Sometimes sitting in a train as it glides away from the station it seems as if the platform is moving. The train seems to be motionless. It is an illusion. Metal prices are down against the US dollar. Or is it that the dollar is getting stronger? Demand supply fundamentals back commodity prices. The dollar is backed by confidence. It is deflation when the dollar increases in value against “things”. The strong dollar is choking the American economy. Janet Yellen and the Fed knows this as much as American exporters. This deflation is also killing the mining industry. The Fed wants inflation and a weak dollar. The Chinese want a strong dollar for now because they have US $4 trillion in reserves. In time the Fed will get its way but the last thing it needs to do is to raise interest rates. In the meantime the Chinese need to hedge their bets. China is buying more gold and soon other metals while the dollar still remains strong.
In Europe Mr. Draghi wants to print more Euros to buy assets to counter deflation. He needs to defribulate the heart of the European economy and get it beating again. History has shown throughout the 20th century that inflation can gather speed once it starts to move. Consider the following data from the U.S. central bank:
- From 1915 to 1917: inflation rose from 1% to 20.4%
- From 1945 to 1947: inflation rose from 0.5% to 19.0%
- From 1972 to 1974: inflation rose from 2.9% to 12.3%
It is likely that central banks will succeed in creating inflation. Will they overshoot the target this time?
I live within the grounds of the large, walled estate of Carton House near Maynooth in County Kildare. Maynooth is 20 kilometres from Dublin. The Normans granted the estate to the FitzGerald family after the capture of Dublin in 1170. If you drive northeast to Dunboyne you will join the N3 motorway. You can then strike north-northwest through Dunshaughlin. You will see signs for villages with names such as Skreen. The road crosses rich rolling farmland. It passes the odd stud farm as the road skirts the Hill of Tara and then across the valley of the Boyne River. The Hill of Tara is best known as the seat of the High Kings of Ireland. Tara has been an important site since the late Stone Age. Tara was at the height of its power as a political and religious centre in the early centuries after Christ. The Battle of the Boyne was fought in 1690 between the Catholic James II and the Protestant William III of England. William III with his wife Mary II (his cousin and James’ daughter) had overthrown James in England in 1688. You have driven through history.
If you are a geologist then you are also driving across time. Several hundred million years ago the Dublin Basin rifted and sundered. The Basin subsided between the Leinster granites to the south and the Longford-Down Massif to the north. Tropical seas flooded the basin when Ireland was in a much lower latitude. Over time the basin filled with huge amounts of limestone sediments. Meath is famous for the high quality thoroughbred horses. They say it is down to the calcium from the underlying limestone seeping into in the soil and the grass. It makes strong bones. After a time you arrive in the town of Navan with a population of 29,000. Navan is the fifth largest town in Ireland and 50 kilometres from Maynooth. Just outside the town is the giant Tara zinc mine of Navan. This Navan Mine is largest zinc mine in Europe and the ninth largest in the world.
Pat Hughes was a bricklayer and Joe McParland was a pork butcher apprentice and both were good mates. They came from Newry in County Down. Pat and Joe McParland and Matt Gilroy became Irish mining legends. They emigrated to Canada in the early 1950’s. They met up with Mike McCarthy in Canada and the four became inseparable. At one point they built furnaces for Eldorado Mining and Refining Company. That was at Port Radium on Great Bear Lake. Hughes taught McParland how to lay bricks. The work was gruelling: seven-day-a-week and 12-hour work shifts. They were somehow able to find the time for prospecting. It was around Uranium City on the northern shores of Lake Athabasca in northern Saskachewan. Hughes made history as the first to register mining claims in the remote Beaver Lodge area. That was when it was first opened up by the Canadian government to private prospectors. They got a taste for selling mining claims at fancy prices during the uranium boom of the 1950’s. To celebrate and pursue their passion they formed a new exploration company called Tara Exploration. The partners had pooled their money to send Hughes to the Haileybury School of Mines. They almost went broke on a titanium-bearing magnetite deposit at Rideau Lake area in eastern Ontario. After that the intrepid prospectors returned to Ireland. Hughes was determined to apply his knowledge to Ireland. The view at the time was that for the most part Ireland had missed out when metals were sweated out of the Earth’s core.
Hughes scoured the State geological archives in Dublin. His team conducted regional surveys in Counties Clare, Kerry, Galway and Donegal. He came back to Toronto and took over an ailing Junior called Kirkland Hudson Bay Goldmines Ltd. After some reorganisation involving an injection of new capital and a sprinkling of passion he renamed it Northgate Exploration Limited. Hughes introduced Induced Polarization (IP) to Ireland as a geophysical method for mineral exploration. In 1961 the first mining discovery of any significance in Ireland in over a century was made at Tynagh (zinc-lead). Gortdrum followed in 1963 and became a low-grade open-pit copper mine. Group Eleven of which I am a founder now has the exploration rights to Gortdrum. In 1970 Tara Exploration and Development Company, a subsidiary of Northgate, discovered what was to become the giant Navan zinc and lead deposit. Ireland should be very grateful to Canada which nurtured these early Irish pioneers. Canadian stockmarkets provided the venture capital and its banks financed the building of the Navan Mine.
