Exploration Drills Fall Silent

After the lavish banquet of the flow-through years (a memory now, nothing more), Canada’s diamond drillers are eking out an existence on crumbs and scraps. It doesn’t make for a healthy industry.

“Its pulse is pretty weak these days,” says Richard Niels, secretary-manager of the Canadian Diamond Drillers Association. Statistics show the industry is essentially flat-lining. In the first quarter, 1991, 1,080,000 feet were drilled, surface and under-ground. During the comparable quarter this year, 1,086,000 ft. were drilled.

In the peak flow-through year of 1987, when investors poured money into junior exploration companies for the tax benefits as much as for capital gains, the footage drilled was triple the current level, says Niels.

Christian F.X. Gautheir, Directeur des Operations de Quebec, N. Morissette Canada Inc., has been in the business since 1963. He says he’s never witnessed a steeper, more protracted decline.

“It’s terrible. I never saw this before. In surface drilling there is virtually nothing.” And he adds that even the operating mines are spending little on underground exploration.

Morissette’s contract manager for Ontario and western Canada, Frank van Poppel, is equally concerned. “The surface drilling volume in Ontario is 60% of last year’s.” he said. “Looking at the industry as a whole, it’s real bad.”

The view doesn’t improve as you travel west. Gordon Cyr, general manager of Midwest Drilling of Winnipeg said “it’s not a rosy picture that anyone can paint.”

The lack of drilling activity leads inevitably to price-cutting. Where surface drilling once cost $16-$17 per ft. (a rough average), price-slashing has seen contracts at $12-$14 per ft., and even as low as $10. “At those prices, I don’t think anybody can make a buck.” said one driller.

A few companies have gone out of business, such as Advance Drilling and Cotes. Other smaller outfits have mothballed the drills and put everything on hold until a turnaround materializes. Still others have tried their luck in the U.S., and Central and South America, while a few have even entered the environmental field, drilling for data on groundwater movement and soil composition, for example. (Unfortunately, the big diamond find in the Northwest Territories has yet to generate any appreciable need for diamond drills.)

Says Niels: “The majors will survive one way or another…. The more junior outfits are considering banding together to bid on overseas contracts.”

A host of inter-related events triggered the current downturn – a worldwide recession, slumping resource equity markets, commodity price doldrums, environmental concerns, an exploration boom in the southern latitudes. Made-in-Canada factors include the constitutional wrangling, native land claims, environmental legislation, a mature industry whose “easy” geological targets are now rare.

What it all spells is uncertainty, and both major mining companies and spectulative investors shun uncertainty, especially in an industry whose risk-reward ratio is already astronomical. So the investment-driven diamond drilling fraternity suffers.

“If it shrinks any more, I’ll be driving truck next year,” quipped one drilling executive.

Some see a turnaround developing. “I honestly think that in 1993 things are going to improve. I see a gradual turnaround.” said Cyr. What we need is a full-scale discovery, something to get people excited again.” Van Poppel is less optimistic. “I don’t expect a turnaround. In two years from now, maybe. but government has to make the (environmental, native land claims) rules clear.”

It seems that until an upswing occurs, diamond drillers will have to accustom themselves to a diet of scraps and crumbs.