Re­source in­dus­try mines re­serves of pa­tience as it pur­sues re­cov­ery:

Ire­land’s min­ing in­dus­try re­mains op­ti­mistic de­spite in­vestors con­tin­u­ing to nurse losses

The Irish Times - Business - - NEWS - Peter Hamil­ton

At 8am every day, a fleet of Toy­ota Land Cruiser SUVs pow­ers up in Knock­um­ber, Co Meath, to bring work­ers down Europe’s largest zinc mine. Nav­i­gat­ing the Tara Mines tun­nels would be a chal­lenge to the av­er­age punter but sea­soned pro­fes­sional Ea­monn Grif­fin knows the twists and turns like the back of his hand. “I know my way around here bet­ter than I know my way around Dublin,” he says as he drives down a gravel path that the work­ers have chris­tened the beach road.

The un­der­ground road net­work at Tara is con­gested when you’re driv­ing through at times the reg­u­lar com­muter would con­sider to be rush hour. A road­works crew drives around con­stantly re­pair­ing the sur­face while trucks ca­pa­ble of tak­ing loads of up to 60 tonnes at a time trun­dle at a steady pace along the com­pli­cated net­work. These trucks are un­likely see the light of day again in their work­ing lives as Tara’s main­te­nance garages are lo­cated in the mine. Work­ers don’t have to poke their head above ground dur­ing the day or night shifts as their lunch is brought down to them by can­teen staff.

Owned by Swedish com­pany Boli­den, Tara Mines is a vi­brant op­er­a­tion with a loyal work­force, in some cases span­ning two gen­er­a­tions. It’s a well-oiled ma­chine which has helped sup­port the ex­is­tence of an en­tire town.

It boasts a work­force of about 600 peo­ple and mines roughly 2.6 mil­lion tonnes of ore every year. Tara is a so­phis­ti­cated ex­am­ple of what a suc­cess­ful min­ing op­er­a­tion can be.

But even Tara has had its is­sues. At the turn of the cen­tury, it was es­ti­mated that it would have to close by 2005. The com­pany be­hind the mine then ac­quired Bula Mines and made a dis­cov­ery to the south­west of the cur­rent site which al­lowed them to con­tinue their op­er­a­tion. Even now, Tara only has enough dis­cov­ered re­sources to op­er­ate un­til 2026.

How­ever, a new dis­cov­ery called Tara Deep means it could op­er­ate well be­yond that, ac­cord­ing to the site’s man­ag­ing di­rec­tor, Ja­son Morin. While the out­look for the Meath mine is pos­i­tive, there are chal­lenges, in­clud­ing high labour costs, ac­cord­ing to Mr Morin.

Lack of in­vest­ment

What­ever about Tara, which has a com­pany such as Boli­den be­hind it, the in­dus­try as a whole has suf­fered from a lack of in­vest­ment. Smaller com­pa­nies, or ju­niors as Mr Morin refers to them, have seen cap­i­tal pulling out of the Ir­ish mar­ket since 2008, ac­cord­ing to John Teel­ing, chair­man of a num­ber of ex­plo­ration com­pa­nies in­clud­ing Con­nemara Min­ing and Botswana Di­a­monds.

“When con­fi­dence and greed evap­o­rate, peo­ple stop giv­ing you money,” he said.

To the av­er­age ob­server, it would seem rea­son­able that con­fi­dence in the in­dus­try be­gan to fade. With the ex­cep­tion of the op­er­a­tions in Tara, there have been no sub­stan­tial finds in re­cent years.

The re­cent lack of suc­cess from both the Gov­ern­ment and in­vestors’ points of view con­trasts with the ac­tiv­ity in the sec­tor be­tween the 1970s and 2009. Ire­land has a rich his­tory of find­ing and ex­ploit­ing sig­nif­i­cant nat­u­ral re­sources, in­clud­ing mines at Gal­moy, in Co Kilkenny, and Lisheen, in Co Tip­per­ary.

Ire­land is well re­garded in min­ing cir­cles. Along with Québec, Ne­vada and Saskatchewan, it is con­sid­ered to be among the top 10 most at­trac­tive re­gions in which to do busi­ness. At­trac­tive from the point of view that the reg­u­la­tory en­vi­ron­ment is pos­i­tive for re­source ex­plo­ration, but at­trac­tive nonethe­less.

But, while Canada’s Fraser In­sti­tute deems Ire­land to be a good place to en­gage in min­ing and re­source ex­plo­ration, those who have sunk their money into the in­dus­try in the af­ter­math of the re­ces­sion have rea­son to be less than thrilled.

Some in the Ir­ish busi­ness talk of their mem­ber­ship of the “99 club”. These are the in­vestors in and own­ers of ex­plo­ration com­pa­nies whose share value has dropped by 99 per cent over the past num­ber of years. It isn’t a par­tic­u­larly at­trac­tive club to be in, but, such has been the lack of cap­i­tal avail­able to sup­port gold and zinc ex­plo­ration, many in­vestors can’t help but be in the “99 club”.

If in­vestors are strug­gling, so too is the State, at least in terms of the rel­a­tively small rev­enue stream it re­ceives from re­source ex­plo­ration. In 2016, to­tal re­ceipts re­lat­ing to min­ing and prospect­ing li­cences amounted to about €5.47 mil­lion. Some in the in­dus­try sug­gest that only 46 per cent, or about 700, of the State’s li­cences are cur­rently in use.

Ex­plo­ration – whether it is in oil, gas, zinc or even gold – gets a not in­signif­i­cant amount of cov­er­age in the Ir­ish press. The cov­er­age fol­lows a fa­mil­iar path. In­vestors are promised the sun, the moon and the stars – whether it’s oil off the south coast, gold in Wick­low or zinc in Done­gal. All too of­ten, com­pa­nies fail to de­liver, or at least de­liver quickly enough.

