Dáil Éireann - Volume 307 - 21 June, 1978

Private Members' Business . - State Guarantees Act, 1954: Draft Order .

Minister for Industry, Commerce and Energy (Mr. O'Malley): I move:

That Dáil Éireann approves the following Order in draft:

State Guarantees Act, 1954 (Amendment of Schedule) Order, 1978, a copy of which Order in draft was laid before Dáil Éireann on 14 June 1978.

The purpose of this resolution is to seek the approval of the House for a draft order to guarantee bank borrowings to the extent of £2.3 million by Avoca Mines Limited.

Avoca Mines Limited have operated the Avoca copper mine in County Wicklow since 1971, having purchased the mine in 1969 from the previous operators, St. Patricks Copper Mines Limited, who went into receivership and closed down the mine in 1962. Copper concentrate and pyrite concentrate are produced at the mine. The copper concentrate is exported and the pyrite concentrate is sold to NET.

The essential factor governing the profitability of the mine is the price of copper. The copper market, like that of other base metals, is broadly cyclical, and as the Avoca Mine is a low grade copper mine it is extremely vulnerable to significant financial losses in periods of downturn in the price cycle; a grade of 0.7 per cent copper is being mined there at the present time when mines in Africa with up to 4 per cent grading are finding it extremely difficult to operate on a profitable basis because of the low level of copper prices.

[1707] Copper prices in the period from 1972 to mid-1974 were at a level which enabled the Avoca mine to operate on a profitable basis and the company ploughed back these profits into the operation. Copper prices reached a peak of £1,400 per ton in April 1974 but by the end of 1974 they had dropped to £500 per ton. Since then the high price levels of the 1972-74 period have never been regained, the highest price reached being slightly over £900 for a brief period early in 1977. The price was around £675 a ton in April of this year. It rose by about £100 a ton under the influence of the recent disruptions in Zaire and certain other factors but it has since declined from this level and is now around £720 a ton. It is not possible to gauge with any accuracy what influence the Zaire situation and other recent developments in other copper producing countries will have on copper price movements in the short-term but commentators seem to agree that a sustained return to the high price levels of the early 1970s is unlikely to emerge before 1982 and some of them predict that this might not occur until the mid-1980s.

The break-even copper price level for the current mainly underground mining operation at Avoca is very substantially in excess of average copper prices in the last few years and as a result the company has been in a situation of substantial and growing operational loss. The mines net losses in 1977, including interest on bank overdraft, depreciation and other costs, amounted to £1.162 million.

The company, having suffered a serious deterioration in liquidity in 1974, sought State assistance and a loan of £300,000 was provided through Fóir Teoranta. With a view to keeping costs as low as possible during the period of the depressed prices production was cut back and the workforce was halved. In June 1975 the company's bankers expressed concern about Avoca's overdraft and said that they would have to consider foreclosure unless the Government were prepared to guarantee part of the overdraft. The [1708] bank requested a guarantee for the shortfall between the liquid assets of the mine and the amount overdrawn by the company, after payment of preferential claims.

In July 1975 the Government approved the offer of a guarantee of £170,000 until September 1975 to ensure continuance of the operation while the possibility of attracting private interest finance to the mine was being investigated. The Government subsequently approved of further increases and extensions of the guarantee. In November 1977 an increase to £1.6 million was granted but this level of guarantee for the company's bank overdraft facilities will be inadequate shortly.

The efforts to attract private interest investment to the mine culminated in an agreement being reached with Messina (Transvaal) Development Company which provided Messina with an option to take over 85 per cent of the share capital of Avoca Mines Limited if the results of an exploration programme to be carried out at the mine in the meantime were satisfactory. Messina commenced an exploration programme at Avoca in August 1977. Their immediate objective was the identification of an underground orebody of at least 3 million tons of grade 1 per cent or over which could be mined and milled by the existing facilities at the mine.

In December 1977 the company informed me that their geologists had concluded that the chances of finding the large additional tonnage they had hoped for were so remote that they had decided not to do any further work at Avoca and not to exercise the option to acquire the bulk of the share capital of Avoca Mines Limited. The company's decision came as a disappointment but it was not entirely unexpected.

Having regard to the sharp deterioration in the outlook for copper at the time and other relevant factors it had to be accepted that, in commercial terms and apart altogether from the geological conclusions, the basis for further work by Messina was doubtful. Furthermore, a number of other major copper-mining companies had earlier [1709] been persuaded to look at Avoca and they too had concluded that there were not sufficiently attractive prospects there to justify involvement on a commercial basis.

