Deputies will recall that, when the Minister for Industry, Commerce and Energy introduced a motion in June last dealing with the guaranteeing by the State of loans for Avoca Mines Limited, he informed the House that the Government were in the process of reviewing the question of continuing State support for the mine. As the Minister explained on that occasion, the State has over a long period of years put substantial public funds into the Avoca mine. In more recent years, under the previous and present Governments, State support has taken the form of guarantees for bank borrowings to meet operating losses at the mine.
In connection with the Government's review, the Minister commissioned a report from a firm of consultants with wide international experience in mining and the metals sector generally. His decision to commission the report followed upon a study of the position earlier in 1978 carried out within his Department which suggested that, having regard to the outlook for copper prices at the time and the limited operational options open at Avoca, it was difficult to recommend a sound basis for continued support. However, this Departmental study did identify certain possibilities and these and, indeed all possible options for the mine, were very fully examined by the firm of consultants.
The consultants' report, which was examined in detail in the Department and considered by the Government shortly before Christmas, concluded that, making certain assumptions about future copper prices and other critical factors, a mining programme mainly based on mining out known reserves underground over a period of about four years could be an acceptable option. The report emphasised that this proposal could not be regarded as an acceptable venture in purely commercial terms. However, on the basis of the consultants' report and subject to the discharge by the State of Avoca debts of £3.15 million due to commercial banks and to Fóir Teoranta, thereby relieving the company of an estimated interest burden of £1.6 million over the period, the prospect emerged of a viable future operation which would generate sufficient profits to recover all, or at least a substantial proportion, of State funds amounting to £4.35 million which would have to be committed up to the end of 1979.
The consultants' opinion that the project could not be regarded as a commercial venture confirmed experience over the previous year or more during which considerable efforts had been made, without success, to attract interest from private mining companies. The consultants' estimates of the likely financial outcome over the period in question were based on projections on copper prices which, at the time their report was received in September 1978, appeared very optimistic. Indeed these projections represented a favourable view of future price trends which was by no means shared by all the expert views in relevant technical and financial publications at that time.
The Minister was, therefore, faced with the very difficult decision as to the recommendation which he should make to the Government. The positive aspects of the scheme suggested were, of course, the maintenance of the valuable employment being provided at the mine with the implications this has for the locality generally and the prospect of recovering a significant part of the funds which had already been committed by the State. Against this, the project could not be justified if a decision were based purely on commercial criteria. Furthermore, even though there was the prospect of recovering most of the funds then subject to State guarantee and the additional funds now required, this amount, large though it was, constituted only part of the State funds which had been provided for the Avoca operation over a long period of time. The operations envisaged by the consultants did not hold out any real prospect that the money advanced by the State in earlier years would be recovered.
Finally, even if the apparently optimistic price projections were realised, there were other risk factors which could frustrate realisation of the modest financial objectives envisaged. These additional risk factors included operating costs, the achievement of the projected ore tonnage and grades of ore, not to mention the normal on-going commercial risks involved in any operation and, particularly, in the mining business.
However, having taken all the circumstances and projections into account and fully recognising the inherent risks, the Minister felt justified in recommending to the Government that the State should continue to support the mine for a further period at least. The Government approved this but directed that the Minister should keep the matter under continuous review so that their decision could be reconsidered if there was a marked deterioration in any of the critical factors involved.
As Deputies will have noticed, copper prices have improved very considerably since the consultants' report was received in September last. A firm upward trend in the price was evident over the last few months of 1978. Since then certain international developments affecting potential supply and demand have resulted in a sharp rise in prices so that the optimistic outlook on which the projections of the consultants were based has, up to the present time at any rate, been justified. We are, however, looking at the economic projections over a four- to five-year period ahead. It is scarcely necessary for me to emphasise to the House how volatile the metals market is, particularly the market in copper. There may be an appreciable element of speculation involved in the recent sharp price increase and certain of the international developments which have fired this speculation may prove to be short-term. Nevertheless, certain factors behind the improvement in price are more firmly based so that, even discounting the speculative and temporary elements, the trend seems to be favourable. However, as I have said, the copper market tends to be extremely volatile and it is clear that at any time price levels and the general trend in prices must be major considerations in the on-going review of the situation to which the Government's decision is subject.
