Environment, consolidation top mining industry issues

Mining companies will be setting aside a much larger portion of their budgets to cover reclamation costs and environment-related matters, according to a survey by Toronto accounting firm Peat Marwick Thorne.

Future trends will include more consolidation in the industry, an increasing concern for employee health and safety and a bigger emphasis on financial instruments that reduce company exposure to volatile commodity prices.

These were among the findings of a survey of the accounting and reporting practices of 50 North American mining companies, according to disclosures in their 1990 annual reports.

The first of its kind to be conducted by Peat Marwick since 1985, it attempted to assist the accounting firm in finding common accounting and disclosure issues and how mining companies are dealing with them. Due to consolidation and integration, over 30% of companies surveyed have operations in both Canada and the U.S. Peat Marwick expects this trend to continue as a result of the multijurisdictional disclosure system introduced recently in both countries.

The mining industry is also facing more stringent environmental regulations because of growing worldwide awareness and concern over environmental matters, the survey indicates.

Some, including LAC Minerals (TSE), have even taken the initiative to have their annual reports printed on recycled paper. The cover of LAC’s 1990 annual report and text pages are recycled and made from a minimum of 5% post-consumer waste.

Having faced declining commodity prices in the past year, gold miners are moving to reduce their exposure to volatile prices by utilizing a variety of financial instruments including hedging their future production. American Barrick Resources (TSE), for instance, says it could be almost fully hedged until 1995 at a gold price of approximately US$440 per oz. As of Feb. 8, 1991, International Corona (TSE) had sold 259,709 oz. of its future output at an average of US$422 per oz. for delivery in 1991 and a further 36,000 oz. at US$409 for delivery in 1992.

Companies surveyed foresee a downturn in exploration activity in the immediate future. While most didn’t provide specific reasons, Cominco (TSE) attributed the decline in exploration spending to deteriorating metal prices and earnings.

Finally, as they pay more attention to employee health and safety, mining firms have set up committees to oversee these responsibilities. The committee at Hemlo Gold Mines’ (TSE) Golden Giant mine at Hemlo, Ont., visited other mines to review their safety programs.