Following the withdrawal by Messina the situation of the mine was reviewed by my Department and the Geological Survey Office, in co-operation with the mine management. It was clear that continuation of operations on their present basis could not be expected to be viable other than for a relatively short period in the copper price cycle when prices would be temporarily high and any profits realised in that short period would not nearly compensate for the substantial losses which would be accumulated during the much longer periods of lower prices.

There are geological indications of ore reserves of a size possibly sufficient to support a significant open-pit operation for a reasonable period but the viability of such a project depends on a number of extremely crucial factors. These include the volume, grade and grade distribution of the ore, the additional capital equipment and other development costs necessary, extraction, haulage, milling and other operating costs and, of course, the difficult question of how copper prices may move during the next ten to 12 years. Deputies need only look at these points to see how many question marks hang over the possible viability of this project.

As much evaluation as possible has been done with the limited resources available to my Department, but in order to analyse these questions more fully and offer authoritative opinions on them I have decided to engage a consultant from the mining sector to carry out a comprehensive survey of the situation. The mine management have agreed to assist and co-operate in the consultant's evaluation, which will cover prospects generally at the mine and the open-pit possibilities specifically.

The Geological Survey Office will make relevant data, reports and evaluations available and will also generally assist in the consultancy project. The estimated cost of financial support for the mine for the necessary period and [1710] the consultancy and associated expenses are included in the sum specified in the resolution before the House.

I want to have this evaluation done properly but I also want it done with the minimum of delay because the present on-going cost of maintaining the mine for any significant period without the prospect of a viable longer-term future, is not tolerable. I hope, therefore, that the results of this expert study will be available to the Government well before the end of the year.

The study by the consultants should provide the company and the Government with authoritative and expert advice which will enable firm decisions to be reached on future operations at the mine. It is my hope that a means will emerge to ensure a viable continuing mining operation at Avoca which will enable employment to be maintained at the mine at least at the existing level of 230 men.

I do not wish to prejudge the findings of the expert study. However, in the circumstances which I have set out, especially the fact that over the long history of the mine the grade of ore mined has been predominantly low and that a substantial and sustained rise in copper prices cannot be foreseen for some time, I would not wish to convey to the House a particularly optimistic expectation about the outcome of the consultants' work. Their findings will obviously have to give realistic promise of a much more viable operation than is being engaged in at Avoca mine at present because, as I have said, continued underwriting by the State of losses on the current level simply could not be justified.

The present Government—and indeed successive Governments—have gone to very considerable lengths to maintain mining operations at Avoca. The ultimate cost to the State arising out of the failure of St. Patrick's Copper Mines was in the region of £3.2 million. Indeed it may be suggested that the efforts made and the costs assumed by the State over a long number of years are more than would be justified on any economic basis, however, defined. The decision to be taken within the next few months will be a difficult one whichever way it goes.

[1711] The reason why a resolution and order to formalise the guarantee has not been introduced in the House before now was that in the first instance the extent of the State's future involvement in the company's affairs could not be assessed while the efforts to attract private investment were in progress and more recently until studies by the Geological Survey Office and by the company were completed.

I now recommend that in the circumstances I have outlined the House should pass the resolution before it approving of the draft order which will authorise the Minister for Finance to give a guarantee of £2.3 million under the State Guarantees Act, 1954, in respect of bank borrowings by Avoca Mines Limited.

Mr. P. Barry: We agree with this motion with a certain amount of cold feeling in the pit of our stomachs because the message running right through the Minister's speech is that his Department at least, perhaps the Geological Survey Office and Messina do not appear to think that this company can be made a viable producer, except when the price of copper is at its height. I suggest that we avoid going into the history of Avoca Mines and its various ups and downs over the last few years. We should pin our hopes and the State's money on the survey the Minister is arranging to have carried out. I trust that the survey will be completed as quickly as possible and that it will include all the factors that will give us an indication of the future of the mines. The future of the 230 people who are employed there must be considered. Obviously, present copper prices indicate a large world surplus, much of which is in Zaire, Zambia and other Central African countries. The recent troubles in Zaire have had an effect on the price of copper. Perhaps, too, we should consider the study from a security point of view. The Minister says that the quality of the ore mined at Avoca is low but although it would cost money to keep the mine open, it might be worth while spending this money in order to ensure that in the event of an emergency we would have [1712] a supply of copper within the State although the quality would be low. Apart from the investment in the original company, we will have invested £2.3 million in the parent company by the time the overdraft guarantee amount is used up. Apart from the ordinary commercial criterion that will be applied as a result of the study being commissioned we should have regard to two other points before making a final decision on the future of the mines. The first point is the livelihood of the 230 people and their families who are involved in the mines, and the other consideration is the question of whether it is realistic to continue investment in the mines in order to ensure that in the event of copper not being available from other sources at some future date, we would have a source of copper here.

