Mining and the N.Z. economy

Press, 11 August 1986, Page 20

Mining and the N.Z. economy

By

R. G. Adamson,

President of the New Zealand Mining

and Exploration; Association and Manager, Mineral Exploration, BP Natural Resource Development, N.Z., Ltd

The development of New Zealand’s mineral wealth could ease the country’s trade deficit, provide jobs, and give manufacturing the impetus td lead the economy on to a broader footing. At present the industry is tiny yet it has the- potential to match the country’s horticulture or lamb exports in overseas earnings. The country has- estimated reserves of six billion tonnes of coal and . 800 million tonnes of iron-sands, which provide the basis of a valuable export trade with Japan aiid raw materials for the domestic steel industry. Now there is optimism that the nation could again have a significant gold mining industry worth more than $lOO million a year in exports. If it is allowed to develop, it will afford industries from electronics to jewellery essential Inputs and give the country a home-grown hedge against currency fluctuations. The results of the last 10 years of mineral exploration are beginning to pay off with several good prospects likely to yield $5OO million worth of gold each. The Martha Hili mine at Waihi has been reassessed and could produce around $4O million worth of gold annually for 15 years. A gold mine this size would outproduce all of the 100 West Coast gold miners whose alluvial workings at present account for virtually all New Zealand’s production.

A smaller prospect on the Thames coast of Coromandel will probably yield about $5O million worth of gold. Not yet fully evaluated are gold deposits at Golden Cross and Union Hill in Coromandel, but they could well be as rich as Martha Hill.

Exploration in the South Island is also yielding promising results. At Macraes Flat , in Otago and at Sam’s Creek near Takaka prospecting and drilling has outlined gold deposits which could be mined in the 19905. Tungsten is an important constituent of the Macraes Flat deposits. This is a high technology metal which can command high prices. A remarkable feature of these major deposits is the low level of exploration funds they have absorbed. By world standards, finding gold in New Zealand is cheap. Total exploration expenditure during the 1980 s has been less than the world-wide average for making one economic mineral discovery. To find one ounce of gold in New Zealand has cost only SNZI3 in exploration, whereas in Australia the figure is sAust4o. These numbers suggest that gold prospecting and mining in New Zealand has been far less intensive than in other countries. For this reason, it is likely that increased investment in exploration would lead to the discovery of further economic deposits, assuring the mining industry a long-term viability. The result has been widespread interest. Mineral exploration expenditure has been around $2O million annually over

recent years with 200 people directly employed in the programmes and many jobs again generated in associated businesses from Northland to Southland. t Martha Hill has been the main focus of attention, accounting for half of the money and jobs, but the industry has a presence in many other areas, including the central' North Island, Northland, West Coast, Nortn-west Nelson and Central Otago. Unlike gas and oil, none of the finance, for metallics exploration comes from the taxpayer yet local economies benefit greatly from mining and prospecting companies using local goods, services and expertise. When a major mine starts production the national economy benefits from increased export receipts, import substitutions, and job creation. In addition there is increased spending on mineral exploration to maintain the results.

The implications of the rdsults of exploration and the discoveries to date is that any future mining in New Zealand will be comprised of a number of small-to-medium sized workings in scale with the country’s size and landscape. The entire Martha Hill proposal covers just 400 hectares which includes the mine, processing plant, all the waste disposal areas, and a buffer cordon. By South African and Australian standards this is a small mine. By comparison with the world’s biggest opencast mine, at Bingham, Utah, the example the antimining lobby often quote, it is minute.

Benefiting from our discoveries depends on more than just proving the existence of mineral deposits. New Zealand has one of the smallest modem mining industries of any developed country and a vociferous anti-mining lobby which points to an historical record more than a century old as grounds for blocking the rebirth of this industry. While it is true that nineteenth century dredging for gold on the West Coast and in Otago left tailing scars and increased river bank erosion, the miners’ attitudes were no different than those of the logging gangs and settlers who were opening up the rest of the country. No-one believes that farming and forestry have not changed yet it seems that only mining is to be judged by its past. The position adopted by the antimining lobby is even more extreme than this, in that it ignores the contribution the industry has made to the country’s development, disputes its role in a modern economy, and questions the desirability of mineral exploration. ... Mineral exploration makes a major contribution to the fund of general geological information, economic or otherwise. The reckoning is that if the rare successes are averaged across the mass of aborted results, the cost worldwide of finding an

economic mineral deposit is around SNZIOO million. That is an indication of how risky the business is and the scale of investment and time needed before there is any prospect of a return. Mineral exploration economics take account of the statistical fact that for every 1000 mineral occurrences investigated, Only one mine will be opened.

