He was a champion hurdler at one time. So far I have concentrated on the principle involved in the Minister's approach and exposed the position as I think it truly is, without entering into a debate on the question of the valuation itself. I have shown that, without the information that would normally be available to a prudent and knowledgeable investor, any man would be crazy to be involved in any payment. It may be that the Minister when he comes to conclude the debate will attempt to justify the valuation but he will not be able to do so from the point of view of an objective potential investor.
He has adopted an incorrect approach and entered into an area fraught with such risk that no expectation of values, which of necessity must be questionable having regard to the embryonic state of the project, can justify this payment. It is a matter of judgment. I say that his judgment is wrong. It was wrong in 1975 and it will never be right, whatever the result, because he is not entitled to commit the people's money at such risk and at such a time as he did in 1975.
Earlier I was about to discuss the possible gross revenue from the mining project at Navan to be worked by Bula Ltd., but then I had to go off and, like the Minister, look at how much money it would need before there is any revenue created. The figure probably needed, as I said, will be between £35 million and £45 million for pre-production and capital investment.
I will ignore the uncertainty as to how the ore is to be mined and move to the quantities to be mined. In February, 1975, Bula Ltd. published reserve figures of about 15 million tons of about 10 per cent average lead and zinc content. Due to the unknown factor with regard to the recoverability of the ore under and around the river, the company cannot bring this into the calculations because there has to be an agreement between Tara Mines and the Minister about the diversion of the river to suit Bula. So let us take one million tons of ore off for this uncertainty. That is a modest deduction in the circumstances.
Of course, not even Bula Ltd. will be able to recover all the ore, so for the purpose of this exercise let us say that Bula will mine one million tons of ore per year for a period of 13 years, that is rather modestly taking off only two million tons for these reasons.
This will produce about 160,000 tons of concentrate and, on the published average contents of lead and zinc, I would expect 140,000 tons of zinc and about 20,000 tons of lead.
If we take a net value of $200 per ton for concentrate we use simple arithmetic to arrive at the annual revenue of about $28,000,000. Let us round it off in the Minister's favour and call it $30 million per year revenue, for 13 years. Taking open pit and underground mining plans as being half and half, and assuming planning permission without onerous conditions I would expect average production and concentration cost for the ore as being $13 per ton for opencast and, say, $20 per ton for underground mining.
Average production and concentration cost for the ore will probably be $16½ per ton for one million tons of ore per annum, a total of $16,500,000, leaving an average of $13,500,000 per annum of gross profit. This, of course, will not be available immediately. The Minister cannot tell us when the mining will start, so let us assume it will take two years before there is any revenue. The Minister, of course, is not getting any dividend on startup on our £9.54 million and he does not know when he will, if ever. In addition, the Minister's and the shareholders funds would have to give priority to the servicing and repayment of the bank loans which one would anticipate would finance over 90 per cent of this project.
The Minister will be forced by circumstances into contributing more capital to get the mine into production. On average figures, I have shown how it will need more than £30 million to get into a revenue producing state. If this is to be all borrowed, it would require to be repaid over about seven or eight years because the theoretical life of the mine is only 13 years at most.
So where are we going with our £9.54 million? We are being asked to spend it on shares in a company which owns land in Navan in which there is lead and zinc. The Minister and his partners will need more than £30 million to get started. Therefore he does not say and cannot say when he will get his first dividend on his £9.54 million. Investment of State funds in such a negligent manner is clearly a breach of trust.
This House should ask itself and, in particular, the Minister should ask himself in all sincerity how can he continue with such a crazy proposal. The whole mine will only generate a total sales revenue or turnover—not profit—of about £18 million per year —about £200 million in all—and I emphasise again that is revenue, not profit. However, the Minister has already created the equivalent of £300 million of disposable pre-tax profit for the shareholders who are selling him his shares. The significance of this should be appreciated by anyone who is concerned to be around when such an incredible scandal as this is taking place.
In fact, the mine will not obtain in sales revenue as much money as the Minister has created for the shareholders by his purchase if they had to pay tax. I could go on with this line of approach but I suggest as it has been exposed up to now it clearly shows that a major error of judgment has arisen. This error of judgment has been compounded by an arbitration award which cannot be explained. It is too early in the situation for the payment of money. It will never be worth this amount but that is not really the point. It would never be worth taking a significant equity investment in this particular mine unless one got it at an extremely reasonable figure.
I want to summarise what I have been saying up to now from the investment point of view and to put it in as net a way as I can for the benefit of the Minister and his officials. As I said already, it may be that when the Minister signed the agreement to buy shares in December, 1975, he thought he was allowing sufficient time for proper evaluation of Bula before the first payment became due next week.
The present situation clearly shows that the time for payment should not be February, 1977, because of the following deficiencies which basically summarise what I have said heretofore:
1. No planning permission exists to permit the mine to start-up.
2. No detailed production plan exists.
3. No detailed production cost estimate exists.
4. No detailed concentrating cost estimate exists.
5. No sales plan exists.
6. No revenue estimate or schedule exists.
7. No capital expenditure estimate or schedule exists.
8. No quantifiable yield on the Minister's payment of at least £9.5 million exists if it is made in February, 1977.
9. No capitalisation plan exists.
10. No proposal for river diversion is before the planning authority.
11. No precise workable ore reserve figure is available.
12. No provision has been made for capital additions of cost during production.
13. No allowance can be quantified for possible lowering of the ore mining grade which might be affected significantly, particularly if the river division is delayed or not undertaken.
