Mining's future looks bright

Quebec's mining industry may well be on the cusp of historic long-term expansion, despite fears that surging commodity markets may stumble with a slowdown in China's growth, the Japanese nuclear crisis, North African and Mid-East turmoil and Europe's debt.

Bank of Canada governor Mark Carney thinks the global commodity boom will continue for many years, though with plenty of volatility on the way, based on economic expansion in the Asia-Pacific region and in Latin America.

And Rio Tinto Group CEO Tom Albanese, leader of one of the world's top three mining firms and frequent visitor to China, outlines the main driving force for higher base metals and iron ore prices:

About 2.5 billion Asians are yearning after more cars, refrigerators, roads, bridges and infrastructure, communications, aircraft and homes, absorbing lots more steel, copper, zinc and many other metals.

India and other populous Asian countries are urbanizing on the Chinese model and adding to the pressure.

Gold, silver, iron ore and copper have been star performers in Quebec this year and will remain in the forefront through 2011, industry players say. High prices will bring out more production from existing mines, hasten exploration programs and lead to construction of new mines.

The industry employs 52,000 directly and produces minerals and metals worth around $7 billion a year. This year exploration companies will spend about $600 million looking for precious metals, diamonds, base metals, uranium, rare earths, tungsten and vanadium, up from $567 million in 2010 when the industry was roaring back from the 2009 recession.

The Chinese moved into Quebec's nickel-mining sector first and then more extensively into iron ore - to be followed by India's Tata Steel - spurred by the lack of domestic resources.

Gold is hovering around $1,500 U.S. an ounce, silver around $45 U.S. and iron ore at $188 to $200 U.S. a tonne might go higher yet. Copper has touched a record $4.50 U.S. a pound and demand from China is boundless. Nickel has rallied to $12 U.S. a pound - it hit $42 U.S. in 2007 before bottoming out at $4.85 U.S. in 2009.

Sean Boyd, CEO of Agnico-Eagle Mines Ltd., says gold could finish 2010 at $2,000 U.S., and Sean Roosen, CEO of Osisko Mining Corp., is more cautious, predicting $1,500 U.S. Osisko is rumoured to be a takeover target as the biggest producers scramble to replace reserves.

The Abitibi, Rouyn-Noranda and James Bay areas are humming with exploration for precious and base metals, and some exotics such as rare earth metals; Quebec-Labrador is seeing record levels of exploration and of new mine development. Iron-ore prices are backed by the Asian steelmakers' hunger for stable, top quality, lowcost sources of supply.

"Quebec is still a very attractive place for mineral exploration and mine-building, with its flow-through financing and other tax benefits, despite rising labour, drilling, equipment and materials costs," said Simon Marcotte, vice-president, corporate development at Toronto-based merchant bankers Forbes & Manhattan, an original backer of Consolidated Thompson Iron Mines Ltd., sold to Cliffs Natural Resources Inc. this year for $4.9 billion U.S.

"We're backing gold and virtually all base metals through this inflation cycle, and we're investing in new gold projects in Canada and outside. Mining is not just minerals in the ground, and we look for highly skilled and experienced management."

Is it a metals supercycle? No, says Rio Tinto's Albanese, since mining and metals were always volatile with short-term swings in demand and supply.

"Don't believe the supercycle hype ... we don't need that kind of growth," says David Garofalo, former CFO of Agnico-Eagle and now CEO of HudBay Minerals Inc. "We want steady growth for an industry that's vital for modern societies and can be environmentally responsible."

"When central banks find religion on inflation again, the cycle will probably be over . your mining business had better be sustainable," he adds.

"We see a strong metals market outlook through 2011-2012, and we recommend investors to consider the Quebec mining sector seriously," says John Redstone, veteran analyst at Desjardins Securities Inc. "This cycle offers many opportunities for those ready to ferret out the winners."

Quebec was the world's fourth most attractive location for investment in the latest Fraser Institute poll of international exploration companies, down from first place over the previous three years.

Some big projects:

--Diamonds: Quebec hopes to see its first diamond mine start up in 2014-2015. Stornoway Diamond Corp.'s $500-million Renard project is located in the Otish Mountains, north-central Quebec. Engineers SNC-Lavalin Group Inc. and AMEC Americas Ltd. are working on the full feasibility study. Diamond exploration continues elsewhere in the province.

--Iron ore: Newcomer Alderon Resources Inc. plans to develop large reserves near Fermont, Que., and Thompson's mine and concentrator. Alderon could use Thompson's rail spur to Labrador City and the existing railway south to Sept Îles.

--Uranium: The Japanese nuclear crisis clipped last year's upturn in world uranium oxide prices by $20 U.S., to $40 U.S. a pound, a setback for Strateco Resources Inc.'s Matoush high-grade property in north-central Quebec. CEO Guy Hebert is confident of regulatory clearance to drill deeper. He has the general support of the Crees - except in Mistassini.

--Rare earths: Chinese ex-port cutbacks in these special metals used widely in electronics and high-tech industry have spurred an exploration wave right across Quebec. But they are difficult and expensive to separate from other minerals. Quest Rare Minerals Ltd., headed by experienced mine developers, leads the way with the Strange Lake deposits in Quebec's Far North. Others are also looking hard.

--Lithium: Widespread ex-ploration is being spurred by the e-vehicle-hybrid age and development of smaller, lighter and more powerful next-generation batteries. Canada Lithium Corp., an early starter 60 kilometres north of Val d'Or, had to reduce its reported resource count significantly. The property once produced lowergrade lithium for the ceramics industry.

--Base metals: Royal Nickel Corp., led by former Vale-Inco executives, believes it has a future jumbo nickel mine near Amos, in the Abitibi, with annual capacity of 64,000 tonnes and costing $2.3 billion U.S. Xstrata Canada has expansion plans for zinc and copper.

--Alumina: Exploration Orbite Inc.'s pilot plant to test its patented process to produce high-purity alumina from albuminous clay deposits near Murdochville in the Gaspé region is up and running. The alumina would first be sold to the pharmaceutical industry and later to Quebec aluminum smelters - if full production follows.

--Vanadium: Vanadium has long been used in steelmaking, but its new vocation in new-generation heavy storage batteries has spurred exploration in Quebec. Apella Resources Inc. leads the way with a property near Matagami. China, the world's largest steelmaker, would be the main customer if a mine is developed.