Gold Diggers Revive French Exploration as Prices Drive Hunt

Jul 21, 2014 4:09 am ET

(Updates with global mining details in fifth paragraph.)

July 21 (Bloomberg) -- In a field near Saint-Pierre- Montlimart, a small hamlet with a turreted church in western France, Jack Testard and Patrick Lebret dig up some earth with an agronomic drill and put it in a plastic bag.

The president and the chief geologist of a French mining exploration startup owned by Australia’s Variscan Mines Ltd will send dirt samples from the field, which is in an area that was home to a gold mine until 1952, to a laboratory in southern France to look for “mineral anomalies” the company is betting will show evidence of the precious metal.

“There are a lot of attractive points to prospect in France,” Testard says, as he points to a map with yellow dots representing areas where traces of the metal have been found. “It’s a really interesting time to prospect gold because the price is higher than before” and extraction technologies “are much more modern.”

Although France hasn’t historically been a large producer of gold, soaring prices of the metal are bringing companies to its door. By granting the first exploration licenses in mainland France in more than two decades to Variscan, Economy Minister Arnaud Montebourg is trying to revamp the country’s mining industry and cut reliance on imports of metals such as rare earths critical for military equipment and renewable energy.

The French exploration push comes even as mining companies extend cuts in spending for a second year. Exploration spending plunged by 30 percent or $10 billion last year as budgets to search for minerals and sustain supplies were squeezed, according to MinEx Consulting Pty, whose clients include BHP Billiton Ltd., the world’s biggest miner.

Reviving History

Rising demand from China and other emerging markets has boosted prices for most metals, including gold. Bullion traded at $1,326 an ounce on July 1, up from $400 a decade ago. It peaked at $1,931 during the financial crisis in 2011.

The 186 metric tons of gold extracted in France in the last century is less than the current global monthly production, which was 225 tons in April, according to the World Bureau of Metal Statistics. France was also Europe’s third-largest producer of tungsten and zinc until its output stopped in 1986 and 1991, respectively.

In the 1980s, operators started shutting down mines as deposits of ores including uranium, lead and zinc were depleted or became unprofitable to extract. They also faced rising regulations and opposition from environmentalists after areas around some pits were polluted by cyanide used in extractions.

Exploration techniques have improved over the last three decades, which together with rising prices, makes it more appealing for companies to seek licenses, said Testard.

Toughened Regulations

“Prices of metals have risen and there’s been great progress in the modeling of deposits and in mineral processing, so France is becoming attractive again,” he said.

Regulatory matters have, however, toughened.

Companies asking for licenses in France need to pre-assess the environmental impact of the mines, forecast job creation and start public meetings with local populations at an earlier stage than in other countries, according to Variscan’s Testard, an industry veteran who has worked in French Guiana, Russia, Turkey and Africa.

The efforts have to begin even before the exact location of the pits is known, he said.

Last month, La Mancha, a Luxembourg-based gold producer owned by Egyptian billionaire Naguib Sawiris with mines in Australia, Sudan and Ivory Coast, got a taste of the challenge after obtaining a license to seek gold near another abandoned gold mine in central France. It delayed first exploration works initially planned in June to August after about 20 militants gathered to protest against the project.

Militant Protestors

“I didn’t want a demonstration in the middle of geologists collecting samples,” La Mancha deputy Chief Executive Officer Dominique Delorme said in a phone interview. “These anti- globalization people are against everything. They didn’t exist when I was prospecting 15 years ago.”

Companies have also contended with governmental flip-flops.

In 2008, Toronto-based Iamgold Corp. had to abandon the development of the Camp Caiman mine in French Guiana when then- President Nicolas Sarkozy blocked it for environmental reasons. Iamgold is seeking 763 million euros ($1 billion) in compensation from the government before the Bordeaux appeals court, according to its annual report.

“Iamgold has told the government in recent months that it’s ready to start a new feasibility study provided it gets a clear framework from the authorities,” Claude Barjot, the company’s representative for Europe, said in an interview. “We may be seeing the end of the tunnel with the national mining company that France wants to create.”

National Mining

Montebourg said in February that the state will create Cie Nationale des Mines de France to revamp exploration and build partnerships. A first decision will be regarding Guiana, he said, without providing details.

The government is studying a dozen applications for exploration permits for metals including zinc, tungsten and tin, according to Jean-Claude Guillaneau, a director at BRGM, the French geological survey.

French mineral processor Imerys SA is one of the applicants, and there’s interest from small companies in the U.K., U.S., Canada and Australia, he said.

In mainland France, BRGM is updating its information on mineral resources and has identified more than 100 potential exploration areas, Guillaneau said. In French Guiana, north of Brazil, where official gold production “may very significantly and quickly be raised,” the government and local authorities plan to set up a company that will take stakes in exploration projects, he said.

Tin, Tungsten

Back near Montlimart, if testing on the samples proves conclusive, Variscan plans to drill 10 holes to extract minerals dozens of meters under the surface from the start of next year, and tens of extra holes at a later stage to narrow down its search for gold veins.

The company, which also has an exploration license for a copper and gold deposit further north near Le Mans, is targeting 10 licenses in France to spread its risks across geographies and metals, according to Testard.

He plans to spend 3 million euros to 15 million euros per permit on exploration works, saying it will take five to 10 years to start mining operations.

“For copper, lead and zinc, France has small or medium- sized deposits,” said Michel Bonnemaison, Variscan’s managing director said in an interview. “For tin and tungsten, we have world-class deposits. France could become a large supplier for tin and tungsten, and we know approximately where to get them.”

--With assistance from Caroline Connan and Jesse Riseborough in London.