Environmentalism, weak equity markets, an economic downturn, global competiton and a desert war. No question, Canadian mining faces obstacles. The following, a response to our questionnaire on the page opposite, is a state-of-the industry view by seven of mining’s leading representatives.
PETER ALLEN–President and C.E.O. of Lac Minerals
Technological Innovation
1. Technological innovations will offer fewer relative returns during the next 10 years. The past 15 years have provided quantum operating cost improvements, unlikely to be surpassed in the next period.
2. The goal to attain fully automated underground production will be possible, but probably not within 10 years. The innovations that have to be made include air/dust control and partial continuous underground ore treatment. Integrated underground systems from turbo-drill to partial metal recovery are possible theoretically, but need research funds before they can be made into a reality for orebodies of suitable geometry.
3. The social and world culture of mining as well as competitiveness fuels the drive to automation.
4. Within LAC, we support joint R&D projects with other companies and encourage on-the-job innovation in our mines. We support basic research through Precarn, the Canadian Institute for Advanced Research, etc.
The Quest for Discoveries
1. We believe Canada still has significant undiscovered base metal orebodies, but which are a bit harder to detect subsurface.
2. The loss of flow-through shares for companies will not affect Canada’s ability to find ore deposits very much.
3. I agree that the cycle of the Canadian mining industry has passed its peak and is now in a mature stage. Operationally, the industry is very experienced and geologically favorable environments have received significant attention.
Mining and Environment
1. Mining companies in Canada and abroad are steadily absorbing environmental costs, which, however, don’t really increase competition. Ultimately, these costs are paid by the consumer. Environmental costs worldwide are escalating sometimes faster than in Canada. Therefore, our competitive position is not really eroded.
2. To prevent escalating environmental costs, companies should adopt a “pay-as-you-go philosophy, and they should not defer the work until later (which would) prevent surprise environmental cost escalations.
3. Yes, I believe the mining industry has a poor public reputation in environmental matters, both past and present. This will probably outlast our next decade’s earnest efforts.
Economic Downturns
1. LAC does not support the view that the current downturn is supposed to be mild and short. We believe a full recession is upon us.
2. We have balanced output with rising unit costs by opening mines, increasing production and controlling costs. We have been able to maintain room for cost-cutting by pre-developing and by long-range exploration for reserves.
Political Stability
1. We, as a corporate entity, stay informed on political issues. This affects our decision-making as it leads to strategic re-allocation of resources and capital, in addition to geographical diversification.
2. Our major concerns are the breakup of the country and interminable constitutional debate with occasional fireworks. Either of these obviously erodes the company’s and the country’s ability to attract capital. We are also concerned about provincial governments’ revising, without full consultation, fiscal and labor legislation.
WALTER CURLOOK
Executive Vice-President Inco Ltd.
Technological Innovation
1. Innovations should, and will, continue unabated. At Inco’s underground mines, having already achieved a doubling in productivity since 1982, our miners have set a new goal of 50% improvement over the next five years. I’m certain that five years from now they’ll again be setting further goals in terms of productivity improvements.
2. To speak of achieveing “full” automation is to speak of achieving the absolute. Hardrock mining cannot be compared with tapping natural gas or pumping crude oil or even mining salt. However, achievement of a “high” level of automation and greater measures feasible remote control are definitely of over the next 10 years. What is required and what is currently being developed and implemented are:
* wider-scale electrification;
* radio telecommunication from all locations to control centres (ideally on surface);
* sensors and systems for continuous monitoring of operating machines and equipment; and
* more continuous “transportation” of ore (and rock).
And all this, of course, requires new investment.
3. The need for improvements in productivity, safety, recovery and costs drive the push to automation.
4. Innovation is fostered first, by creating a working environment conducive to innovation. It must be fully supported by senior management, with adequate funds made available for research, development and large-scale demonstration and implementation. At Inco, since 1979, we organized our first mining research department under a separate manager, staffed with engineers, technicians and miners who were totally dedicated to developing new mining methods, to developing and testing new and innovative mining equipment, to effectively employing computers, to improving communications, and to establishing better methods of work organization. In 1982, we reactivated the Copper Cliff North mine as a research mine. When the recession/depression of 1982 and 1983 set in, we cut back on operations and expenditures everywhere throughout our operations except on mining research and development, where we actually increased our efforts and expenditures.
The Quest for Discoveries
1. There is still a great deal of northern Canada to explore; and we can expect major finds to come from new geophysical prospecting techniques. Personally, I’m betting that “in-the-hole” geophysics will greatly expand the horizon for explorationists. We need to invent and develop devices that can be lowered down a drill hole in order to “read” the nature of the minerals beyond the perimeter of the drill hole.
2. I would have to agree that the near-term environment for junior mining companies may not be as bright as it has been in recent years; however, the field is still wide open for prospectors. Let’s hope that the “majors” take up the slack.
3. The Canadian Cordillera and Precambrian Shield are two major hosts for minerals that have provided the bases for growth of major mining companies and have given birth to many of Canada’s northern communities. The probability of discovering new major commercial mineral deposits still exists; and the possibility of new mining centres being created is strong.