14. The extraordinary arbitration valuation which comes to about £40 million for the mine and which is to be compared with a reported value of £7.75 million placed on the entire undertaking by the Minister's own financial advisers, must have been based on very high recovery figures provided by Bula which may not be justified particularly for the lower grade ore to be mined. It should be remembered that metal recovery into concentrates varies directly with the grade of the ore.
15. Concentrating cost estimates could be inaccurate if extensive pilot plant work has not been undertaken. Are we to be told that this pilot plant work has taken place elsewhere? The facilities do not and did not exist at Navan for it to have been there. No reputable merchant bankers like Lazard Brothers and Company Limited or any similar world class institution would attempt an evaluation, or no mining consultants and advisers they might employ. The attempt to let Lazard Brothers make such a valuable if extensive pilot plant work had not taken place on the site.
16. It is not possible to quantify the effect of all these deficiencies for a projected cash flow and therefore, for the resulting value of the project.
17. I do not think that they can be quantified in the discounting factor used for valuation purposes.
18. The Minister and the arbitrators have relied upon reports produced by Bechtel for Bula and submitted to the Minister and the arbitrators. The Minister's financial advisers must have sought the opportunity to commission a full report by independent consultants on the proposed developments. I asked the Minister was this done? Was there a full report or was it just four or five pages from some open-cast expert commenting on somebody else's report without having undertaken a thorough investigation himself?
19. We cannot obtain confirmation or evidence that the Bula report prepared for them by Bechtel has no reservations on concentrate recovery projections and operating costs. Is there sufficient supporting data for the assumptions made under these two headings by Bechtel in particular?
20. No acceptable investment analysis as applied to equity investment in mining projects is possible to permit any payment to be made either next week or in the foreseeable future.
I have been dealing for the last hour and 40 minutes with the investment approach to what the Minister has done. I have deliberately refrained from other approaches which will be taken by my colleagues. We try to deal with this question as broadly as we can. We will try to query it from each of the various points of view from which it should be queried. We can only hope for the sake of the country that the questions we have asked and will ask will be answered and that we will not get the kind of performance we got at 3.28 p.m. today when we were told everything was on-going and because everything was on-going nothing could be definite.
The Minister for Industry and Commerce is adept at sliding out of price increases or the closure of factories and so on because he has had more practice at it than all other Ministers for Industry and Commerce in the history of the State. However, the kind of performance he is good at in that sort of thing will not do here. This is fundamental and very important and will have to be answered. I am not going to lose my life if my questions are not answered. I am sure my colleagues will not either, but this country can draw some very valuable conclusions and we will soon know whether the Official Secrets Act was invoked by the Minister for Industry and Commerce in an effort to prevent criticism of himself.
Before I sit down there is one aspect of this matter that I want to deal with very briefly because, while I have set out in great detail by analysis what the Minister has done and I have set out certain criteria in relation to what I think the Fianna Fáil Party would have done in the circumstances, this opportunity is probably the only one I will ever have on a mining Bill in this House to set out very briefly our approach to mining problems as they exist at present. The first thing to remember about mining in general terms in this country up to 1973 was that as a result of what Deputy Gerald Sweetman did in 1956 and what Deputy Seán Lemass did in 1958 there was a sudden upsurge of exploration. That began in the middle or late fifties and in the early sixties was rewarded near Loughrea in County Galway with the discovery of a worth-while, marginal mine, not by any means a big or profitable mine. Some years later the same group, who spent far more on exploration than anybody else in Ireland either then or since, found another small and, unfortunately, even more marginal mine at Gortdrum near Tipperary town. They put both of these mines into production. Nobody else found anything of great significance. Then in 1970 at Navan the same company again found the biggest mine ever found in Ireland—this one. There was tremendous exploration during the late fifties and all through the sixties and the early seventies.
Then in 1973 it came to a stop. It is pretty evident why it did because the Government of the day broke their word in a stupid way. They did it for ideological reasons. Allegedly they wanted to get more money. If they had never broken their word they could have got more money out of royalties. The whole atmosphere in mining in Ireland changed quickly towards the end of 1973 and instead of frantic exploration which had led to the discovery of three worth-while mines, exploration began to grind down, not quite to a halt, but very nearly to a halt. An example of it was in the autumn of 1976 when 120 prospecting licences which had been issued to companies were returned to the Department. They were not interested any more.
Our attitude is that we want to encourage exploration at the rate that it went on during the late fifties right through the sixties and into the early seventies because it is only if we encourage that exploration that we will get the finds that that policy brought about in that decade between 1960 and 1970. Having encouraged the exploration on a wide scale that did exist and that we would hope to get going again, we are not going to make any fancy deals with private companies to pay their private shareholders incredible amounts of money for percentage shares in those companies. What we are going to do is to use the Minerals Development Act, 1940.
