in Canada have for years been doing work in foreign countries and the ones that have become experienced in this are able to get repeat business. Some contractors have worked for the larger Canadian mining companies with interests in foreign countries, while others have worked directly for foreign companies through CIDA (Canadian International Development Agency).

Some of you might say: “That’s all right for the big guys but what about us smaller firms where we are only running two or three rigs.”

Well, it’s understandable that small firms are reluctant to try and move out of their own territory, but it may not be all that impractical to do so. Not all foreign jobs are large ones and sometimes only one rig is required. Another consideration might be to form a small consortium with some of your competitors who might be in the same boat. Three small firms pooling their resources can quickly change into a formidable group. Not only that but a group of three companies can probably afford to do a business development that might lead to a first contract abroad.

You see, we have to keep in mind that what we have at present, in Canada in our industry, is a surplus of talented labor and equipment. Furthermore, Canadian diamond drillers have a good reputation throughout the world as being “producers.”

Indeed, we are living in changing times and if we are not able to change with the times then I am afraid many of us will not survive. It is true that our industry will achieve some level of prosperity as metal prices eventually increase. But, it is doubtful that things are going to be as good as they were in the late 1980s, when we became spoiled by a system that was doomed from its outset.

And when the demand for our services does increase, many of the firms that have been able to weather the storm will once again see a profit on their bottom line. But I don’t believe that we will all prosper, for there still exists a surplus in our industry that was created during a short-lived period of excesses. And an industry with excess capacity will show little sign of prosperity even though the rest of the economy may be buoyant. In 1987, our industry drilled a total of 9.5 million ft. of core. In 1991, we drilled a total of 3.2 million ft. (based on a footage report from 40% of membership; the actual number may be double or more, but the ratios are probably accurate for comparison.) In other words, we had a surplus capacity in equipment and manpower last year in Canada to drill an additional 6.3 million ft. of core.

Most of the equipment represented by our peak year is still available in our industry, but what has happened to the people? No doubt quite a number of them are unemployed and many of the remainder have gotten employment elsewhere.

But what is the likely scenario in another year or two or three, when we expect to see the demand for metals rise substantially. Will we then be drilling 3 or 4 million ft., or 6 or 7 million ft.?

It is unlikely we will see the number approach 10 million ft. again in Canada, in my personal opinion, for in spite of our huge land mass and abundant mineral resources, the problems and economic risks faced by mining companies attempting to develop new mines in Canada will continue to be a serious impediment to the future well-being of the diamond drilling industry. During the past year, your association has been quite active. In spite of the poor economic state of our industry, I have found the past year as president to be a gratifying one. This is in no small way due to the dedication and effort put in by the members of the board of directors and the working committees which serve the board.

To you, the members of our association, I only wish I could provide you with more answers to the many problems we are facing. But I hope I have at least given you some food for thought, which in some small way may be of benefit to you, and I sincerely wish you good fortune for the remainder of 1992 and beyond.

— CDDA President Frank Nolan is president of Petro Drilling Co. Ltd., Armdale, N.S.