George Media’s interview with Glenn Ives

An inside look at what’s big for explorers, producers, and investors

A year ago, we brought you an insider’s look at the Top-10 issues facing the global mining industry, with insight from Canadian mining expert Glenn Ives. Ives is North American Mining Leader and Chair for Deloitte Canada, and once again lent us his input into the issues and challenges that will shape Canada’s mining industry, and indeed, those that will affect mining globally.

Developing economies are continuing to industrialize across the globe, and demand for commodities is only increasing. However, there are several roadblocks facing the global mining industry’s ability to answer the call of these developing nations (non-OECD* countries such as those in Southeast Asia).

Countries have been taking measures to monitor their own supplies, shutting some traditional markets which can affect commodity prices and of course, change the way the industry works and develops.  Key issues in particular for the new year will be finding skilled labour and getting new mine permits in hand. Philip Hopwood, Deloitte’s Global Mining Leader said recently that “increased governmental intervention in the form of mining industry nationalization or new tax and royalty regimes, coupled with inadequate infrastructure and a dearth of skilled talent, have made it exceptionally difficult for companies to build new mines or expand existing ones to boost available supplies.” Trends like these have forced mining companies to examine their operational strategies and structures.

The new year brings with it an abundance of new challenges for mining companies that they will surely rise to, and IRJ will be keeping abreast of these Top-Ten issues in conjunction with industry partners and experts.

The report

IRJ spoke with Glenn Ives about the highlights of the report, which listed the top ten issues facing the global mining industry at length. Although the list was different than last year’s, there were some definite similarities—just perhaps in a different order.

The issues, according to Deloitte’s experts, are as follows:

The fickle face of financing: International investment fuels the sector

No. 1 on the list of challenges for Canada, and the world’s industry, is the fact that although the recent GFC has subdued, in many industries the effects of the crisis still continue to hang on.  Many companies during the GFC lost ground during the recession because of debt and equity financing. Companies halted operations and implemented stringent cost-cutting measures, and now that the worst is over, there are better more robust companies out there—but a severe reduction in possibilities for financing. Traditional lenders are wary of the mining industry or have decided to enforce uneconomical terms for financing that is available. According to a Deloitte statement, “even major companies have had to enter strategic partnerships in a bid to finance new projects.”  However, new Asian investors are also stepping up.

When supply can’t match demand: Volatility is the new normal

Throughout India, Asia, Latin America and Eastern Europe the middle class is expanding, keeping commodity prices rising as demand rises. However in order to meet domestic demand many emerging market economies are slowing commodity exports—supply cannot match demand in certain circumstances. This is another critical issue for the year to come, as market forces are much changed today. Many factors are complicating the response of the mining industry to this rise in demand and fall in supply.  

Securing a social license: Engaging stakeholders takes centre stage

Of the most critical issues facing the mining industry, earning a social license has become far more important as mining companies go to more remote regions to explore and are faced with challenges of addressing sustainability. This is one issue that IRJ will be actively exploring in 2011 with many national and international experts.  

New  taxes, new regulations and new governments: Political agendas to the fore

Government intervention seems to be at a new high in the past year. One of the better examples of the mix of political and corporate agendas being brought to the forefront would be the Canadian government’s recent halt of BHP Billiton’s bid for Potash Corp. There is a myriad of issues when it comes to governance and regulation, and these will surely be taken on in the boardroom this year.

How to invest more strategically: Hint, you’ll need a long-term plan

Lessons have been learned from the GFC, and companies are now under more pressure than ever to look strategically at their long-term value propositions. According to Deloitte: “This current environment is acting as a type of wake-up call for mining companies that, until now, have failed to articulate their value propositions clearly. Faced with the potential for hostile takeover activity, companies have discovered that their notional valuations may not properly reflect their true underlying value. This realization should impel mining executives to take a good, hard look at their portfolios, processes and plans and articulate a long-term strategy that takes into account key performance indicators, emerging market forces and a range of potential future scenarios.”
The lost generation: The war for talent rages on

According to numbers from the Mining Industry Human Resources Council (MIHRC), over 60,000 people employed in the mining sector are expected to retire by 2020. Mining is ramping up, and as it does, the skills shortage will become more glaring to mining companies. Industry organizations and companies must get more aggressive and innovative about talent recruitment.

At the end of the rainbow: Maintaining the search for that elusive pot of gold

Similar to last year’s nod to remote area mining, this year and the next few will see more and more companies stretching their people resources to explore those remote places and engage in new quests for growth.

