Resource industry mines reserves of patience as it pursues recovery

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 of the mine's tunnels 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.

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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.

Druid prospect

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.

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.”

Long positions

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.