Mining and Environment
1. I don’t think Canada’s competitive position will be eroded by environmental concerns. Mining operations around the world have to do a better job of respecting the environment than they have done in the past. The concept of “zero emissions” is spreading around the globe. Although absolute zero emissions are an impossibility in most situations, mining operations everywhere must strive to get as close as possible to zero emissions. Relatively speaking, Canadian mining companies are not disadvantaged.
2. We must adopt “cradle-to-grave” engineering, i.e., right from the early conceptual stage, we must think through, and design for, eventual shutdown (exhaustion of a deposit). Decommissioning costs must be borne by the overall project if the project is to be a viable one, and it should not be assumed out of hand that environmentally sound designs are necessarily more expensive.
3. There are many past practices, with respect to the environment, that the mining industry cannot be proud of. On the other hand, the current attitudes of the mining industry toward the environment are very positive and respectful, and deserve public recognition.
Economic Downturns
1. The Canadian mining industry must be concerned about the economic climate around the world, as the industry markets its products (80% of which is
exported) worldwide. Canada is definitely in a recession; the U.S. has entered one; but much of the rest of the industrialized western world is in good shape. Overall, providing the price of oil does not increase substantially over the US$30-per-barrel level, the industrialized world should not suffer more than a mild recession.
2. At Inco, having fully recovered from the 1982/83 recession/depression, we have not grown fat. We have remained lean and efficient and we continue our relentless pursuit of improved productivity and safety. If we were to now enter into a deep recession (which, as stated above, we do not think will be the case), we would have to review our plans and probably reschedule our capital expenditures.
Political Stability
1. As a Canadian corporation, we have, over the years, worked in a co-operative mode with all three political parties. We had good working relationships with the previous New Democratic government in Manitoba and have established a good working rapport with the present Progressive Conservative government; and we expect to have good working relationships with the present NDP government in Ontario. As individuals and as a corporation, we were disappointed with the collapse of the Meech Lake Accord.
2. The governments of Canada must strive to regain the confidence of their citizens. They will only do this with clear, consistent policies. The country cannot suffer the uncertainties caused by actual and threatened flip-flops on such serious matters as Meech Lake, free trade with the U.S., the goods and services tax, aboriginal rights, and so on, without some damage to its economic fibre. A greater sense of national purpose and a higher level of provincial/federal harmony, under strong leaderships, would be big steps toward a better environment for investment and the enhancement of the well-being of all Canadians.
LOUIS GIGNAC
President and C.E.O. of Cambior
Technological Innovation
1. I don’t believe we have reached a saturation point in terms of technological innovation. The industry still has much to gain from it. New pieces of equipment recently introduced in the mines have not reached their full potential; better reliability and utilization are still long-term goals. In addition, new mining technology has been directed toward bulk mining. As far as selective mining or the mining of narrow orebodies is concerned, the development of technology is still in its infancy.
2. In reality, the industry has only just initiated the automation of mining. A few activities have been automated, such as hoisting and materials-handling; recent production drills have incorporated automated drilling. I don’t think all mining activities can be automated, but there is more to be achieved. Again, the milling processes have been automated to various degrees; more application should be pursued in smaller mills.
3. Automation is justified mainly by labor reductions or savings in supplies. We need to remain competitive with Third World countries, where labor costs are lower. That’s the only way we can compete in the long term.
4. At Cambior, we pursue innovation by participating in various MITEC projects. We also sponsored a research chair at Laval University in mining equipment for narrow-vein mining. We will contribute C$400,000 for the chair and spend additional funds on specific projects.
Within the company itself, we have a technical group handling research and development. In our operations, we’ve been pushing mining systems to the limits of technology. In the Val d’Or division, the Beliveau and Chimo mines have eliminated crushing altogether. Ore is produced by blasthole stoping and passes over a grizzly and impact breaker arrangement before being fed to a semi-autogenous mill. The key is to get good fragmentation in the stopes. We process 1,700 tonnes per day in the Val d’Or division. Similarly, we identify special needs in each of our mines and proceed with research and development at that site.
The Quest for Discoveries
1. There is still potential for big orebodies in Canada. I can cite the example of the Aur/Louvem deposit, which was 1,000 ft. (300 metres) away from an old mine. The Val d’Or area has been explored and mined for 50 years. Hemlo was a similar situation. The Silidor orebody was found right next to the city limits of Rouyn/Noranda. This indicates there is very good mine-finding potential in Canada.
2. The loss of flow-through share financing for mineral exploration is probably the result of an excess of funds, especially in 1987. Frankly, too much money became available for exploration in too short a time. In essence, this tax-driven financing was too successful and turned out to be much more costly to the government than was anticipated. It is unfortunate that the loss of flow-through financing coincided with weak equity markets, with the result that junior exploration companies were crippled. But equity markets will eventually become more attractive. Better metal prices can also make funding for exploration more attractive. At a time like this, we have to keep in mind that the exploration industry goes through cycles. For the industry in general, it is encouraging that mine producers are still exploring. There hasn’t been much of a decrease in exploration by producers and certainly not at Cambior. Our company is putting as much money in exploration as in recent years.
