It’s time to talk about the most pressing issues facing the mining industry today and there are a lot to consider. One need only look at the meeting staged between the heads of multinational resource houses at the World Economic Forum in Davos to see this, and a mere glance at Deloitte’s annual Tracking the Trends report for 2012 reveals the subjects that leading institutions are ranking on the global agenda.
Convening women from all careers corporate and operational, Women in Mining UK (WIM UK) staged a seminar at Deloitte’s London offices on January 24, led by Debbie Thomas, Head of Deloitte’s U.K. Metals and Mining Group.
It was never going to be an easy conversation—concerns range from resource nationalism to the skills shortage and changing company-community-government requirements, to name a few—but in tackling Deloitte’s latest rundown, a gamut of issues were addressed and thoughtful conclusions drawn.
#1 – The Cost of Doing Business
Deloitte has perceived a persistent trend in companies focusing more on cash and costs since the global financial crisis, Thomas explained.
“We’ve seen companies looking from the bottom-up at where money is really going,” she said, triggering discussion about points for cost blow outs, notably the mass rise in expenditure that routinely takes place when you compare the Pre-Feasibility study (PFS) stage to that of the Bankable Feasibility study (BFS).
“From companies that have typically been very decentralised, we’re now seeing much more collaboration,” she continued, describing an Australian group whose activities at formerly parallel-run iron and nickel projects are now conducted more cohesively.
From transport and energy costs to personnel and contractor fees, it was perceived that as groups account more acutely for every potential outgoing, they are aligning their spending and governance thereof in an increasingly lean manner.
#2 – Commodity Price Chaos
Questioning whether commodity prices have been reset at higher levels and if we’re nearing the top of a bubble, Thomas reiterated the common-sense principles that apply regardless of whether gold is at $300 an ounce or capable of hitting $2,000.
Shareholders seek upside: fact. While abstracts on where prices will go given their positioning today are fine, we will always look at the debt. Asian demand, for example, looks likely to sustain for decades ahead. However, given China’s demand equation and the global uncertainty regarding how quickly the nation will modernise, informed decision-making in such fragile markets is a challenge. Companies will seek to hone enhanced scenario planning skills, says Deloitte, and this will become increasingly critical.
#3 – The battle to keep profits
Broaching the subject of resource nationalism, Thomas described the global impact that rising national debt is having on governments and their moves to garner revenue from mining.
In 2011, Australia, Chile, Peru, Ghana and Tanzania hiked mine royalties. Those active in seaborne thermal coal destination Indonesia must assist in domestic energy needs before partaking in the Asian export markets. Gold repatriation in Venezuela and talk of greater government involvement in Mongolian mining has also caused concern. The need for companies to answer all such measures at a political level was underlined.
#4 – Restless Stakeholders
“What the governments want is not necessarily what the shareholders may want,” Thomas noted, moving onto the demands of greater social responsibility. “Are governments coordinated enough on what they ask for and that they get?” The answer was a resounding ‘no’.
“Relationships are critical,” said Judith Mosely, Business Development Director for mining at Rand Merchant Bank (RMB). “More time ought to be spent developing them”.
“Governments are changing as well. Old guards are moving on within governments globally and being replaced by those with different priorities.” Corporate Development Consultant Ludivine Wouters agreed, adding that the sheer growth in access to information from internet and mobile phone use alone “dramatically changes the situation” as mining-affected communities can reach out far and wide for support. While ensuring that people are informed and working in collaboration, she said, it is also vital we maintain balanced discourse.
Mining specialist equity sales trader and WIM (UK) Chairman Amanda van Dyke asked whether a road map for creating appropriate relationships between governments, their communities and mining companies exists. “Western companies have certain views on how to broach these relationships,” she said. “But there’s fear from both sides as the way these relationships are forged needs to and must change, but there is no apparent consensus on how it should be done and how companies should balance the myriad of stakeholder interests.”
#5 – Labour Pains
Thomas noted that appeasing the technical skills shortage in industry using likely short-term pay incentives is not sustainable. The skills remain in demand and while multinationals—notably Rio Tinto—have put in place strong schemes to develop skilled persons, the call is yet to be answered fully.
“There are a number of reports saying what we need, but we’re just not thinking big enough,” one attendee pointed out.
“This is a recurring issue in our industry. Should we be going out and looking at how other industries tackle it?” Wouters asked.
Thomas noted that attracting talent earlier by targeting school-leavers as well as graduates ought to be considered. Deloitte has already embraced this, and the floor noted that young people remain unaware of their career options within the mining industry.
“I think that the juniors in particular are more flexible because they need people who can do a multitude of different things,” Thomas added.
#6 – Capital Project Quandaries
Considering how the growing number of capital projects concurrent to commodity price fluctuations is causing a supply-demand gap, exacerbated by depleting resources, Thomas asked how project risk ought to be measured, and measurements adapted accordingly.
“The technical and environmental criteria have to stand up, of course, but so do the stakeholders, including senior management,” Mosely replied. “CSR is far more prevalent now. If you’re going to lend for seven years in a country, you need to be sure that you can be there and stay there for that amount of time.”
She talked about the junior-level transition from explorer-to-developer/producer and how this may not always be the best option—strategic exists and/or passing projects onto major miners has its junior-level benefits. “After all, 50 per cent of something big is better than 100 per cent of nothing,” she reasoned.
#7 – Non-traditional financing
Casting junior miners further into the limelight, it was noted that their management need to negotiate and plan further in advance; not necessarily a natural strength for every more modest-sized team. This applies to local level agreements and project planning, Thomas said, explaining how politics can be tough to traverse—even with sound project proposals.
“Governments aren’t taking the first offer they get. They’re looking at getting the best for communities,” she reminded. “If your constituents don’t see the results, you won’t be in government.”
She explained that cultivating these local relationships underpins project success—vital developments to account for before and after a company seeks capital for growth amid today’s tough equity markets.
#8 – The big get bigger
Is there room for everyone, or do the big get bigger by consuming junior-held projects?
Majors rely on the juniors and watch them closely, Thomas said, mentioning the use-it-or-lose-it exploration licenses throwing up acquisition opportunities.
“It’s not about being big for the sake of being big,” Mosely added, highlighting the current surge for project acquisitions.
“Will juniors have to learn to develop these projects by themselves?” Asked van Dyke, to which the general response was a ‘yes’.
#9 – Volatility is the new stability
Recalling “Black Swan” events in 2011, Thomas said that although they are, by definition, unforeseeable, they are not impossible to plan for. Deloitte’s report states that doing so may require ‘more of a creative license than mining companies are accustomed to exercising’.
#10 – Legislative Olympics
Assessing the effects of the updated U.K. Bribery Act enacted from July 1, 2011, Thomas said that the U.K. legislation may prove trickier to do business under than the U.S. equivalent.
Attendees surmised that if one wishes to act illegally they will do so regardless of statute, and questioned whether or not the act in place may prove limiting internationally, or even dissuade groups from pursuing London listings.