Portugal turns to natural resources in crisis times

IN the two centuries Rome ruled the Atlantic coast of Iberia, the army mined and shipped home 129,000 ounces of gold and 25 million ounces of silver.
More than two millenia later, faced with recession, record-high unemployment and a stubbornly high debt, modern Portugal is following in the Romans’ footsteps to take advantage of its natural assets.
The new government is trying to draw mining giants to extract everything from iron ore to gold, silver and tungsten in the hope of cashing in on the 4 percent of revenues it will gain from each operation.
Mining giant Rio Tinto and the Portuguese government are currently putting the finishing touches on an experimental concession contract to mine iron ore in the north of the country in an investment that could be worth over 1 billion euros.
“With the strategy we have been pursuing for the mining sector, Portugal’s resources and its potential could rise up to twice current gross domestic product, which is to say more than 200 billion euros,” said Ricardo Pinto, a mining adviser at the Economy Ministry, estimating the value of all possible future mining projects.
It has granted 30 mining concessions since it came to power last year, which should add up to about 300 million euros in initial investments. About half of the concessions are at the prospecting stage, but many are expected to lead to production soon, drawing potentially much bigger investments.
The gold deposits currently being investigated at Boa Fe in sunny Alentejo will be extracted in an open-air mine, which takes much less time to activate than an underground mine. Existing mines that have been abandoned are now being reactivated.
“We see mining taking a key role in Portugal’s recovery. The geology and infrastructure is excellent and it is a void the private sector will fill,” said Peter Rose, an analyst at London-based Fox Davies, an independent natural resources investment bank. Portugal’s mining industry is a “pretty compelling story,” Rose said, thanks to the high quality of resources, good local infrastructure and modest wages.
The country’s very name comes from Porto, a town that owes its development to mining by Romans along the Douro River, or "River of Gold" as they named it.
Under the terms of a 78-billion-euro bailout from the European Union and IMF, Portugal has launched sweeping austerity measures, with across-the-board tax hikes and wage cuts.
Where the euro zone boom led previous governments to focus on public works financed by debt rather than on industries such as mining, the new center-right government is homing in on mining as an economic driver for the future.
Despite its well-known natural riches, especially in the Iberian Pyrite Belt, Portugal has overlooked the sector for decades due to depressed metal prices and the financial crisis in the 1980s. Its mining history goes far beyond gold. The country possesses several world class deposits, such as tungsten in Panasqueira and iron in Moncorvo, both in the north, as well as copper in Neves Corvo, in the south of the country.
It is currently Europe’s fourth largest copper producer and a major producer of tin, tungsten and uranium. It produces 150 tons of wolframite ore per month in Panasqueira, while ravenous copper demand from China has pumped up production at Neves Corvo, where Canadian-Swedish mining group Lundin mining estimates production of up to 57,000 tons of copper and 40,000 tons of zinc this year.
Moncorvo is about to be reactivated by giant Rio Tinto. Metal prices have risen to all-time highs over the last decade due to demand from China, but also India and Brazil. Prices have stabilized recently but demand remains resilient, and could provide a serious fillip for the country in these crisis times.
“Metal prices have 15-to-20-year cycles and its pressing that we take advantage of the positive trend, because mineral resources contribute in a very expressive way to economic recovery,” said Mario Machdo Leite, a board member of the National Geology Laboratory.
“Rising metal prices and technologic development make extraction and processing more effective, allowing us now to have greater expectations of a resumption of mining.”
The most advanced experimental mining project is Canada’s Colt Resources — currently the largest holder of mineral concessions in Portugal — that plans to apply for a full gold mining license this summer in the southern Alentejo, known as the “bread basket” of Portugal for its cheese, produce and wine.
Gold mineralization was identified at Boa Fe mine as early as the 1950s but was largely ignored until the 1980s, when several corporations began testing its potential, only to abandon operations a decade later due to low gold prices.
Colt’s Chief Operating Officer Declan Costelloe cannot hide his smile as he examines soil samples at the entrance to the mine before they are sent to the lab for gold content.
“In mid-2012 we plan to publish an initial estimate of resources (at Boa Fe) and we intend to apply for a full mining license, which is typically some 20 years long,” said Costelloe, while nearby, wild animals rummaged for food under century-old cork trees, the other product for which the region is famous.
The Quebec-based company is confident about the potential of its experimental gold concession in the Alentejo and is already eying other concessions elsewhere in Portugal. In the country since 2007, it has three experimental gold and tungsten projects in northern Portugal and three more base metal and gold sites in the south.
Studies carried out by previous operator Iberian Resources concluded that a gold mine in Boa Fe would yield 2 tons of gold per year and be viable for 15 years.
Rose, the mining analyst, called Colt’s prospects “excellent, because the grade is good and the intercepts are near surface.”
For Costelloe, Portugal’s economic predicament is an opportunity.
“Every dark cloud has a silver lining,” he said.