3. I do not agree that the Canadian mining industry is at a mature state yet. It is still a very dynamic and growing industry. You have to look at the industry from a global perspective. In the U.S., for example, Canadian companies contributed largely to the development of the gold sector in the 1980s. The industry is using the strong base in Canada to compete around the world. So we have to look at the Canadian industry in its entire field of activity. From that vantage point, I think it is expanding and growing, and yet still expending as much energy in Canada as before.
Mining and Environment
1. There is some danger that the industry’s competitive position could be harmed by environmental constraints. It depends on the direction taken by the environmental movement in this country. I hope it doesn’t take the route that environmentalism in a number of states south of the border has taken. If everyone can agree with the concept of “sustainable development,” the mining industry will adapt and prosper. However, if regulations that can’t be met technically by mine operators are put in place for no reason other than to indirectly ban mining, then the situation can degrade rapidly.
2. It hasn’t taken us long to discover that environmental regulations affect development and operating costs. But as long as we (mining companies) know what the rules of the game are and that they are technically feasible, the industry shouldn’t suffer excessively. Having said that, regulators should be aware that incorporating environmental controls into a plant as part of an initial operating plan is less costly than having to retrofit.
3. As far as fostering an industry-wide response to specific environmental problems, I think it would be difficult for the Mining Association of Canada to pledge funds for a specific cleanup. Let’s not forget that not only companies, but government, through additional taxation, benefitted from those operations that did not address sufficiently the environmental aspects. And the times were different as well; the impact of industry on our habitat was not a high-level concern at the time. In fact, environmental standards had not been enunciated and, often, the technology to meet present regulations did not exist. I believe that our environmental lapses back then were more a question of ignorance than wilful misconduct. The current scenario unfolding in Quebec seems to be that government will deal with environmental problems that have returned to the public domain and mining companies will look after their own skeletons.
Economic Downturns
1. I don’t think this recession will be as short and mild as some people think. On the other hand, it shouldn’t be as bad as the
one we had in the early 1980s. We won’t be out of this one until later this year or early 1992. Its severity and duration will depend on the war in the Persian Gulf, which will drain cash from both U.S. and Canadian economies and restrain economic growth and public confidence.
2. With regard to Cambior’s operations, we have not had difficulty balancing output and productivity. Our unit costs have come down slightly in recent years, even though the costs of labor and supplies have been going up with the rate of inflation. We are getting small productivity improvements that any good operator should pursue. The attitude of workers has changed positively in the 1980s. Operational success and financial returns are viewed as the only ultimate means to job security and better wages.
Political Stability
1. With regard to the question of national unity, my view may be different from the views of most of my colleagues. As a Quebec-based company, our perspective inevitably is different. As a society, Quebec is trying to identify and define its options. Premier Bourassa’s position after Meech Lake was that the status quo was unacceptable and that Quebec did not intend to join the U.S.; this is the moderate view. Politically, I think Canadians are in for a few shocks in 1991. Of course, this is not new since we’ve had a series of political shocks for the past 20 years. If you look at polls now in Quebec, a strong majority seems in favor of a separate political arrangement with an open market economy with the U.S. and the rest of Canada. But I don’t think all the options have been fully described and quantified. Like me, the majority of Quebeckers are still waiting to analyze the detailed options that will result from the current reflection before committing themselves strongly. It must also be noted that the federal option has only a few spokesmen in Quebec. The New Democratic Party has very little following, the federal Liberal party has very little credibility and the Progressive Conservative party has had no fall-back position since Meech Lake.
From a strictly corporate point-of-view, all Cambior revenues are U.S.-denominated and all our Canadian producing assets are in Quebec. As a business, Cambior is not concerned with the impact of political changes in Canada or Quebec. The eventual political landscape in this country will have no effect on Cambior’s strategic plans. We are committed to expanding our operations in Canada, the U.S. and certain offshore countries, and we will maintain the course.
KEITH HENDRICK
Chairman, Noranda Minerals
Technological Innovation
1. Innovations will continue as long as managers and engineers seek better ways to mine and mill ore.
2. Despite the productivity improvements achieved in recent years with more powerful, efficient machines and sophisticated electronic and computer controls, the basic hardrock mining procedure of drilling, blasting and mucking remains unchanged. The real breakthrough will be continuous mining. We believe it should be attainable this decade using such techniques as plasma blasting, which is being developed by the Noranda Technology Centre together with our mining staffs.
3&4. This is one example of the innovative research being undertaken at the centre in co-operation with the mine sites. Such research projects arise from the creative imagination of our operators in response to the need to solve specific problems.
The Quest for Discoveries
1. In the 1960s, Canada witnessed the development of several major base metal operations, such as Brunswick, Mattagami, Kidd Creek and Pine Point. This was the last great surge. Since then, the discoveries have been infrequent, as the emphasis swung to gold when its price rose. Nonetheless, there have been other copper and zinc developments, such as Valley Copper and Louvicourt.
To say Canada is approaching the exhaustion of its mineral riches would be very misleading. It has been 30 years since airborne magnetometer surveys were first used. We are overdue for the next detection device. With it, there could well be a new wave of discoveries because the geology remains favorable.