The additional support of the Avoca operation now envisaged involves clearance by the State of the company's existing borrowings of £2.85 million from the banks and £300,000 from Fóir Teoranta and the provision of certain additional support. The funds for the clearance of these debts and for the provision of further support will be provided under the authority of the present supplementary estimate. As I have said, the Government decision to continue support will be subject to continuous review. I am not, therefore, in a position to give the House a precise and accurate statement of the additional funds, apart from those to which I have referred, which may be advanced out of the Vote. Part of these additional funds will be devoted to the replacement of essential mining equipment, which will improve the economics of operations, and to cover possible contingencies during 1979. The extent to which funds may be necessary for other purposes will, of course, depend on realised prices for copper concentrates and the other factors which I have mentioned. The best estimate that can be made at this stage is that the total sum required to be provided from the Vote for the various purposes which I have outlined will be £4.35 million. The extent of actual advances from the Vote within this total sum will, of course, depend on the Government's view as to the prospects of achieving the objectives of the present programme. Assuming that the improvement in copper prices is maintained and if there is no substantial deterioration in costs, tonnage mined and processed, ore gradings and so on, and taking account of the relief from bank interest liability which will result from clearance of the bank borrowings, funds additional to those which have been estimated should not be necessary and, in fact, a start on recovery of some of the indebtedness to the State should be possible.
Agreement on the above arrangement has been reached with Avoca Mines Limited and the parent Canadian company, and appropriate legal documents are being drawn up. This will provide for a charge in favour of the State on the assets of the company and also that any surplus revenues arising within the company over the period in question will be exclusively devoted to repaying the indebtedness to the State. Provision is also being made for certain essential controls by the State on expenditure and mining programmes and for involvement by the State in other critical decision areas. The proposal to make funds directly available from the Department's Vote for the maintenance of the mine constitutes a new service for which approval of the House is required. Since it is necessary to implement these arrangements without delay, it is not possible to defer the matter until the general Vote for the Department comes up in the normal course. This is the reason why the matter is being dealt with by way of a Supplementary Estimate.
In view of the pressure on public funds in the current year, it is necessary to ensure that every effort be made to effect savings which will offset, to some extent at least, the additional funds now sought. It is expected to be possible to defer certain projects for which a net provision of £478,000 was made in the main Estimate and to use that sum instead towards the support operations at the Avoca mine. For that reason, the present Supplementary Estimate provides for a net sum of £3.872 million which, together with the savings of £478,000 from the existing Estimate, will enable the Minister to make funds totalling £4.35 million available during 1979 to support operations at the mine. This is a substantial sum of money but to be set against it there is the point that, if the mine were to close now, the State would have to honour its guarantees to the banks and there would be the socioeconomic costs associated with the closure of the mining operation and the loss of employment.
I would like to emphasise again that the situation of the mine will be subject to continuing review because this is a critical part of the Government's decision. The present decision by the Government is not open-ended. It is not an unqualified assurance of support for the full four-to five-year term envisaged in the programme outlined by the consultants. It is a decision to continue support for the time being and to keep the situation under review.
When the Minister introduced the State guarantee motion in the House in June last, he said that the State could not justify maintenance of support for continuing heavy losses at the mine. He indicated that support, if forthcoming, would have to be contingent upon there being the possibility of a viable operation. I am sure the House will agree that the Minister has not been particularly stringent in defining the terms and objectives of the kind of operation which we are prepared to support. But the objectives, modest though they are, must be achieved if continuing support is to be justified. The Minister is confident that the management, the work force, contractors and others involved in Avoca will, as they have in the past, recognise that this is a knife-edge situation and that they will play their full part in giving the venture a reasonable chance of success. Neither the Government nor anyone involved at the mine can do anything about copper prices which are such a crucial factor. But, of course, we are not concerned simply with copper prices in isolation but with the margin between the overall cost of producing a ton of copper at the mine and the price realised for it. If this margin can be kept in the black, our limited objectives can be achieved and the valuable employment and other economic benefits in this area, with its long tradition of copper mining, can be preserved for a further period.
I believe the House will agree that the proposals and conditions for continuing State support for the Avoca mine which I have outlined are reasonable and justify provision of the funds proposed under this Supplementary Estimate.