THE EDITORIAL PAGE — Steppin’ out

In the mid-1960s, the Quebec government created Soquem, a mining exploration outfit. This government-funded enterprise proved remarkably successful in an industry noted for its private enterprise bias. Soquem found five mineral deposits in the space of 12 years, the best known of the bunch being the magnificent Doyon mine in northwestern Quebec. (The architect of Soquem, Come Carbonneau was recently inducted into the Canadian Mining Hall of Fame.)

Later, the assets of Soquem were “privatized” into a publicly traded entity known as Cambior. And like its predecessor, Cambior has not disappointed. In fact, as a gold producer Cambior has trotted from the back of the pack among the mid-tier Canadian-based players to become a contender among the majors. It has achieved this by maintaining a Quebec orientation domestically and diversifying geographically beyond Canada with such projects as the Omai gold mine — its crowning achievement to date — in Guyana. The company has balanced its aggressiveness with superb technical skills (Omai has not been an easy operation to bring to production), financial conservatism (forward gold sales; low-interest, gold-related debt; political risk insurance) and an unerring eye for solid projects.

When Soquem entered life in 1986 as a publicly traded vehicle, two assets — the Doyon gold mine and Niobec niobium mine — underpinned the company. It quickly added several smaller producers, such as the Beauchemin, Beliveau, Chimo and Mouska mines. It also took a piece of the Silidor mine. (Beauchemin and Beliveau have since closed, but other relatively small producers or near-producers have filled the gap.).

While it busily bolstered its Quebec asset base, the company used those same assets in bringing the Guyanese mine into production. Because the banks still hesitate to lend development money for South American projects, Cambior pledged its Quebec assets as collateral to finance development of Omai. Betting the farm paid handsomely. The Omai mine, after a few difficulties before commercial production, produced 207,000 oz. last year. Considering Cambior’s 65% share of Omai, this means the company’s gold production jumped 46% last year to 518,000 oz.

Now, with the pending purchase of La Granja, a copper prospect in northern Peru (see front page), Cambior’s ambitious chief executive, Louis Gignac, is taking the next giant step toward the goal of becoming a major, diversified mining company.

The price seems high, according to our Latin American correspondent Wolfgang Glushke, unless Cambior moves quickly toward development. It is committed to an above-average 5% royalty (with adjustments against inflation and copper prices below US90cents), as well as cash option payments of as much as US$31 million and exploration and development expenditures of up to US$25 million. (If development proceeds rapidly, the total cash payment would be considerably less.) Development costs of a first-phase, oxide-leach mine, according to the Peruvian press, could reach US$450 million — and eventually total US$770 million if a concentrator is commissioned to process the underlying sulphide ore. (Unsuccessful bidders included Cominco, Teck, Placer Dome and Cyprus Amax.)

The total price is much higher than a Minorco subsidiary paid for the Quellaveco project little more than a year ago, but it’s in line with Cyprus Amax’s recent winning bid for Cerro Verde. Such comparisons, however, only demonstrate the difference a year has made in the mining community’s view of Peru’s political risk.

For Cambior, it is a logical, albeit ambitious, next stage in its growth.