Cautiously upbeat may well describe the mood of delegates attending this year’s convention of the Prospectors & Developers Association of Canada (PDAC).
John Steele, the association’s president, set the tone during the opening ceremonies by noting that Canadian juniors raised more than $110 million for domestic exploration last year and are expected to raise even more in the current one. Moreover, individual budgets generally exceeded $2 million, or more than twice the amount spent in 2000.
Steele pinned the reversal on the launch, in 2000, of “super” flow-through financing, which provides a 15% non-refundable tax credit in addition to the 100% deduction of eligible exploration expenditures attached to regular flow-through shares. Nevertheless, he appealed to Herb Dhaliwal, Canada’s new minister of Natural Resources, for more.
“Minister, I would not like to give you the impression that our industry is healthy,” he said. “It’s still very hard to raise money, and the impediments to financing, such as increased and expensive regulatory control, are neither positive nor necessary.”
Whether the message penetrated remains to be seen, as Dhaliwal chose to stick to a prepared speech, which was long on the subject of sustainable development and short on specific concerns of the industry. The minister did note that his staff is formulating an awareness campaign to promote super flow-through shares and is attempting to extend the proposed lower corporate tax rate to the mining sector while improving the tax structure.
(In 2000, Parliament Hill decided to exclude resource companies from a proposed 7% reduction in the basic federal corporate tax rate unless the industry agrees to relinquish its resource allowance and accelerated capital cost allowance. This has prompted some analysts to suggest that a 15% reduction would be necessary.)
With the convention officially opened, the exploration session kicked in. Starting things off was David Klingner, exploration manager for
“There is nothing to suggest that the mining industry is apparently more risky, more competive or fundamentally less attractive than other industries,” said Klingner. “However, as participants in the industry, we have not been very smart at matching supply to demand.
“The reality is that our industry is chronically over-optimistic about the ability of the market to absorb increased production. All of us, I’m sure, can think of major projects that are complete, or about to be completed, and that have fundamentally no chance of making an economic return on their capital.”
Much of the blame was directed at the overarching concern over cash costs, a common criticism from across the Atlantic. Klingner also questioned the supposed benefits of the recent wave of mergers and acquisitions.
“What the latest round of consolidation will do for our industry depends very much on the drives and motives of those who are making it happen,” he said. “Cost savings may indeed be achieved from a variety of ways, but our industry does not lend itself to the huge savings that consolidation makes possible in others.”
Klingner cited the oil industry as an example, where most saving opportunities arise in the retail and distribution stages. Mining is an upstream process, meaning few producers retain ownership of their product once processed into its raw form.
Shareholder wealth, stressed Klingner, must drive companies, not currying favour with big investment banks. He conceded that consolidation can provide an opportunity for participants to meet growth aspirations without creating new supply but that rational investment decisions take precedence.
“At Rio Tinto, our strategy for growth is that there is no strategy,” he said. “There is no project we must do and no asset we must buy.”
He added: “No single project has strategic significance to us: we are entirely opportunistic and see growth simply as a reward for making investment decisions that create shareholder wealth.”
Klingner went on to cover the emergence of social and environmental issues over the past decade, warning delegates of the peril they face by emphasizing economic factors over community concerns.
As for the downturn in global exploration, he chalked this up to several factors but said he believes a cyclical argument is as plausible as any others. Low gold prices are only one factor, albeit an important one.
And phooey on claims that deep-seated mineral deposits are all that remain to be found: “It is always surprising to me that so many new discoveries, even those made in recent years, have a recognizable, though often subtle, surface expression. The reality is that we are still a long way from the search being reduced to that for blind orebodies using remote sensing, even though explorationists have been griping about this since the 1970s.”
Klingner wrapped up his talk by emphasing the necessity of junior partnerships and the need to remain focused but flexible: “For the past 50 years, confidence, vision, persistence and boldness have been essential ingredients for successful mineral exploration . . . and the reality is that, at the start of the twenty-first century, these remain key elements.”
“Forgotten frontier” best describes Australia, says Robert Champion de Crespigny, formerly chief executive officer of Normandy Mining. The Mining Sage of Down Under gave a refreshing lecture on his country’s mining potential, even quipping that it “is as competitive as Latin America, but [that it] is just one country, and you never have to meet the president to get anywhere.”
According to de Crespigny, exploration in Australia is at its lowest level in 21 years. Yet over the same period, 136 discoveries have been made, 11 of which host more than 4 million oz. gold and three of those, greater than 10 million oz.
“Don’t think Australia has been well-explored; it hasn’t,” said de Crespigny. “And it has vast tracts of prosective ground.”
He also elaborated on his decision not to join the board of
The PDAC’s Prospector of the Year Award, presented at the awards banquet, went to six explorationists from the Matagami office of
The six were credited with discovering three massive sulphide deposits in the Matagami camp: Perseverance, West Perseverance and Equinox. They are expected to provide mill feed for Noranda’s Matagami operation, where reserves are nearing depletion.
Arnold, in accepting the award on behalf of the team, thanked Noranda management, particularly executive vice-president Michael Knuckey, for their support. He told Knuckey: “You said you didn’t want any more just-in-time orebodies. . . . I’m sorry, Mike, these are just in time.”
The Developer of the Year award went to Robert McEwen of
Receiving the Distinguished Service Award were Toronto mining lawyer W.S. (Steve) Vaughan and Vancouver financier Peter Brown representing, representing, respectively, Bay Street and Howe Street. Vaughan, who charmed the audience with what may be the shortest acceptance speech on record, was honoured, in part, for his tireless work on the Mining Standards Task Force.
Brown, founder of the firm that ultimately became Canaccord Capital, noted the declining number of independent investment houses financing venture-capital companies: where there had been more than 40, now there are only eight, he said. He wondered whether dominance of the capital markets by the large banks and investment houses might deprive Canada of the “critical mass” of independent venture-capital firms that are required for spec
ulative and start-up companies.
The Environmental Award went to
A recurring theme of the technical presentations in recent years has been the sociological impact of mining and sustainability.
Colin Seely, general manager of Placer Dome’s Musselwhite gold mine in northwestern Ontario, said his company had forged lasting relationships with First Nations at Musselwhite and urged companies to go to great lengths to achieve a “greater understanding of native and non-native relationships.”
Neil Westoll offered an informative look at the Environmental Excellence in Exploration (E3) project, which he manages. The project is designed to ensure access to public lands through improved education and environmental management practices.
“If we are not permitted to explore for mines, we won’t be building any of them,” warned Westoll. “It is our belief that E3, or something very like it, is central to ensuring that the industry survives the current challenges to its viability.”
The total budget for the first 15 months of the E3 project is estimated at $500,000, and a working version of the whole program will be presented at next year’s convention.
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