Mineral exploration and development tends therefore to be the domain of large mining companies with substantial reserves of risk capital. In today’s mining industry, rich, high-grade deposits are no longer common, thus recovering minute concentrations, just a few grammes of gold and silver per tonne of rock, is the norm. It requires considerable technical expertise to design and operate such mines and this too is the province of larger mining companies. The result is an industry structure very different from its nineteenth century equivalent. The degree of investment in expertise, technology, and development time has seen the growth of large companies which are more aware of the repercussions

of their actions on the national and international scene. The popular image of the merchant adventurer does not fit the reality of the modern mining industry, dominated as it is by progressive, professional geologists and mining engineers. Today it is more sensible to assess the implications of current mining proposals by looking at such things as the successes of land rehabilitation in the coal and iron-sands sectors rather than by harking back to the lack of controls which characterised pioneer times. Most people can relate to coalmining as an essential feature of their lifestyle in heating their homes and generating electric power. The relevance of steel making and iron-sands extraction to everyday life is almost as close to the consumer;, but the importance of mining many other metals is not so apparent in New Zealand because of the industry’s long term decline. It is necessary to look back to the second half of the last century to find domestic parallels

for the sort of input <mining has had in the development of most advanced economies. Between 1857 and 1906 gold worth more than $ll billion at today’s price of around $6OO an ounce was exported. It has been reckoned that, in Otago, investment in dredge building put the equivalent of $lOO million into the local economy — $lOOO per head of the region’s: population. For a period in the early 1870 s gold was the country’s most important export, accounting for three quarters of the foreign exchange earnings. This is a far cry from recent annual production levels of 672 kg worth $13.5 million. Gold is used in several industries and consumption in New Zealand - broadly follows the international pattern. More than 50 per cent of gold production is used in jewellery manufacture, which is a labour-intensive and growing sector of the economy. In 1985 more than 1200 people were employed in making precious metal jewellery and related articles and generating export sales of $4O million in the nine months to March 31, 1986. In the same period imports of jewellery were valued at $5 million. Hong Kong is a major customer and elevated gold jewellery to its number one import from New Zealand in 1984 when it took $22.3 million worth. With its excellent qualities of electrical conductivity and corrosion resistance, gold is in demand from the high technology industries such as electronics. New Zealand has a growing electronics industry and overseas demand for its industrial and telecommunications products is increasing. The metal’s reflective properties mean it is widely used for specialised glass and in industrial masks and aircraft cockpits for. example. About a quarter of all gold mined is hoarded by Governments, financial institutions, or individuals. Over the years, the relative value of gold has remained extremely stable and gold bars and coins are an internationally recognised safeguard against currency collapse. At present, the Reserve Bank holds $l7 million in gold reserves.

Such downstream national benefits of mining have to be added to the immediate local prosperity which a project like Martha Hill brings. The most obvious benefits of Martha Hill are the. prospect of an initial $BO million expenditure on mine development, including the creation of more than 400 jobs. Longer term, the mine will employ around 180 over its producing life with the salaries and wages for this workforce accounting for a large part of the forecast $l5 million a year of running costs. In addition to this, the mine indirectly will produce further wealth and jobs throughout the economy. The estimates vary but for every job directly created by a mine, two more come into being down the line and as many again draw some of their employment from it. In economic jargon, the multiplier effect of such value added in the domestic economy strongly counters the allegation

that a country which develops its mineral wealth is tying itself to a Third World commodity base. Gold is not the only mineral figuring in a potential resurgence of the country’s mining industry. Development of indigenous sulphur and phosphate resources could totally offset New Zealand’s imports of fertiliser minerals which cost $2OO million a year. The manufacture of titanium dioxide pigment from West Coast ilmenite sands is also a possibility for the 19905. The pigment, widely used in industries from paint and paper to ceramics, is in world-wide demand.

Mining in New Zealand is making a tentative resurgence but could be stopped in its tracks if the industry is robbed of business confidence. The tax regime mining operates under is designed to offset the high investment risk the industry faces, especially during exploration. The concessions encourage overseas as well as domestic investors both of which are essential if a modern mining industry is to develop in New Zealand. A significant problem is the bureaucratic and time-consuming licensing process that all mining projects must face. It is now 10 years since the first prospecting licence over Martha Hill was applied for. In spite of the expenditure of much time and money, there is unlikely to be a final decision on whether or not the project can go ahead before the end of this year.

The sheer weight of regulations, the heavy hand of local bodies and Government departments, and the passion for total risk elimination which extends through our society, may be enough by itself to tip the scales against continued development of mining. Should this happen the cost to the country would be enormous, akin to wiping out its fresh kiwifruit exports or all exports to Canada — our eighth largest market.