Unless you are recently returned from a remote, primitive tropical island, you are inundated daily by doom and gloom reports, not only for the mining industry but for a broad range of banking, retail, real estate, automobile and more sectors.
“Dismal” is what the latest PricewaterhouseCoopers study calls last year for juniors.
The numbers tell a “sobering tale”, Ernst & Young said of the toll the global credit crisis is taking on the market capitalization of TSX-listed companies.
The Fraser Institute called the outlook “gloomy”, expecting at least 30% of exploration companies to fail.
“The mining industry, generally, is gripped by panic and the vast majority of firms are in lock-down mode,” says Jon Wylie, managing director of Proudfoot Consulting in Canada. “They have reacted to sharply lower commodity prices by scaling back and closing older, higher-cost mines.”
Globally, Proudfoot estimates 50,000 job cuts have been announced by the Top Five mining companies alone. This has a ripple effect through international economies. For example, each mining job in the United States creates an additional 2.9 jobs in other sectors of the economy.
So why does Proudfoot see opportunities in today’s fiscal quagmire?
Mining firms need to take the next critical step – making their processes more efficient, streamlining their operations, providing relevant training for both staff and managers, and speeding up decision-making. “You can do both,” says Wylie. “You can cut costs and build strength at the same time.”
Based on mining sector data from its Global Productivity Report, Proudfoot has found that mining managers worldwide spend more of their time (44%) on administrative tasks than managers in all other sectors except retail. On average, they feel they should be spending only 34% on administration, and that they are therefore wasting 10% of their time.
In the Canadian market, if this wasted time were applied instead to active supervision of workers, productivity would rise by 2% and the mining sector would realize some $300 million in productivity improvements.
“That’s just one area where gains could be achieved,” Wylie says. “And yet most Canadian mining companies are focusing only on cost-cutting measures during this recession. They should also be looking at their operations in terms of core strengths and structuring for scalability so they’re ready to expand as markets improve.”
Proudfoot’s global data shows that the number-one barrier to improved productivity – identified by 31% of mining managers, the highest percentage in any sector – is skilled labour shortages. During a recession, this concern may not be as acute.
But companies that close mines or significantly reduce operations will have a more difficult time ramping back up because the skilled workers may have moved out of the community. Companies that can stay open through efficiency improvements, thereby retaining personnel, will likely enjoy a competitive advantage when commodity prices turn around.
As well, about a third of mining managers worldwide agree that bureaucracy and red tape prevent good ideas from being implemented in their companies. Wylie explains that “it is critical for mining companies to enable their managers by moving decision-making to the frontlines.”