A Melman Minute
By: Leonard Melman
It seems one of country music’s popular songs a few
years ago included a lyric which went something like this: “If it weren't for
bad luck, I’d have no luck at all.” Well, after studying some of the stories
relating to the mining industry which have hit the media in the past little
while, one couldn’t blame some of our mining executives if they felt those words
didn’t match the present mood.
For example, regulatory issues, particularly those
which relate to potential aboriginal interests regarding mining projects, have
been an important concern for the industry in recent years. One of the few
reliable resources in law for Canadian miners has been the Ontario Mining Act
of 1873 which presently allows the Ontario government to grant mining licenses
on land claimed by aboriginal tribes as their ‘traditional land’ without prior
consultation with those tribes. First Nations people have recently protested at
a northern Ontario property known “Big Trout Lake” and, in the course of that
protest, six members who had forcibly blocked access to a road were sentenced to
six months in prison.
The issue is now coming to a head as National First
Nations Chief Phil Fontaine has decided it is time to revise the act and held a
demonstration on the grounds of the Ontario Legislature in Toronto. The courts
allowed for the imprisoned aboriginals to be released for five days in order to
take part in the protest.
As far as mining is concerned, there are two
threats. First, Ontario’s Minister of Northern Development and Mines, Michael
Gravelle, is quoted by the Financial Post as stating, “…the government will go
through long consultations with all stakeholders to get it right.” That means
that a cloud of uncertainty will hang over new Ontario mining ventures for some
time until these hearings are completed. Second, there is the obvious fear that
if the present law is rewritten, it will impose new restrictions and complex
regulatory burdens on the industry.
Another problem which the industry must face is the
growing influence of the “Global Warming” advocates on policy-making in the
United States of America. This influence reached a new level of intrusion with
the introduction of legislation sponsored by Senators Joe Lieberman and John
Warner. Known by the names of its sponsors, “Warner-Lieberman” would, as a Wall
Street Journal editorial puts it, “…impose the most extensive government
reorganization of the American economy since the 1930s.”
The scope of the legislation is amazing, and should
be a matter of concern for the entire mining industry in particular, for what
happens in America quite frequently becomes a template for laws in other nations
as well. The general public should also be aware of the complexities and costs
involved if this is ever implemented into law.
Much of the legislation centers on CO2 - which until
1990 was regarded as a benign gas deserving little or no concern. However, with
the advent of the “Global Warming” frenzy, CO2 is now the celebrated cause of
the environmental community and Warner-Lieberman includes portions which deal
with remedies to reduce CO2 emissions. One of the most complex portions of the
proposed law addresses the creation of CO2 taxes and/or credits. In essence,
tax penalties will be assessed against corporations that fail to succeed in CO2
reductions while rewards, in the form of “credits” will be granted to those who
succeed.
As is often the case, “the devil is in the details”
and for sheer complexity, Warner-Lieberman is in a class by itself. So numerous
are the provisions of the law that a list of proposed amendments to
Warner-Lieberman offered by California Senator Barbara Boxer ran an
incredible 157 pages!
One sector of the mining industry may be getting a
bonus and that is the uranium industry as a provision of the proposed law calls
for an increase in the construction of nuclear power generation as a means of
replacing ‘dirty’ existing coal-fired plants.
This proposed law puts a premium for the industry on
the outcome of this fall’s Presidential/Congressional elections in the USA. As
long as President Bush occupies the White House and there is a close balance
between Democratic and Republican House and Senate numbers, the law would have a
difficult time passing. However, if the November elections place a Democrat
(either Obama or H. Clinton) in the Oval Office and hand over huge majorities to
the Democrats in both houses, then the background for passage of the new law
would change dramatically.
A third situation for the junior miners to contend
with is the growing difficulty of obtaining adequate financing of projects
without severe stock dilution. As the world’s credit crisis has deepened, many
previously open channels of financing for the industry have either been reduced
or shut down entirely. Also, the relatively poor performance of junior mining
shares as a group has greatly increased the risk of serious stock dilution for
equity fund-raising offerings. (For an explanation of ‘dilution’ please forward
your inquiry to
editor@themelmanreport.com)
One possible avenue of relief is the potential for
giant, cash-rich, mining majors to provide financing in order to obtain growing
proportionate ownership or control of potentially advantageous projects.
A recent theme of charts we have presented is that
despite the efforts of the political and financial wizardry of the best
governmental minds out there, the outlook for the financial world is still
perilous, and many important corporate shares have shown little tendency toward
strong recoveries as of this time period.
Another important case in point is General Motors.
Few corporations have enjoyed as storied a history nor have had the impact on
the world’s economy as has that giant American corporation. Therefore, it is
particularly regrettable to publish this chart which shows that GM has now
fallen to its lowest price in a quarter-century.
Precious metals markets are getting hit hard once
again this morning with (all prices US$) gold down to the lower $880s, silver
back under $17.00 and platinum below $2,000 per ounce. Base metals continue to
show relative weakness while the financial markets are unchanged (Dow
Industrials) to down modestly (TSX). The Canadian Dollar is showing good
strength and crude has fallen back under the $130 per barrel level.
◄ Previous Minute
Next Minute
►