Re­source ex­plo­ration is a fa­mously slow process. In Tara, for ex­am­ple, ex­plo­ration started in 1962 but it wasn’t un­til 1977 that com­mer­cial pro­duc­tion got un­der way.

Prov­i­dence Re­sources, an Ir­ish ex­plo­ration heavy­weight, has been ex­cited about the prospect of oil at its Druid Drombeg op­er­a­tion off the south­west coast of Ire­land for years. The prospect was be­lieved to hold about four bil­lion bar­rels of the stuff.

Gold­man Sachs, in a sign of con­fi­dence, in­creased its share­hold­ing in the busi­ness while other in­vestors ploughed money into the stock. Then, in Au­gust, it all came crash­ing down when the com­pany an­nounced that the reser­voir they were so im­pressed by in the Druid prospect was noth­ing more than a reser­voir full of wa­ter.

This week, the deeper Drombeg prospect proved to be sim­i­larly dis­ap­point­ing. Ref­er­ence to the pres­ence of bi­tu­men in­di­cat­ing oil might have been present at one time will have been of no con­so­la­tion to in­vestors.

Such fail­ures are not un­com­mon in the in­dus­try, but it goes to show the dif­fi­cul­ties sur­round­ing re­source ex­plo­ration.

Tony O’Reilly jnr, chief ex­ec­u­tive of Prov­i­dence, out­lined just how dif­fi­cult the in­dus­try can be: “Our Gal­moy zinc mine, dis­cov­ered in the mid 1980s, didn’t come into pro­duc­tion un­til 1997. There’s a dis­cov­ery phase then a plan­ning process that can take years. When we started pro­duc­tion, zinc prices had been the low­est for decades.”

This, un­doubt­edly, is a ma­jor flaw of the in­dus­try. Be­ing be­holden to in­ter­na­tional com­mod­ity prices is prob­lem­atic, es­pe­cially con­sid­er­ing the ex­tent to which they can be af­fected by the likes of a giant such as Glen­core sim­ply re­duc­ing pro­duc­tion if and when it suits it.

But for some, min­ing and ex­plo­ration is a pur­suit of pas­sion. Of course fi­nan­cial gain is the end game, but there seems to be a co­hort of ex­plor­ers who find thrill in the chase.

Look at AIM-listed com­pany Con­roy Gold and Re­sources, for ex­am­ple. The com­pany, led by Prof Richard Con­roy, has been em­broiled in a board­room spat for the ma­jor­ity of the sum­mer. The saga, in brief, in­volves the group’s largest sin­gle share­holder, Pa­trick O’Sul­li­van, at­tempt­ing to re­move board mem­bers and in­stal new ones in an ef­fort to rein­vig­o­rate the com­pany.

Highrisk

O’Sul­li­van is get­ting tired of the com­pany’s lack of suc­cess, and per­haps rea­son­ably so. His ini­tial in­vest­ment in 2009 started him off on a path where he now owns 28 per cent of the gold ex­plo­ration com­pany. That has in­volved an in­vest­ment of about €1.8 mil­lion.

Even he ad­mits that it is a high-risk in­dus­try: “Peo­ple have, at times, made good money out of the min­ing and re­source in­dus­try in Ire­land,” he says. “But it is ex­tremely high risk and the chances of find­ing any­thing eco­nom­i­cally vi­able are 100 to one.”

John Teel­ing, a se­rial min­ing in­vestor, agrees with that es­ti­ma­tion: “If you win, you win big. But not many win big.”

So what is the at­trac­tion? Sure, there can be big re­turns, but in­vestors must be will­ing to take long po­si­tions. If Tara Mines took some 15 years to come into pro­duc­tion, there’s lit­tle hope for the smaller com­pa­nies with­out the fi­nan­cial clout of the likes of Boli­den.

“Peo­ple in­vest in nat­u­ral re­sources be­cause there is that po­ten­tial that, if mother na­ture is kind to you, you can find a sub­stan­tial re­source of sig­nif­i­cant value. But, it is the riskier end of the in­vest­ment hori­zon,” says O’Reilly, whose Prov­i­dence is now turn­ing its at­ten­tion to its most promis­ing re­main­ing prospect, Bar­ry­roe.

The bleak cloud ap­pears, how­ever, to be start­ing to lift. Cana­dian com­pany Dal­ra­dian is ad­vanc­ing ex­plo­ration on its gold de­posit in North­ern Ire­land.

Han­nan Me­tals, which has prospect­ing li­cences in Co Clare, is plan­ning seis­mic ex­plo­ration. And Con­nemara Min­ing chief ex­ec­u­tive Pa­trick Cullen is pos­i­tive on his com­pany’s prospects. “We’ve got good ground,” he said while sug­gest­ing that his com­pany’s shares are un­der­val­ued.

De­spite the on­go­ing board­room bat­tle he’s in­volved in and the lack of suc­cess to date, Con­roy be­lieves his com­pany could be ex­plor­ing one of the big­gest gold trends in the world.

It could be the na­ture of the beast that all of these com­pa­nies are out­wardly gleam­ing with pos­i­tiv­ity. If you can’t sell the idea of gold or zinc or lead, then you may not be suited to min­ing ex­plo­ration. Or, it could be the case that there is, in fact, gold in them thar hills.

But, in­vestors will need to be pa­tient if they are ever to see it.

For some, min­ing and ex­plo­ration is a pur­suit of pas­sion. Of course fi­nan­cial gain is the end game, but there seems to be a co­hort of ex­plor­ers who find thrill in the chase

Work­ers at Tara Mines in Knock­um­ber, Co Meath. Tara boasts a work­force of about 600 peo­ple and mines roughly 2.6 mil­lion tonnes of ore every year.

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