Where are metal prices heading? What will the development landscape look like in a decade? How will the industry cope with a growing labour shortage? These are just a few of the questions speakers attempted to answer at the PDAC’s keynote session on “dealing with uncertainty.”
The most important driver of the industry is metal prices. When they are robust, as they are today, so is the mining sector. When they drop, exploration is the first to suffer, followed by development projects. If the rout lasts long enough, mines begin to close. But even though metals have come off 11% from their near-term highs in April 2011, Scotiabank’s Patricia Mohr doesn’t see a significant downturn in the foreseeable future.
The reason is the Chinese economy. Although Mohr expects growth rates in China to drop below 9% after averaging 9.6% per annum for the past four years, she is confident that the Chinese will engineer a soft landing.
Mohr is also encouraged by signs of life in the U.S. economy, including car manufacturing as Americans replace their aging vehicles with more fuel-efficient models. “I'm optimistic that we are close to a near-term bottom (in commodity prices),” she told conference delegates.
Although demand for metals should remain strong, it is becoming more challenging for miners to find and develop deposits to supply that demand. It costs twice as much to find an ounce of gold as it did in the 1990s, and an average of 14 years to develop those ounces, according to Michael Chender, founder of Halifax-based Metal Economics Group. Copper miners are even worse off: development costs have more than doubled in the past five years, while the period from discovery to construction can stretch to 20 years.
With costs, permitting times, and taxes and royalties all on the upswing, Chender predicts that the rate of conversion of significant gold deposits (greater than 2 mn ounces) into mines – about 60% historically – will fall by 4% per year. “It’s a gentler slope for copper, but it’s still in the wrong direction, especially in light of the projections for growing demand, ” he says.
The challenge is exacerbated by a growing global shortage of skilled workers, the second biggest risk factor for the mining sector according to accounting firm Ernst & Young. In Canada, one third of the mining work force is eligible to retire by 2016, even as $140 billion in new mining projects are proposed.
One of the solutions to this human resources challenge is to develop standards and certification for some of the most difficult-to-fill positions, including diamond drillers and underground miners, says Ryan Montpellier, executive director of Canada’s Mining Industry Human Resources Council.
Another is to change the perception of an industry considered “unskilled and brute force” to one that is highly-skilled (for example, 80% of workers in the mineral exploration sector have some form of post secondary education while 50% have a university degree).
In the end, higher prices won’t mean much if there is a scarcity of both deposits and the workers that can find and develop them.