Gold still glitters in Ontario as exploration dollars continue to flow into Canada's largest gold-producing province.

"Mining companies are finding it much easier to access pools of risk capital. This hasn't been the case since Bre-X in I997," said John Gammon, assistant deputy minister for the Ontario Ministry of Northern Development and Mines.

Bre-X, a Calgary-based mining company whose shares were once valued at more than $280, collapsed in 1997 after it was discovered that its gold reserves did not exist.

Spending on mineral exploration and deposit appraisal is expected to reach $314 million in Ontario this year, nearly triple the amount spent in 2001, according to the Ministry of Northern Development and Mines.



About 40 to 50 per cent of exploration spending in Ontario is on gold exploration. Total mineral exploration spending was about $294 million last year compared to $219 million in 2003.

Ontario mines account for about 50 per cent of Canada's total annual gold production, which was valued at $1.25 billion in 2004. Canada produces about 5.5 per cent of the world's annual gold supply and was ranked seventh in 2004.

The price of gold has steadily climbed to more than $430 US an ounce since 2002 when it was $270 US. Some gold experts predict gold could reach $600 US if the United States deficit continues to grow. The price peaked at $450 US an ounce in December.

"The price in U.S. dollars has awakened investor interest in gold," Gammon said. "There is a great deal of interest at the retail investment level in gold. Underwriters are more willing to farm out risk capital to operating mines and to expand mines."

Although the price of gold in U.S. dollars has been steadily rising, "the gold price increase in Canadian dollars has not been significant because the Canadian dollar has increased in value against the U.S. dollar," said Mark Smith, a gold analyst with Dundee Securities in Toronto. As a result, U.S. gold producers have benefited from the rise in the U.S. dollar gold price, not the other world gold producers.

The increase in gold exploration in Ontario and elsewhere in the world is driven by "the expectation that gold prices will continue to go up, independent of the U.S. dollar," Smith said. "It has made some gold-mining projects more viable than they were before."

"What is driving this (gold exploration) is the promise that gold will go even further in all currencies," Gammon said.

The awakened public interest has resulted in a dramatic rise in the number of companies exploring for gold in Ontario's major gold-producing regions such as Red Lake and Porcupine in northeastern Ontario.

Since 2002, active claims in the two regions have jumped 45 per cent.

The ministry estimates four new gold mines will open in the future, although it could take up to 10 years to bring a new mine into production, a spokesman for the Ontario Mining Association said.

Gold continues to be the most sought-after commodity in Ontario despite the increasing activity around diamonds and base metals.

The rising price of gold and other metals has seen worldwide mining expenditures mushroom, according to the Toronto Stock Exchange.

Between 2001 and 2004, equity raised for global mining projects jumped from less than $4 billion to $9 billion.

Ontario exploration projects face strong competition from projects in other parts of the world when hiring geologists, said Garry Clark, executive director of the Ontario Prospectors Association.

"You have to line up to get a geologist. Geologists don't see borders as much as other people. They go where there are projects," he said. "Because of the lean years prior to 2002, the labour pool became very thin."

The increase in exploration has led to other supply shortages in Ontario, Gammon said. "You can't get a diamond drill in parts of Ontario, you can't rent a helicopter. We're seeing a tremendous increase in the number of claims being staked. You can't hire a geologist and there is a tremendous call for colleges and universities to turn out more people in these disciplines."

Clark, however, sees clouds on the horizon. "As long as China and India continue to demand materials, there'll be a net loss of minerals. But, without China and India, we would go back to slack times."

The World Gold Council estimated world gold production was down 4.4 per cent in 2004, while demand increased 8.2 per cent.

Gammon and Smith also worry about Ontario's rising electricity rates. "Electricity rates in North America are high compared to the Third World," Gammon said. "Ontario companies are constantly driven to innovate to compete and stay on the lower portion of the cost curve."

While there is also concern about whether the U.S. dollar will continue to fall, in Ontario there is still gold at the end of the rainbow and somebody's got to look for it.

(Charles Wyatt can be reached at wyatt@businessedge.ca)