That Act was supported by all sides in the House, not least at the time by the Labour Party because the members of that party at that time had some shape or semblance of socialism about them which they have long since lost. We are going to use that Act to do what that Act is there for, to get over the difficulties that existed in, for example, two places, Wexford and Clare in the thirties where the private ownership of minerals interfered with the development of two mines which it was in the national interest should be worked—precisely the kind of situation that we have in Bula today. The 1940 Act was brought in and supported by all parties to overcome that. If there was some technical defect that the courts found in the order that was originally made then the order should have been made again without the technical defect that the courts found, and should have been made the very day that the courts gave the decision. The technical defect should have been set out so that the draftsmen the second time would change whatever word needed to be changed. Then the State would control the minerals as the 1940 Act envisaged. We would then negotiate with such person or persons as seemed most likely to deal with those minerals in the way that would be most conducive to the maximum possible public benefit here. We would have granted a mining lease to one or more firms—perhaps even as many as four —if the orebody was found to be big enough. They would have as one of the terms of that lease to work together in co-operation. There would be only one concentrator at that mine and not two as is the ridiculous situation today.
We must take into account the particular moral claims of those who found the orebody. If people who spend millions of pounds in exploration are ignored by the Government, then they will not spend more money looking again. That is what happened in 1973 and 1974 and there are very few people looking for minerals in Ireland today. Having granted a lease to one or more companies and having made it a condition that the companies would operate together if there was more than one, the most important covenant of that lease would be the insertion of a condition that a smelter would be established by the mining lessees, either by themselves or by arrangements they would make with others. I would not care whose money built it.
Look at the position in which the Minister finds himself today having failed to do that. He had the perfect opportunity to do it, and indeed I would say it was a duty. He now finds himself fiddling around with this little company which has 13 years left, if it is lucky, if it can divert the river. If it cannot, I suppose it will last only about seven or eight years. In the meantime the mining lessees of by far the biggest part of this rich orebody— perhaps 80 or 90 per cent of it—have entered into long-term contracts in order to capitalise their projects. Does the Minister realise what that entails? It means that Tara zinc concentrate is not available for an Irish smelter if we had one and is not available for eight or ten years. I do not know the details of their financing arrangements with the banks but it is in the region of that period. The concentrate is not available because it is already sold to zinc refineries all over the world. Even if the IDA could get someone now to build a smelter, though this is becoming increasingly problematic, I do not think they would get any ore for quite a long time. Tara's concentrates are sold and Bula may never go into production. The Minister knows that. We have only to read his own speech. Anticipating that things may go wrong the Minister said:
I believe we will still have a substantial credit balance. At the very worst, I do not think that we can lose, because even if the minerals are left unworked in the ground our participating interest will remain to bear fruit at some later date in the future.
Is that the statement of a man who is delighted with the deal he has done? It is an incredibly apologetic statement on the Second Reading of a Bill to approve the payment of £9.54 million to four individuals for a minority shareholding in a very small company with no plans and no quantified assets. To my mind this part of the Minister's statement is extraordinarily apologetic in tone. He realises that this mine may never go into production. If things work out as one anticipates it simply could not go into production. In any event its life is so short that it is extremely doubtful whether it is worth trying to operate it in the way proposed. The Minister says that if the worst comes to the worst at least we will own 49 per cent of whatever is there. If the Minister did his job properly we would own 100 per cent and compensate the owner, as was done in many other cases. Why is it that the Minister found such difficulty, since this Act was used in other cases? If similar circumstances should arise again we would forget about these equity shareholdings and forget about risking State money in the most notoriously risky business there is.
In my speech I gave examples of some incredibly prosperous firms like Rolls Royce going bankrupt and the equity shareholders getting nothing. Mining is the most notorious kind of investment. I would ask the Minister to think about the Poseidon case. Poseidon had and still has one of the richest nickel mines in Australia. It never went into production and today Poseidon is in compulsory liquidation and the shareholders who purchased shares at as much as £105 and £108 per share have recently been told by the liquidator that if they are lucky they may get a dividend of 5p or 10p on their shares. Bula is no Poseidon; it is on a very mini scale. It might end up as a tragic loss. The most the State can lose is £9.54 million plus the £2 million or £3 million that it will have to put in as a rights issue. It is a serious matter if we may lose that much.
God knows State capital is scarce enough today. Look at the roads of this country. They are screaming out for capital. Every bump is an eloquent cry for the use of scarce State capital. Look at the telephones. One may have to dial Limerick ten, 12 or 15 times in order to get through to a number which is not engaged. There is a screaming demand for capital in this country today. What are we doing with it? We are putting it down a hole in the most notoriously risky business there is simply because the Minister has an ideological hang-up and he did not want to do what his predecessors were doing successfully. We could be getting our cut from the entirety of that mine and the whole orebody could have been in production more than two years ago but for the messing that went on. Every ton of ore which comes up is recorded for the Minister for Industry and Commerce of the day by his clerk. He counts every ton that comes up and calculates the money owed to us. We have a variable production royalty and at the end of every week the State is paid a substantial amount of money and nobody can complain.