2. Unquestionably, without flow-through funding (for mineral exploration) and with limited ability to raise funds through the sale of shares, the role of the junior mining company will be restricted during this recession. Exploration will tend to be concentrated with the prospectors and the operating mining companies. On balance, the reduction in activity will lead to a lower incidence of discovery.
3. Looking ahead, we are confident that Canada will remain a major mining country. However, its percentage share of world production may decline as the developing nations build their industries. In addition, the character of the Canadian industry may change, with an increasing emphasis on smelting and refining of both domestic and offshore concentrates.
Canadian production will continue to respond to the economics of individual metals.
Zinc prices have risen above their historical level and Canada is maintaining its traditional role as the world’s leading producer. Copper prices, on the other hand, have become lower and have dampened the opportunity and interest to seek copper in Canada.
Mining and Environment
1. Environmental concerns are global. They influenced politicians and affected industry in all countries.
The pace and degree of response varies, but ultimately the public and consumers will demand that operations and products be clean, safe and environmentally friendly.
2. Canada has taken a leadership role and may be setting standards for other countries. For example, legislation and regulations are being prepared requiring the provision of adequate reclamation funds before a mine can be put into production. This will increase capital costs and lead times, and hence, the hurdle rate for new mines and could have a different impact on companies within Canada, depending on their financial strength. It will also require a relative increase in the ore grade to be economic.
3. The industry’s environmental image is poor in today’s context. To a degree, it suffers from past performances when the public’s concerns and the government’s regulations were lower. Today, the industry’s effort is to meet the rising demands.
The industry supports the Mining Association of Canada (MAC) in its environmental policy, which requires “the diligent application of technically proven and economically feasible environmental protection measures to meet the requirements of legislation and to ensure the adoption of best management practices.”
4. Companies individually and collectively through MAC and provincial associations are seeking to co-operate with governments to develop an adequate response and to operate at standards better than the regulatory norms. These efforts are limited only by technical and economic viability. Clearly, the industry should strive to ensure that its improving performance and greater efforts are known to the public and governments.
Economic Downturn
1. The current downturn follows eight years of continuous economic recovery and growth. However, after the severe depression of the early 1980s, the positive impact of the recovery on the mining industry was delayed until the late stages of the economic cycle. As a result, mining costs were kept tight and there was no overbuilding of capacity or excessive buildup in inventories.
2. To date, the current recession has been centred in North America while growth has been sustained in the European Economic Community, led by Germany, and in the Pacific, led by Japan. On balance, therefore, the outlook is for a less severe correction this time. However, given the volatile nature of metal markets and the sensitivity of prices to small changes in the supply/demand balance, producers’ revenues and profits are suffering.
Political Stability
1. Any uncertainty over domestic political events is completely overshadowed by the political climax building in the Middle East. As a result, planning tends to provide for prompt, flexible reactions to major change
.
2. Cost increases in excess of productivity gains, together with high interest rates and the strong dollar, continue to weigh heavily on the industry in Canada. They will become proportionally greater burdens in the coming year as markets weaken, and relief will become even more critical.
TONY PETRINA
President and C.E.O. of Placer Dome
Technological Innovation
1. Over the past decade, technological innovations in the metal extraction industry have led to significant reductions in production costs. Some of the more notable achievements include the introduction of remote-controlled scoops, computer-aided production and design, mill automation and the widespread adoption of new extraction processes, such as heap leaching and pressure oxidation. Many people question whether there is potential for additional savings from this type of innovation. We are confident that new technologies will be developed that will result in new cost savings. Also, new applications for existing technologies will reduce the pressure of cost increases.
It is difficult, if not impossible, to identify where the next major technological change will occur. Groups like MITEC (Mining Industry Technology Council of Canada) and MEND (Mine Environment Neutral Drainage Program) work to improve our understanding of rock mechanics and rockbursts, the formation and control of acid mine drainage and the compostion of particles as it relates to mineral processing. This work could very well lead to improvements in metal recovery, new mining methods and effluent control.
2. Even with the rapid advance in the application of computers in mining, it is unlikely that fully automated underground production, exclusive of repairs and maintenance, would be possible within the next 10 or 20 years. There are two reasons, one being that computers and automation have been successfully applied in various specific acitvities. To date, neither the software nor the hardware are powerful enough to co-ordinate the multitude of discrete activities that make up the mining process. Second, even if a super computer system were available at a reasonable price, each mining area and every mine differ radically.
Examples of this variability are in ground conditions and mineralization, to name but two. Because of this uniqueness, one computer system would not be adaptable to all mining environments. Therefore, each system would have to be tailor-made, resulting in prohibitive costs.
3. There are two factors in the push for increased automation in Canada’s mining industry. The most apparent is cost reduction because of increased efficiency and enhanced productivity. Equally important is that automation often reduces the employee’s risk of injury. Hence the drive for safer operations fosters automation.
4. At Placer Dome, innovation is encouraged at all mines. If an idea has merit, the company provides the funding and manpower to test its application. In addition, Placer Dome actively supports outside research and development, either by the public or private sector.