The Minister is acting correctly at this stage in guaranteeing Avoca further until the study on the mines has been completed. I trust, though, that before any irrevocable decision is made the Minister will come back to the House to furnish us with the report so that the House may be part of any decision taken at that stage.

Mr. B. Desmond: The Minister's statement is rather grim. The prospects for the mines could not be described as being encouraging in any way. The net effect of what the Minister is proposing is that in a relatively short period we should invest another £0.75 million of taxpayers' money in the Avoca mines. When the Minister discloses the reasonable scenario to 1982 or to the mid-eighties it is fairly evident that with the £2.3 million limit we are sanctioning today—having cleared already the £1.6 million limit —on the basis of current assumptions and price levels, we shall be able to keep the mines open up to the mid-eighties with an injection of perhaps another £2 million or £3 million.

There is little else the Minister could have done in the circumstances. He is awaiting yet another report from another group of consultants. I do not know how many geological assessments there have been into the operations at Avoca. I am sure that the list of efforts of various Ministers to [1713] interest foreign concerns in the future of the company would read like an international mining dossier. The efforts have been intensive. I recall some involvement in the sense that as a trade union official and as Labour Party Whip I had intensive discussions on the matter with the Minister's predecessor, Senator Keating. In a period of great financial stringency we had much difficulty in extracting from the Minister sanction for, say, £100,000 or £150,000 here or there in order to keep the mines in operation, albeit, at a very substantial loss. That was at a time when there were substantial price movements in respect of high pyrite copper concentrate although these were short lived. The House would be living in a fool's paradise if it were not to appreciate that from all accounts the situation is grim. I do not know who is the consultant the Minister has engaged for this study but personally I should be interested in knowing who is to carry out this comprehensive study. However, if the Minister prefers not to disclose the information I shall leave it at that. I am pleased to learn that the mine management have agreed to co-operate with and to assist the consultants in their work. I do not suppose there would be much prospect for them should they act otherwise.

The open-pit possibilities in relation to this mine have been examined but perhaps there is another dimension by which they could be examined further. There could be nothing worse than to cause a degree of despondency among the workers involved and their families. These workers have earned reasonable wages. The only justification for engendering despondency would be a genuine sense of futility in terms of the extent to which we are putting taxpayer's money into an operation of this nature.

I do not know whether in the mining sense anybody has ever carried out a clear cost-benefit analysis of what the mines have cost during the years of their operations. The State has put in more than £5.5 million but this has resulted in employment being provided in an area of low income. Apart from the tremendous work being done by NET locally, the Avoca-Arklow area [1714] has always been in dire need of employment. It is arguable, then, that on balance the £5.5 million expended by the State, admittedly during a long period, was worth while in terms of taxpayers' subvention in order to provide employment.

It is with some reluctance that I accept the Minister's view that the decision to be made within the next few months will be difficult. I have not access to the accounts of the company concerned but I am wondering how long the additional guaranteed borrowing will last. Will it last for another six months or, perhaps, until the middle of next year by which time the shutters would come down on the mine? With that current pessimistic assessment on my part I accept what the Minister has said and assure him that I should be very happy to be proved wrong in my assessment. The prospects, as the Minister has pointed out, depend on the general price outlook which looks fairly solid at its current low level for the next five years at any rate. The cost benefit situation arises, therefore, for the Department.

I want to pay tribute to the work of the Department, particularly the senior staff, who have been subjected to great pressures in regard to the operation of this company to which they have also given a great deal of thought, time and effort, whether it was at Fóir Teoranta level or at departmental level. They cannot be accused of having been found wanting whenever any foreign mining entrepreneurs have been available to take another look at this operation in the hope that they would find the elusive even half break-even point. The departmental staff have been most co-operative and helpful. They also have a public accountability in regard to the taxpayers money.

I was not quite sure from the Minister's speech when the result of the consultant's report will be available. The Minister said “before the end of the year”. We can assume that there will be sufficient liquidity by subvention between now and the end of the year.

