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DOING SOME DIGGING – The lowdown on high prices

Continuing high commodity prices have the mineral industry's fan club roaring with anticipation of hitting the next...


Continuing high commodity prices have the mineral industry’s fan club roaring with anticipation of hitting the next mother lode. Raising billions of dollars for oil sands, gold, copper, nickel, zinc and uranium projects has never been easier.

Crude oil closed at US$72.40/bbl yesterday (April 18). That’s bad news for those of us who drive vehicles and heat our homes, but the oil patch couldn’t be happier. New projects abound in Alberta’s oil sands, where the political risks of investing are very low.

The price of gold on the New York spot market topped US$625/oz early this morning. Anyone who was thinking two weeks ago that the price would level off around US$600 has already been proven wrong. Pundits are now guessing that the price will go as high as US$850 before finding its “correct level”. With the promise of high prices, would-be gold miners are dusting off plans for past-producers and lower grade deposits as quickly as they can remember where they are.

The copper price, too, is experiencing a steady, upward rise going back four years. It was trading between US$2.70-3.01/lb at press time. Like gold bugs, copper hunters are re-examining deposits that were discovered years ago but only now (for as long as the price stays high) can be considered economic to develop.

Zinc was trading at about US$1.46/lb today, having more than doubled in the past six months. Unlike the situation for copper, few undeveloped zinc deposits are known. The very low price over many years made zinc exploration unappealing. There will be a several-year lag in getting new producers ready, and that should keep the zinc price riding high.

The price of nickel has nearly tripled in the past five years, from US$3.00/lb to US$8.23 today. Several new laterite developments are underway to take advantage of the strong demand.

Uranium, too, has been a stellar performer. The price of a pound of uranium oxide in April 2001 was US$8.60; on April 10, 2006, it was US$41.00. Uranium explorers can hardly drill fast enough to spend the money they are raising, and producing companies are going ahead with new mines in Saskatchewan.

While analysts continue to make rosy price forecasts and miners keep their fingers crossed, rising prices have almost become the norm. But they come at a cost for producers.

The mining fraternity is locked in a struggle to find qualified staff and labour. With as much as half their workforces due to retire in the next 10 years, companies are struggling to find geologists, engineers, drillers, miners, mineral processors and tradespeople.

The cost of supplies keeps rising, including fuel, equipment and consumables. The worldwide shortage of tires for haulage trucks is having an impact on mine design.

The bottom line is that producers are paying more to move a tonne of material and get the important ounces or pounds out of it. Ironically, in this time of high commodity prices, cost control is more important than ever. Should metal prices decline, only the lowest cost mines will be able survive.


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