Editor’s Picks: top 10 stories of 2008

It was remarkable year for the mining industry, as we witnessed a commodities boom in the first quarter turn into a bust by the fourth, all against the backdrop of a steadily worsening global financial situation. Here are the year’s top 10 mining stories:

10. Power failures in South Africa. Late January saw a nationwide power crunch in South Africa, which forced the state-owned energy supplier Eskom to demand that the country’s miners reduce their power consumption to a minimum. The power rationing boosted minerals prices for several months, especially gold, platinum and aluminum.

9. China’s overseas investments. All sorts of Chinese mining and metals houses stepped up their hunt for mineral assets far beyond their borders. Two standout deals were: the Industrial and Commercial Bank of China Ltd. (the world’s largest bank by market capitalization) picking up a 20% interest in South Africa’s Standard Bank with a US$5.5-billion cash infusion; and the Chinese government agreeing to spend US$9 billion in the Democratic Republic of the Congo (DRC) in a “Minerals for Jobs” agreement.

8. Reality sets in for Canada’s diamond sector. Canada’s entrance onto the world diamond-producer stage with two superb diamond mines — Ekati and Diavik — has proven to be a hard act to follow. Canada’s third one, Tahera Diamond’s Jericho mine in Nunavut, opened in 2006, was a money-loser from the get-go and was shut down for good early in 2008.
Meanwhile, De Beers took a US$965-million writedown on its Canadian assets, having dramatically underestimated the cost of building and operating Snap Lake, which started up in late 2007. De Beers successfully opened its Victor mine in Ontario in mid-2008, but the final quarter was marked by a major drop in prices for rough diamonds.

7. Shareholder revolt at Noront. A hotly anticipated showdown between the old-school Noront Resources board and dissident shareholder Rosseau Asset Management was diffused just before the company’s annual meeting in October via the creation of a compromise board. Shareholders should now see better handling of the junior’s intriguing polymetallic assets in northern Ontario’s Ring of Fire camp.

6. Ecuador’s mining freeze. It started with a one-two punch in January: a new 70% windfall tax on miners, and the revocation of hundreds of mining licences. By April, the Ecuadorian government had suspended all mining and exploration activity in the country until a new mining law is in place.
The troubles played a major role in Aurelian Resources acceding to Kinross Gold’s mid-year, US$1.2-billion takeover offer, which was tabled rather early in the development stage of the junior’s stellar Fruta del Norte gold discovery in southeastern Ecuador.

5. Crash and burn in Venezuela. In a soap opera that’s dragged on for too many years, Hugo Chavez’s government in Venezuela turned the screws even tighter on foreign miners in 2008, with Crystallex International and Gold Reserve coming out the biggest losers, and Rusoro Mining emerging as the winner.

4. Mining law reviews around the world. With commodity prices on the rise, other governments started looking at ways to extract more money from miners. Jurisdictions that became harder to work in during 2008 included: the DRC, Kyrgyzstan, Mongolia, Ontario, Indonesia, Gambia, Labrador, British Columbia, Zimbabwe, the Central African Republic and Costa Rica.

3. Exploration success stories. Some standouts included: Hathor Exploration and UEX’s excellent drill results at their respective uranium properties in Saskatchewan’s Athabasca basin; Peregrine Diamonds’ enticing results from its mossroots diamond exploration at the Chidliak property on Baffin Island; International Tower Hill Mine’s rapid advance of its Livengood gold deposit in Alaska; Goldsource’s intriguing coal discovery in Saskatchewan, which propelled the stock from a 52-week low of 19¢ to a 52-week of $19.60 in mid-year, before falling to $1.50 at presstime; and Rubicon Minerals’ continuing discovery of high-grade gold in the shallow F2 zone discovered earlier in 2008 in Ontario’s Red Lake camp.

2. Teck’s demise. The reputation of Canada’s biggest base metals miner, Teck, as being one of the industry’s savviest players came crashing down along with its stock price in the fourth quarter. The nadir was reached on Nov. 20, when Teck’s B shares touched a new low of $3.35 before rebounding and settling above $4 — a tenth of the share price in early September.
Teck’s high-profile belly flop stems from the US$9.8 billion in debt the company took on in order to buy the assets of Fording Canadian Coal Trust. The deal was cooked up in July, when Teck thought the sky was the limit for metallurgical coal prices.
Of special concern is Teck’s ability to repay a US$5.8-billion bridge loan that comes due later in 2009. Shareholders should brace themselves for massive dilution or more substantial asset sales ahead.

1. Boom to bust for commodities. The fall in commodity prices since mid-year has been sudden and devastating for many miners. Gold held up best of all, hitting its all-time nominal high of US$1,023.50 per oz. in a London AM fix on March 17, and reaching a low for 2008 of US$692.50 as a London AM fix on Oct. 24. Oil cracked US$100 per barrel for the first time ever on Feb. 19, touched an all-time high of US$147.27 per barrel on July 11, and traded below US$40 at presstime.
The collapse in base metals prices and the credit crunch led to a flurry of mine closures around the world, particularly in zinc and nickel, and brought to an end the mega-mergers of recent years, with BHP Billiton withdrawing its bid for Rio Tinto, Vale walking away from Xstrata, and Xstrata saying goodbye to Lonmin.