Mining industry must take global approach

The domestic mining industry must shelve its romantic notions about mining and continue to shed its parochial attachment to mine-finding in Canada to sustain itself as a global player into the next century, says mining consultant Brian Felske.

Speaking in Toronto at a Students’ Nite dinner, Felske told the students that “you have a terrifically interesting time in front of you. It might not be in Timmins but it’s out there (beyond Canada’s borders).” The dinner was sponsored by the Canadian Institute of Mining, Metallurgy and Petroleum, Toronto branch.

Such a prognosis springs from Felske’s view that “there is no such thing as a Canadian mining industry, only a global industry. Canadians have to go where the best advantage is, which usually means grade.” And he feels that Canada, in terms of copper, at least, has lost the grade advantage.

Felske, whose company has consulted for CODELCO of Chile on capital budgets and a re-design of its Chuquicamata smelter, and has advised institutional investors around the world, provided an analysis of the world copper industry. For the past few decades, there has been a downtrend in copper prices (in real, inflation-adjusted terms) and a drop in the intensity of use. The copper players that survived the 1982 recession have adjusted to that. But continued success in the modern copper mining industry hinges on grade, he said.

In a slide presentation it was noted that out of six major copper mines in the world, Canada’s Highland Valley Copper ranks as a top-tier contender. But, at 0.41%, it has the lowest grade of the six. The next lowest grade was Chuquicamata’s at 1.1%. The highest was Neves Corvo in Portugal with 9.0%. So far, Highland Valley has capitalized on economies of scale and reasonable treatment charges at Japan’s smelters to maintain profitability. However, Felske believes treatment charges will soon begin to rise at the Japanese smelters, because world smelting capacity is tight. This will put the squeeze on higher-cost producers such as HVC.

British mining giant RTZ, on the other hand, has focussed on higher-grade deposits. “RTZ wanted to be constantly profitable and in the bottom quartile of costs,” Felske said, the bottom quartile being US65 cents or less. The result? A company worth US$9.8 billion today versus US$300 million in 1965. It partially or wholly owns four of the world’s biggest low-cost copper mines. It achieved this metamorphosis despite a practically defunct British base metal mining industry.

In Felske’s view, the domestic base metal industry hasn’t been entirely blinkered by its Canadian geographical focus.

Companies such as Cominco (TSE) and Rio Algom (TSE), Inco (TSE) and Falconbridge, LAC Minerals (TSE) and TVX Gold (TSE) mine deposits elsewhere. Most of the other majors have developed some kind of exploration presence abroad.

But Felske argues that the Canadian sector, with its undoubted expertise in mine-finding and operations, must continue, if not bolster, that trend.