The Quest for Discoveries
1. Canada has considerable potential for new discoveries of base metal as well as precious metal orebodies. In particular, prospective areas for massive sulphide polymetallic ores like those mined in the Abitibi belt have received only superficial exploration. The greenstone belts of the Northwest Territories are a good example of areas where further work will be done. As, and if, infrastructure improves in the north, increased detailed exploration could reveal a concentration of polymetallic deposits similar to that found in Archean greenstone belts throughout the rest of Canada.
Potential in British Columbia is also considerable, especially for porphyry deposits: copper, gold, silver and molybdenum. The question in this case is not whether the geological potential exsits but to what degree will it be permitted to be realized given the increased trend for regulatory restrictions. The search for, and development of, orebodies in that area is already hampered by the high cost inherent in difficult access and considerable environmental restrictions.
In portions of northern B.C., significant potential exists for stratiform deposits hosted in rocks of ages younger than the Archean, and other deposits similar to Eskay Creek may exist in northwestern B.C. Again, in that type of deposit the obstacle to discovery is not a geological one but centres on overcoming financial and regulatory obstacles. The potential is clearly only tapped superficially.
2. It is a truism in our industry that the junior mining companies are very much the foundation of the process of mineral wealth development. Even companies like Placer Dome, with a significant in-house, generative program, rely on junior mining companies as they identify mineral resources in the early stage of exploration. The current slump in which the junior mining industry finds itself will retard the future development of Canadian mining. With a reduction in grassroots exploration, there will be a corresponding near-term reduction in the development of new mines. However, as supply diminishes the price of the commodity will rise, which will encourage new exploration efforts. Thus, the potential reward will ultimately result in a renewal of exploration. Unfortunately, the market price to the consumer may be unnecessarily high because of the supply shortages resulting from a short-term lack of exploration
3. As alluded to previously, Canada has great mineral potential. A failure to realize this potential will be caused by punitive regulatory and legislative regimes. Mining is one of the riskiest and most capital-intensive industries and, therefore, there must be the political will to sustain this industry. Canadians may decide the mining industry is no longer welcome in Canada or beneficial to the country. Then, the Canadian mining industry will redirect its efforts where the geological potential is favorable and the political climate encourages its presence.
Mining and Environment
1&2. Canadians are very sensitive to the natural environment. This is not surprising given the pristine beauty of this country. We have an obligation to protect this environment. Unfortunately, in today’s political arena, the decision-making forums tend to react to emotion rather than scientific facts. In many instances, environmentalists have been successful in convincing the public that the mining industry is plundering and ransacking the Earth’s resources, then sneaking away at night, leaving the area barren and devastated. Nothing could be further from the truth. All waste generated by our operations are both treated and accounted for. The impurity levels in our effluent are now measured precisely, in parts per trillion. Twenty years ago, the detection limits were in parts per million. Our ability to measure trace substances has increased by a factor of one million. With these scientific advances, our mandated discharge limits are often lower than nature’s own discharges.
It is imperative for business and government to sit down together and address the environmental issue in a rational and scientific manner. The future of our industry cannot be mandated by the emotion of misrepresentations proposed by special interest groups that take extreme positions on environmental issues.
The mining industry, like most other industries, has developed an environmental code of conduct. Placer Dome itself has its own environmental policy, which incorporates rigorous monitoring, corrective actions and preventive systems.
Each and evey mine and employee must adhere to this policy. We also ensure that the environmental disturbances we create are minimized during operations and that approved reclamation practices are undertaken when mining ceases.
3&4. If there can be any criticism of mining concerning environmental matters, it is that we have not explained to the public exactly what we do. The mining industry is spending many milions of dollars on research, new equipment and innovative technologies to make mining less disruptive to the environm
ent.
Additional millions are spent on reclamation after operations cease, to ensure that the area affected is at least as useful as it originally was.
To ensure environmental costs do not force the industry to leave Canada, two changes are necessary. First, the present approval system must be accelerated with a clearly defined set of expectations and rules put in place. At present, these requirements are unclear and, therefore, meeting them is impossible. To establish an equitable set of developmental guidelines, government, business, the public and special interest groups must first agree on a basic framework.
I believe that the principles articulated in the Brundtland Report of 1987 (which introduced the concept of “sustainable economic development”) could provide that framework. In addition, the approval process must be based strictly on fact, not emotion.
Economic Downturns
1. Growth rates of world economies are still declining. However, there are substantial differences in economic activity among nations. North America, Australia and parts of Europe are already in mild recessions. The economies of some other countries, like Germany and Japan, may experience declines in industrial production into 1991, with mild recessions being a distinct possibility. A recession like that experienced in the early 1980s has a low probability of occurring. Industry today is less vulnerable to oil shocks than it was in 1979. Production processes have been modernized, balance sheets are stronger and inventories are lower.
Second, the world today is not as dependent on a few economies as it was 10 or 15 years ago. Substantial econoimc activity will be forthcoming from the newly industrialized and lesser-developed countries. Also, capital investment in Europe will continue as industry prepares for 1992 and as Eastern Europe reconstructs its industrial base. Overall, we feel that the next decade will provide a continuation in the expansion in the demand for most metals.
2. There are some major risks that could quickly change our expectations for the future. Political insurrection can be a problem, especially in the Middle East and parts of Eastern Europe or China. Second, we are currently benefiting from a reduction in trade barriers and expanding world trade. Trade wars and the closing of borders would prolong an economic downturn.
