PDAC Perspectives (September 09, 1991)

Years ago, there was a popular saying, “Tough times don’t last, tough people do.” For the junior mining industry, we sure hope so, because 1991 is being a tough year.

Due to adverse changes, little new investment is going into the high risk and hard work of mineral exploration. The changes include tax regulations on flow-through shares; lower metal prices, especially gold; the general economic malaise; and uncertainties invoked by government actions on Indian land claims as well as environmental, social and securities regulations. Flow-through financings which maintained the industry in the 1980s have essentially ceased. For the first six months of 1991, total flow-through financing on the Canadian stock exchanges has been a piddling $13 million of which about $10 million was for minerals and $3 million for oil and gas. Private financings, along with a hoped-for surge later in the year, might produce a 1991 total in the order of $40 million, as currently estimated by Energy, Mines and Resources. This amount is about 10% of the $400-500 million that is required to sustain the industry.

The Vancouver Stock Exchange continues to be the most productive exchange in Canada to raise risk capital but, even in Vancouver, financings declined to $169 million in the first half of 1991 versus $263 million in the same period in 1990.

In Ontario, which has not had a junior risk capital market for 25 years despite repeated attempts by interested groups, only one new junior resource company was listed on The Toronto Stock Exchange in the first seven months of 1991 on a $1.1-million financing.

One other unlisted company raised $660,000 and 11 junior companies have filed preliminary documents for rights offerings which could raise a maximum of $15-17 million if successful. In addition, three development companies from the Vancouver Stock Exchange cleared in Ontario to raise a total of $17 million, all for foreign projects.

In Quebec only one new listing took place in 1991 and only about $2 million was raised for exploration.

With the exception of a few local hot spots such as the Golden Triangle and the Quesnel Trough in British Columbia, the Shiningtree and Sudbury areas in Ontario and around the Aur-Louvem discovery in Quebec, exploration activities are slow to non2Dexistent across the rest of the country.

Diamond drilling is reported to be off substantially. For the major companies reporting, the first six months footages were down 31% from last year (837,000 ft. versus 1.2 million ft. for both surface and underground drilling). This decline is on top of the 58% drop in drilling during 1987-90. In Ontario, claim staking is remaining fairly steady at the 1989 and 1990 yearly averages of 25,000 claims but well below the peak years of 60,000-70,000 claims staked in the mid-1980s. The number of claims in good standing has dropped 15% to 117,000 claims versus 170,000 claims in 1987 and 1988.

Exploration activity will likely continue to decline due to reduced cash flows for the major companies and the depletion of the junior companies’ treasuries. This decline will in turn decrease our mineral production, jobs in the north and exports. It also raises a number of important issues, some of which are being reviewed by the Science Council of Canada. It is looking at 15 Canadian sectors’ research and development performance and technology strategies.

How and where can we be competitive with our high wage and social costs, small population and large distances? Are we doing enough research and development? What industries should we encourage? Do we need a mining industry and a junior mining industry? Do we need risk capital markets? If the answers are “yes” to the mining questions, what actions are required in order to keep our industry active and productive? The usual answers are some combinations of more tax incentives, higher metal prices and a new important discovery.

There are other factors that are currently making Canadian mining and other businesses less economic. Look for the Science Council reports late in the year as they should make for interesting reading.