8: Measuring Mine Production Costs

One day in 1982, I was due to present a copper industry outlook to the Investment Committee of one of Canada’s leading industrial conglomerates which, inter alia, owned a major mining company. The committee was considering a request for $25 million for further pre-stripping for a new production phase at a mine in British Columbia. Without this, steps would have to be taken to close the mine as the current resource was approaching depletion.

Frankly, the outlook was not great. The global economy had just started on the second leg of the famous ‘double dip recession’ triggered by President Reagan’s determination to break inflationary expectations. Interest rates were sky-high. Construction, capital spending and production of consumer durables were falling fast, and this was reflected in the copper price. The emphasis of my presentation, however, was that all these factors were temporary and would dissipate over the next two years, leading to better copper prices. Even so, my forecast of the copper price was in reality pretty cautious.