Finally, there is a risk of a financial crisis. Excessive lending in the past is now beginning to haunt us and financial liquidity is being reduced. A concerted effort by the G-7 group of industrialized countries will be required to minimize the effects of past financial excesses.
Political Stability
1. The failure of the Meech Lake Accord was a significant event in the evolution of the political system in Canada, not because of the defeat of particular constitutional proposals but because it demonstrated a decline in our ability to govern ourselves. Also, it heightened regional divisiveness. Canada is endowed with a talented, energetic workforce and an abundance of natural resources. The main factors that could prevent it from realizing the full potential of these resources are political or economic mismanagement at either the federal or provincial levels. Overall, the scope of government involvement in the economy — be it monetary or fiscal policies, taxation or legislative changes or ownership of business enterprises — has created additional uncertainty. This uncertainty manifests itself in the form of the ever-changing regulations under which we operate, high and volatile interest rates, extremely volatile exchange rates, variable tax regimes and numerous stages of approval for new projects. The cumulative effects of these uncertainties is that planning is much more difficult and the risk and costs of future investments are increased.
2. Our major concerns vis-a-vis governmental involvement include its level of debt, a lack of trust and confidence in elected officials, native land claims and access to land, and the extreme position taken by certain environmental and naturalist groups. The latter issue has previously been addressed; therefore, further comments on it will be minimal.
The federal government and the majority of provincial governments have been on spending binges for well over 15 years. During the past six years in particular, while the economy experienced excellent growth, most governments added monumentally to their deficits instead of running surpluses and reducing their debt so that funds would be available during recessionary periods.
What most Canadians would like to see are elected officials in whom they can trust and in whom they have confidence to govern within the means of the economy. Unfortunately, the typical voter has lost confidence in elected officials and in their ability to manage the business of government. Government is no different than business or the family. It must learn to operate within the structure and financial constraints of today. Programs provided today must be financed with revenues collected today; the future cannot be mortgaged. The result of massive government debt is the strangulation of economic growth by excessive interest rates, increased taxation and excessive regulation.
The issue of native land claims and access to land is becoming more and more significant. Environmental and naturalist groups are pressing the legislators to place increasing amounts of land into protective reserves. Unfortunately, the occurrences of economic orebodies are rare and obviously nonmoveable. Failure to develop the resources we have only reduces economic growth in Canada. In addition, there have been instances of exploration activities being permitted in an area, only to have these permits removed at a later date because of lobbying by naturalist groups.
Meanwhile, millions of exploration dollars were wasted in this country. Similarly, the right to gain access to land and the potential compensation to our first citizens is a major uncertainty facing mining. This, in turn, depresses investment. Government has the opportunity to reach settlements with our first citizens, which is both equitable and provides them with an avenue to participate in the economic growth of this country. A speedy resolution to land claims and land use issues is imperative for business and it should be a priority for government.
In conclusion, we have numerous concerns about the action of government today. The most significant ones boil down to a lack of leadership and an inability to manage the business of government within the means of the economy. For business to continue to create employment, profits, growth, and tax revenue, the rules under which we operate must be rational, fair and stable. In Canada, it is not apparent that these conditions exist. Therefore, geographic diversification becomes as important for a mining company in today’s business climate as industry diversification is for an investor in the stock market.
ROBERT SMITH
President, American Barrick
Technological Innovation
1. I believe the mining industry is still in the formative years regarding the application of computer-activated and computer-controlled innovation. Not only will these applications help reduce costs; more important, they will improve safety. However, there remains a great deal of scope for further automation and we still have much to learn on the sensing, interpretation and recording of variables before we become truly automated. More complete development of automation will take at least two decades.
2. Fully automated underground production could be possible. However, one questions whether it would be economically feasible in this decade. More work is required in the sensing and measurement of variables that control and improve the efficiency of automation.
3. Automation is driven by, first and foremost, the safety of our employees and, second, the need to reduce production costs.
4. To ensure we are on top of technological developments, American Barrick monitors developments in the global industry and keeps abreast of research applications by industry,
government and other mining companies.
At American Barrick, innovation is the responsibility of each divisional vice-president. Metallurgical developments come under the vice-president of metallurgy, while the vice-president of operations would be responsible for those innovations in the field. We would first apply a new technique or an automated application at one mine, where we believe the benefits would be greatest. If it works there, then it would be utilized in all our mines, provided the economics were justified.
The Quest for Discoveries
1. Canada still has numerous large, undiscovered orebodies. They will be tougher and more expensive to find and will require new techniques and the application of improved detection systems.
2. Historically, the vast majority of new finds have flowed initially from the individual prospector to the small exploration companies as costs increased and the system matured. In the current environment, the large companies will be forced back toward grassroots exploration and longer-term commitments if they are to be successful.
