The Nation s Business

Peter C. Newman

Desperately seeking new Voisey's Bays

May 6 1996
The Nation s Business

Peter C. Newman

Desperately seeking new Voisey's Bays

May 6 1996

Peter C. Newman

The Nation s Business

Desperately seeking new Voisey's Bays

Not since the Spanish adventurer Francisco Pizarro and the conquistadors who followed plundered South America for gold has there been a rush like this one. Mining companies, mostly from Canada, are racing to claim the continent's underground treasures and their success is changing the face of the Canadian mining industry.

Last week at Bal Harbour, Fla., a convention with the bland title “Investing in the Americas 1996” turned into a feeding frenzy, as brokers and mine operators chased one another down in hotel corridors, making deals. No one can guess how much money changed hands, but future prospects seem unlimited. According to one estimate, some $24 billion will be invested in developing mineral deposits in the two dozen countries of Latin America during the next four years.

About half the $2.7 billion spent in the past five years has come from Canadian sources.

In 1995, according to the Halifax-based Metals Economics Group, Canada’s mining industry spent 42 per cent of its exploration budgets in these countries, and this year the total will run higher.

Pioneered by Yorkton Securities of Vancouver, which established an office in Santiago, Chile, in 1990, the financing of South American exploration has developed into a play as dramatic as the Klondike gold rush.

The Florida meeting gave politicians and senior bureaucrats from Chile, Argentina, Peru and Ecuador, among other nations, a chance to stress that they’re open for business. Most local mining laws have been liberalized, allowing foreign capital to flow in and out unimpeded, giving the industry special tax concessions and removing previous domestic uncertainties from environmental regulations.

The continent’s gold production in 1995 was 21-per-cent higher than the previous year and is expected to nearly double in 1996. One of the important factors behind the current emphasis on Latin America is that before the government regulatory reforms took place, few exploration dollars were being spent there. The main exception to the boom is Venezuela, which continues to suffer from out-of-control inflation, a Single B (below the normal investment grade) international credit rating and, until recently, the imposition of strict exchange controls.

Chile leads the way. Already the world’s largest source of copper, it will soon be numbered among the top 10 gold producers. Exploration by outsiders came to an abrupt halt in the early 1970s, when the Chilean congress voted to nationalize all mines. In 1990, the same body reversed itself and guaranteed non-discriminatory treatment to foreign investors and minimum interference by government agencies. Profits can now be freely repatriated and taxes on reinvested foreign money is a low 15 per cent. The country’s economic progress has been so dramatic that Chile has been invited to negotiate, not only NAFTA membership, but also associate

The financing of South American exploration has developed into a play as dramatic as the Klondike gold rush

status with the European Union as well. The most dramatic show of confidence in Latin America has been the allocation of half of this year’s hefty $ 140-million exploration budget by Toronto’s Barrick Gold Corp. to South America, especially to Chile where the company has three mines under production or development.

The stampede to spend and dig in Latin America dominated the Florida conference. But since the event was billed “Investing in the Americas,” Anne McLellan, the spunky federal minister of natural resources, didn’t see any reason why she shouldn’t establish a booth for Team Canada. “If you were a Canadian mining company,” she told me, “the investing in the Americas conference was largely about taking your money and putting it south of the Rio Grande. But we decided that we should come here and talk not only about Canada as a storehouse of vast mineral resources, but that this country currently has a government pledged to working with the mining sector to try and preserve what we recognize as an unfortunate movement of investment dollars out of our country into other parts of the world.”

Most provinces sent representatives to Bal Harbor, and the Canadian reception was the best-attended of the conference. In her pitch, the minister stressed some of Ottawa’s promining measures, such as accelerated capital-cost allowances, and programs to assist productivity and environmental modernization. Most importantly, she paraded the gigantic Voisey’s Bay nickel strike in Labrador as an example of the rich potential that still lurks under Canada’s wilderness.

“We take it for granted,” she said, “but we have something most countries don’t enjoy and that’s political stability. Thanks to Paul Martin, we now have economic credibility as well. In moving from Third World to developing and developed nation, other countries will have to deal with similar environmental regulations and aboriginal claims as we do.”

It’s a good point. McLellan won a pot of converts—even if the bulk of future funds will continue to flow south of the Rio Grande. “People keep coming up to me at this conference and they keep asking me: ‘Doesn’t it bother you that Canadian mining companies spend so much money offshore?’ And I say, ‘No, because we’re just exporting our domestic success and are helping other countries develop their mining industries in a way that’s clean and sustainable.’ ”

The minister’s enthusiasm was reflected in her upbeat reception. Since all of the other parties featured indigenous dishes, I wondered what Canadian delicacies would be available. Instead of Arctic char or maple-syrup pancakes, the grub turned out to be tortillas and beans, chicken fajitas and similar Mexican goodies. “What,” I asked the man from McLellan’s department who co-ordinated the Team Canada events, “is the rationale for serving Mexican food at a Canadian shindig at an American conference?” “Simple,” he said, “it’s cheap.” Team Canada carries on.