Challenges multiply for miners
I find the mining industry fascinating, but I have to say, I don’t envy mining CEOs.
The pressures on miners right now are enormous. As laid out in the plenary session entitled “Thinking Differently: A Modern Approach to Mining” at this year’s CIM convention in Vancouver in May (see Page 13), the challenges are numerous and complex. Ranging from the familiar (political risk, financing) to the relatively new (recognizing the importance of diversity), the issues confronting the industry do indeed require a change in mindset.
At the same time, the sector is attempting to innovate and adopt new technology while still smarting from a deep and prolonged downturn.
The good news – for mining CEOs and industry editors alike – is that it looks like the pain of the commodities contraction that started in 2011-12 is finally coming to an end.
“I think we’ve seen the bottom,” said Hatch CEO John Bianchini at the plenary.
“We’re seeing investment coming back into the industry, a lot of our clients are dusting off old reports. In fact, many in the copper and lithium businesses are actually starting to invest heavily in early stage greenfield and brownfield developments, so we’re at that turning point I believe.”
The not so good news is that a new cycle in and of itself won’t be a panacea for the mining sector. Some of the more distressing comments by the plenary panellists were about a lack of foresight around and investment in exploration – the lifeblood of the industry.
Majors are neglecting exploration, hoping that juniors will do the heavy lifting for them. Nicole Adshead-Bell, a director with Cupel Advisory, noted that last year for the first time, over 50% of financings for smaller Canadian juniors came from international intermediates and majors.
“I believe that’s the wrong approach,” she said, explaining that majors, not juniors, are the ones with the capability and money to stick with exploration over the longer timeline necessary for discovery.
Adshead-Bell also referred to the “short-termism” plaguing both investors and the exploration strategies of miners.
“One thing I’ve noticed recently is because of that pressure to produce results quickly, instead of going through the multi-year processes of an appropriate exploration program, it’s designed to have the glory hole – the hole that drives your share price, the hole that allows management to give you a big budget to explore,” she said.
“That short-termism is a little bit disconcerting because exploration is a process, it’s not easy, and randomly poking holes in the ground is not likely to result in success.”
Meanwhile, Bianchini said that metals demand has increased fairly steadily by 3% a year since the end of the Second World War. But a 3% increase in 1985 is different from a 3% increase today, he noted. “The pressure of replacements is much higher today because the absolute amounts are much greater,” he said.
Again, I don’t envy mining CEOs. It will take a lot of “thinking differently” to re-invent the industry – while not losing sight of the basics that have always been central to mining.