3. Canada has been, and is, richly endowed with natural resources, which has been a major factor in its ability to attain the standard of living enjoyed in this country today. I would concur that the mining industry is in a mature stage. The basis of the industry is depletion. However, the industry can, and I believe will, remain in a mature stage for some decades, provided we are successful in discovering additional orebodies to replace those depleted. This requires not only a healthy industry, but, perhaps more important, a system that encourages and rewards companies and individuals who are prepared to accept the risks of exploration. Unfortunately, the Canadian system at the moment does not recognize this latter fact and, I believe, must change if it is to remain competitive and in a mature stage. Competition is global, but Canadian mining is not playing on a level field today.
Mining and Environment
1. We are all aware of the potential adverse effects on the environment if we do not apply sufficient safety factors, procedures and new technology to minimize pollution and subsequent damage to our universe. As individuals and corporations, we have a social responsibility to minimize or eliminate these potential effects.
2. I believe that if the industry works with both federal and provincial officials, using an intelligent approach to controlling and resolving any environmental issues, we can maintain a competitive position. If governments move too far too fast, obviously the industry will suffer. However, I believe all Canadian mining companies are prepared to do whatever is humanly and financially possible to protect the environment.
3. Obviously, a response by the Ontario Mining Association or the Mining Association of Canada pledging a fund to clean up the spill would have great public appeal. However, neither association has the recourse to funds to cover such costs nor the commitment from indivudal companies that they would contribute to such a fund. I believe we, as individuals or corporations, are solely responsible for our own mistakes or misuses and the responsibility for corrective action remains with the one causing the problem. The problem of abandoned workings, tailings ponds or acid waste drainage, ownership of which has reverted back to the government, is much more complex. More remains to be done by both government and corporations to establish a fund to deal with these situations.
4. Historically, the industry did not have a good environmental record, which was consistent with the general opinion of the day on the environment. But this has changed — the industry is working very hard to improve its environmental performance and to achieve significant results. This is gradually being recognized publicly.
Economic Downturns
1. To my mind, the downturn in the Canadian economy is alarming. The country is fragmented from the backlash of Meech Lake. We have one of the best systems of social programs in the world; however, the country cannot afford it. We are losing our ability to compete as manufacturers on a global basis. Interest rates are too high. The Middle East crisis is unsettling, inflation has become a fact of life and Canada’s leaders are not effective. Metal prices are headed lower. While I do not believe the downturn will be short-lived, the majority of mining companies are in better financial shape than in 1982-83. The industry will survive — and I hope it will be a trimmer, more competitive industry.
2. As we at American Barrick complete a major expansion and construction program, operating costs will continue to decline and profit margins increase.
The company has combined its strong growth in operations with a conservative approach to financing. Through an effective hedging program, Barrick has been able to protect itself from declining gold prices by locking in a minimum average price and, at the same time, we have ensured that the company will benefit if gold prices rise. We are well-positioned to handle any downturn in prices.
Political Stability
1. The company’s reserves and assets are situated in Canada and the U.S. The company has fixed assets of more than C$700 million and total reserves of more than 20 million ounces of gold. Precisely 36% of the assets are in Canada, while the majority, or 64%, are situated in the U.S. This is obviously a comforting factor today, especially when one considers the much more favorable tax situation in the U.S. Under current conditions, increased exploration expenditures are allocated to areas where returns are potentially greater. However, we are exploring, and will continue to explore and develop, Canadian assets.
2. It is important for governments to be in tune with the country’s needs and the wishes of its people and, at the same time, encourage and foster effective working conditions and business growth.
3. Being in the gold business, the effect of the free trade agreement between Canada and the U.S. has been minimal. Perhaps it is easier to move back and forth across the border, and there is greater acceptance as a U.S. operator. We hope there will be a move toward a more common yardstick with regard to wages, production, work ethics, improved taxation, and so on. Overall, I believe the industry in the longer term will benefit from freer trade.
PETER STEEN
President and C.E.O. of Corona Corp.
Technological Innovation
1. I do not believe that future innovations will offer fewer relative returns or, as you suggest, eventually none at all. I am a great believer in people’s ingenuity, both as individuals and as team members, and if this is fostered and encouraged, which I try to ensure, there is virtually no end to the improvements that can be made. I think this applies to every business enterpise, not simply to mining.
2. The only way I see fully automated underground production becoming a possibility is if bacteriological leaching is developed to the point where it becomes practically and economically feasible.
3. Rising costs drive the need to automate.
4. We are as yet too young a company to have our own R&D. We tend to farm this work out to laboratories or engineering firms that operate under our direction.
The Quest for Discoveries
1. I am sure Canada still has undiscovered base metal orebodies. The problem has less to do with finding them than with operating them profitably, given the fluctuations in base metals’ pricing. However, technology for looking deeper into the earth has to be improved.
2. The loss of flow-through shares has definitely discouraged some major exploration and, in my view, the federal government should be questioning the wisdom of disallowing flow-through incentives and should be far-sighted enough to realize that the loss of revenue to them can be more than offset by the potential revenue from new operations arising out of exploration and development of new orebodies.
3. I have always been suspicious of anything other than a market economy and, given innovations in manufacturing industries
which historically occurred in response to changing markets, I feel that new markets will form for both base and precious metals. It’s up to the mining industry to be flexible (as it has been in the past) and respond to these changes. No industry remains static. There are always innovators. This situation will continue, whether governments try to help or hinder advances.