I hope the consultants report will hold out some long term viable future [1715] for the operation of this company. I accept what the Minister has said. He is quite right to come to the House at this time to give this additional subvention; but he will be faced, as his predecessor was, with circumstances which sometimes look tremendously promising, when new people come on the scene and new investigations are opened up, but seem to fizzle out rapidly over a period. I accept what the Minister has said and I accept the necessity for the current proposal in relation to bank borrowings, but with all the reservations which I have expressed, which, although not unduly black, bear in mind the reality of the situation.

Mr. C. Murphy: The position of Avoca is very grim, particularly to a Deputy who represents the constituency. Avoca Mines have tried many options which have simply not worked out. We all hope that eventually some upturn in the world situation will help Avoca Mines further on their way. I have had the privilege of meeting the management of this company on many occasions and also representatives of the workers. I know their zeal and enthusiasm in their efforts to try and make the undertaking more viable. Unfortunately, the copper grade in Avoca is extremely low. The prospects are chilling.

I am very pleased that the Minister is making a further £0.7 million available to allow for this evaluation to take place. I hope it will prove positive and allow for a significant open pit mining operation in that area. There is a tradition of mining around Avoca, which has had its ups and downs. There are 230 employees on the pay roll. I hope that something can be done for them. As far as I know this is the only copper mine in the EEC. Could the vast resources of the EEC be tapped to allow a holding operation? For some time past the holding operation at the mines has been vital for the lives of the 230 men there. I hope that a grade of ore as low as that in Avoca can be [1716] useful in the world economy in the mid 1980s.

I understand the difficulties there are for the Minister. He has responsibility and accountability. A sum of £2.3 million is a lot of money, but I know many of the workforce there and the management and they are very hard working people. I have also been in contact with the Department in regard to this matter. I know that the Minister is very anxious that this mine, if at all possible, be kept going.

I can appreciate the difficulties of finding alternative employment in that area for the 230 men involved. The town of Arklow is doing particularly well and I am delighted to be able to state that the employment there is very good. In Avoca the situation is not very good and there are not many options open to people who are skilled in one form of operation.

The workers in Avoca Mines and the management there are faced with the ongoing situation of a possible closure of the mines. They are optimistic and they are very diligent workers. I am pleased that the Minister came before the House to seek the raising of the guarantee from £1.6 million to £2.3 million. I would like if the situation were more promising. I hope the evaluation will prove positive and that the Minister will see if the vast resources of the EEC can be utilised in saving this mine.

Minister for Industry, Commerce and Energy (Mr. O'Malley): I should like to thank Deputies for their welcome to this motion to enable this guarantee to be given. There is not an existing guarantee under the State Guarantees Act. While the Government have progressively increased the figure up to £1.6 million the motion has still to be moved in relation to all of it because it was not moved in the past for the reasons I gave in my opening speech.

Deputy Barry referred to the importance of our having a source of copper here in case of difficulties in a time of emergency. This mine is not a source of copper but of copper concentrates. We do not have a smelter and we would not have access to the metal in any even if there was a difficulty of that kind.

[1717] Mr. P. Barry: Is there a copper smelter somewhere in Europe?

Mr. O'Malley: There are several, mainly in Spain, but they are in the Community also. A fact which has to be borne in mind about this mine and its future is that on present knowledge the known reserves are adequate for only four or five years, even if the price was at an economic level which would be over £1,200 per ton. It is possible that there might be further reserves but the cost of exploring for them would be substantial. The best prospect would appear to be the possibility of a much enlarged open cast operation in what was described as the East Avoca area.

Deputy B. Desmond referred to the consultancy report being expected before the end of the year. In my speech I said I would expect the report much sooner than that and that it would enable the Government to make a decision, one way or the other, well before the end of the year.

Deputy C. Murphy referred to the possibility of trying to get some assistance for this operation from the EEC. My Department have already been in touch with the appropriate officials of the Commission. While those officials were sympathetic to our approaches, particularly as this is the main copper mine in the Community, small as it is, they advised that there is no readily available source of Community funds for such a purpose. They informed my officials that it would take up to three years to get approval for a support scheme. There are some prospects of help for the exploration project under the regional fund, but the element of cost for the consultancy is not great in comparison with the ongoing losses in the mine itself, so what might be got through the regional fund would be minimal. What we would really need is support for the actual operation which, unfortunately, is not available.

I am sorry I have had to come into the House with what has been described by some Deputies as a grim message. This mine has not had a happy history in terms of commercial viability over a prolonged period and it is not at one of its best periods now.

[1718] I join with Deputies on both sides of the House in hoping that this study which is now being started will indicate a way in which some operations in this ore body will remain viable in the years to come.

Question put and agreed to.