The Blackwater flows into the River Boyne at Navan. The discovery hole at Navan was drilled in November 1970 targeting the highest induced polarization and geochemical anomaly on the north side of the Blackwater River. The hole intersected 12 metres of 8.5 percent zinc and lead combined. My first paying job as a geologist after graduating with an MSc in geology from Penn State was for a Glencar Exploration in 1988 on a small bleeder deposit of 500,000 tonnes. It was just a minnow of a deposit called Liscarton in the shadow of the Navan whale-shark. It is some 45 years ago now since geologists came from near and far trying to find clues as to why it is so large and in the quest maybe find another one.
How could such a giant zinc deposit remain undiscovered? It outcrops on the north bank of the Blackwater River just outside a bustling market town? The second and third drill holes were poor. The explorers had stepped away from the deposit. In fact the first three drill-holes were in a marginal area still not mined today. How could anyone have an inkling that the bulk of the orebody was on the southside of the Blackwater. It was down dip and under thicker overburden. The mine went into production in June 1977. The next extension of the orebody was not discovered until the 1990’s. Some twenty years after the discovery hole.
What are the ingredients required to make a deposit as large as Navan? We have no idea! We could observe that the deposit lies along the Iapetus suture. This suture is a major fault which separated the Eurasian from the North American tectonic plate. Navan lies on the northern rim of the Dublin Basin. It could have been in the right setting to tap huge volumes of mineralising fluids. There is a big plumbing system through a net of major faults. These faults accommodated major collapse when the sediments were still soft. Later there was compression along reverse faults when the sediments lithified into rocks. Finally there were great thicknesses of clean calcarenites to host the fugitive mineralising fluids. We could observe all that and still not find the essence. What we should appreciate is that these mines are very hard to find. We need to put at least three new Navan Mines into production next year. That might replace the 610,000 tonnes of zinc in concentrate lost by the closure of Century and Lisheen.
At the Navan mine over the last 38 years some 80 million tonnes of ore have been mined. This production has come from the shallower head of “tadpole”. Mining is getting deeper to depths of a kilometre as the ore is chased down the dip along the tail.
As for the supply side and zinc in particular? The closure of the Lisheen and Century mines will remove 4.5 percent of annual mine supply. The mines are closing because there is no more ore. If somebody knows what will replace this lost supply please let me know. There is nobody even exploring for zinc at these prices of around 80 cents/lb. Scotiabank economist Patricia Mohr’s research shows that to spur new mine development needs a zinc price of US$1.13. I would add that it needs to stay there for a decade to make a difference.
In 2012 Ireland was Europe’s largest producer of zinc metal in concentrate. Representing some 32 percent of all European zinc mined including Russia. Ireland was the 10th largest producer in the world at 2.5 per cent of world output. Much of that came from Navan mine.
The little boy has called wolf many times on the gap between mine supply and demand. It has been coming a long time or is it a mirage. I can only look at what is happening outside my front door. The Lisheen Mine zinc is closing and the process of selling the plant is well underway. Not far away the smaller Galmoy Mine in County Kilkenny ceased production in 2009. If the zinc price does not cover the cost of production and sustaining capital then mines like Navan will close. Once the Navan Mine closes Ireland will move from the largest producer of zinc concentrates in Europe to zero.
Will China’s economic woes result in much lower demand for metals? The market over the last weeks has emphatically said yes. Zachary my nine year old has decided to learn Finnish on the internet. He wants to visit Finland and Lapland in particular. Pretty soon I will have to find a zinc project there between the lakes and the forests. Zachary sent a letter of intent to the Finnish Embassy in Dublin. He was very excited to receive a parcel of brochures and maps in the post. “Did you know that the Finns drink the most coffee per capita in the world” he said. Ivor, his older brother told him that Finland is not the biggest coffee drinking country. That depends on population. An argument ensued and of course they were both right. We learn quite young the difference between total consumption and per capita consumption. A small expansion can be greater that a large expansion depending on the size of the balloon. Prices can also increase when demand is flat or even declining if supply is shrinking faster. China will continue to consume metals in vast quantities even if economic growth is at 2 or 3 percent. It is a bigger balloon.
This month China announced in the next five years it will spend $315 billion to improve its power grid. What does that mean for metal consumption? If the Mandarins and their masters do not meet the economic expectations of the masses in China politics may become unstable. Distraction from disillusion will then be the order of the day. We should then watch out for some sabre rattling in the south China seas.