Mining and Environment
1. Yes, there is a danger that Canada’s competitive position in mining will be eroded by domestic environmental regulations. If mining costs become prohibitive because of certain aspects of legislation, the industry will begin to look at other countries and areas of the world. However, Canada has the huge advantage (which it shares with the U.S.) of affording stability. There haven’t been many instances of governmental coups d’etat or sudden, unexpected nationalization in North America, and that record of stable government will continue to attract investment in Canada’s mining industry. I think it is imperative also that industry become involved in the establishment of criteria used for regulatory purposes.
2. The mining industry in Canada is committed to environmental awareness and I am hopeful that, through the Mining Association of Canada, all member companies can share expertise in this area. This will preclude us from having to “re-invent the wheel” and should result in some major cost savings. We have to make sure that common sense prevails.
3. I think mining companies operating in Canada today are behaving responsibly for the most part. However, I think we have some work to do to get this message across to the public. Again, we can achieve this through the MAC and through public education programs.
Economic Downturns
1. I try not to be alarmed by recessions. These are often the times when we can retrench both as companies and as individuals and, by necessity, achieve some serious cost benefits. As well, hard economic times can sometimes mean an improvement in the gold price. Companies should be looking for opportunities to regroup all the time a recession forces this type of soul-searching.
2. We are fortunate that at Corona we enjoy a very low cost of production. Therefore, the lower metal prices have less impact on us than on other companies. However, we are constantly searching for ways and means of reducing costs.
Political Stability
1. As I mentioned earlier, Canada still has stability when compared with many other areas of the world where mining is carried on. Maybe there is a desire on the part of the voting public to experiment with a federal New Democratic government, although this has been done at the provincial level without much success.
Maybe we have to go through this ordeal of having socialist government in power in Ottawa, in spite of the fact that the rest of the world is turning away from socialism and toward a freer economy.
Perhaps it is a reflection of the electorate’s wish to send a message to a federal government which seems increasingly reluctant to listen to the people.
Fortunately, under a democratic system of government, we do not have to suffer the same politicians for more than four consecutive years or so and can expect more co-operation shortly before each election. Instead of expecting co-operation, the business sector often regards government as a bit of a loose cannon, to be treated warily in the planning process. I am disappointed that government cannot be relied on to do what is good for the country, rather than attempt to please everyone simply to ensure that they are re-elected.
2. In light of the lack of strong government in the areas where government should govern, and over-involvement in areas that government should not become involved in, I am concerned that we are doing serious damage to a country that has the resources, both natural and in its people, to have a viable economy and a high standard of living.
THE QUESTIONNAIRE
The Northern Miner Magazine posed the following questions regarding the current and future state of Canadian mining…
On Technological Innovations:
The technological innovations of the past few years have reduced production costs substantially. Logic suggests that, at some point, such innovations will offer fewer relative returns and eventually none at all.
1. Is mining reaching that point or is it yet a long way off, say 10, 20 or 30 years?
2. Do you believe fully automated underground production (exclusive of underground maintenance and repair requirements) is possible within this decade? What key innovations are required before the goal is attainable?
3. What is it that drives this push to automation?
4. Within your company, how is innovation fostered? How does technological change occur? For example, has your company an established research and development component or designated “research” mine?
On the Quest for Discoveries:
1. Do you hold out much hope that Canada still has undiscovered base metal orebodies the size of Kidd Creek or Brunswick?
2. The loss of flow-through shares and the recent dismal performance of equity markets does not bode well for the short term, at least for junior mining companies. How will this affect Canada’s ability to find new ore deposits?
3. It has been suggested that the cycle of the Canadian mining industry, in historic terms, has passed its peak and is now in a mature (but decidedly not geriatric) stage. How closely do your own views of Canadian mining align with that latter statement?
On Environmental Protection:
1. Is there a danger that Canada’s competitive position in mining will be eroded by domestic environmental regulations?
2. What steps can the mining industry as a whole take to prevent an escalation of exploration, development and operating costs resulting from environmental controls?
3. The tailings pond spill into the Montreal River in northeastern Ontario (near Matachewan) in October garnered public attention. For the sake of argument, consider that a pro-active stance by the Ontario Mining Association or the Mining Association of Canada might have been to pledge to fund a clean-up or containment program. Would this have been a reasonable or unreasonable response by the OMA or MAC?
4. The mining industry has a poor public reputation vis-a-vis environmental matters. Historically and in the present context, is this reputation deserved?
On Economic Downturns:
1. By most accounts, the current downturn is supposed to be mild and short. Do prognostications by your own company support that view?
2. The 1982-83 recession sparked tremendous change within the Canadian mining industry. Invariably, as an economic boom lengthens, output is emphasized at the expense of productivity. How has your company balanced output with rising unit costs?
On Political Stability:
1. With the collapse of Meech Lake and an increasingly sour mood among voters, Canada appears more politically unstable than at any other period in recent history. As a corporate entity, how do you cope with this increasing level of political uncertainty?
2. Beyond the political impasse that this nation has arrived at, what are your company’s major concerns vis-a-vis governmental matters?
3. What effect has the free trade agreement between Canada and the U.S. had on your business?
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