A tough environment: Climate change disclosure and adaptation are getting harder

One of the trickiest issues to manage on the list is climate change. Impacts on the corporate sector because of climate change and environmental issues are extensive, putting ever more pressure on mining companies to up disclosure and face increased scrutiny. According to Deloitte: “The failure of the Copenhagen Accord to set clear targets for the international reduction of carbon emissions has left individual countries or groups of countries to create regional and domestic schemes of their own. As a result, literally hundreds of climate change regulations and policies now exist internationally. And this is only half the story: Beyond measuring and reporting on environmental impacts, mining companies must also address climate change in the context of their overall enterprise risk management programs.”

Working with no backbone: Inadequate infrastructure hampers growth

Inadequate infrastructure will continue to be an issue in mining, but this issue is a major one for all other sectors as well.

Rethinking industry fundamentals: Exploring new revenue opportunities  

The number ten spot this year is dedicated to re-thinking the future. Mining companies need to begin to turn obstacles into opportunities, and limitations into learning experiences.

Ives talks about the list

Sara Kopamees: Can you tell us what the fundamental differences are between this year’s list and last year’s lists? We spoke at length about financing last year, and corporate responsibility. This year, financing tops the list.

Glenn Ives: What is interesting this year is the interconnectedness of so many of these trends on the list. Last year our number one issue was securing local supply. That issue was really about China and to a lesser extent Korea and Japan, and China’s emergence as a national security buyer of commodities streams.

This year, the “fickle face of financing” has a slightly different spin on it—we’re talking about the fact that even though people would look and say “there’s lots of money out there”, when there actually isn’t a lot of money out there to build mines.

If you look recently at Goldcorp’s purchase of Andean Resources, the company is paying $3.6 billion on that company in order to spend a billion on Andean’s Argentinian gold project. No western bank would give them a billion dollars to build that project. No one would lend [that kind of money] except maybe the Chinese—they are the people prepared to step up and invest in projects because they want the supply.

SK: So the financing scenario is definitely the biggest issue here, this is clearly linked to a supply/demand issue.

GI: That’s the big news: the demand is sending a huge signal of shortage. Prices are going up, which in many cases, these signals (in a rational, capitalistic environment) should result in increased supply.

SK: But in order to match supply, we need more mines.

GI: Yes. The big issue is viscosity at the moment, because people can’t respond to the demand signals when they are building new mines and increasing supply, because of the third reason on the list—social license. aspect, and the government aspect—then you’ve suddenly got the complete picture.

SK: What affect are those high demand countries having? It seems like we’re only starting to see that dimension pan out.

GI: Last year, we were pointing out on the list a bunch of the symptoms we saw, and this year, we’re now behind these issues. Now, we’re portraying a picture of this huge issue tangled underneath it all: the demand/supply disconnect. I think commodity prices long-term are going to continue to increase. I don’t see China and India slowing down in a material way their economic growth. Demand is going to stay high, long-term commodity prices are going to go up. Therefore we can’t get new mines fast enough.

Within that price prediction the other thing that’s important to note is that we’re operating close to a supply demand balance. When you’re at that sort of level, short-term [economic] news can cause bigger ups and downs in prices. Last year, volatility was an issue—the roller coaster ride. But when we look back, we see its part of a bigger package.

We’ve nailed the broader trends that are causing some of the symptoms we saw last year, now we are going through the tactical aspects of those issues.

SK: What about some of the other issues that seem to be local or regional?

GI: Still on the list is the labour issue. Every year we go forward, that 20-year gap in the labour force when nobody went into mining is coming back to haunt us. Those people now who are in that 30-50 age bracket, those who have all the energy and experience who would (in the past) have been actively building operations and running companies, they are missing. There are now fresh recruits doing jobs that in the past people with lot more experience would be doing. New recruits are learning on the job with no experience.

I have to come back to social license. One of the most important events in Canadian mining was the rejection of Taseko’s Prosperity Mine by the federal government on environmental grounds (in B.C.). That makes a statement, because the economic benefits of that mine would have been huge.

So it once again comes down to our social license. Mining companies have to make sure that they come to terms with not being able to have your social license without having everybody on side. You must get agreement with everybody before you go forward. Stakeholders are generally prepared to be engaged if you make it interesting for them. But it requires a lot more time for management to build for success.

SK: It seems that no matter where these items fall on the Top-10, they all come back to supply and demand challenges, especially when it concerns being able to start a mine in the first place, and looking towards future investment in a community, and not to mention, working with governments and changing regulations. 

GI: Yes. The fact remains that governments are short of cash. And with high commodity prices mines have more income than they ever have. So governments are now in a situation where they “say we need cash”—and that’s where they go. Mining companies have to be aware of when the rules change [in mining operations]. Changing the rules whether it be in Alberta (where rules were changed for oil and gas retroactively and this cooled investment in the province), or in Australia (where they increased taxes even though it cost the Prime Minister his job)—mining companies better make darn sure when they are spending money in a country that they have the right to what they’re going to find.

Don’t think you can negotiate that down the road—you need to get those rights well defined, because as soon as you find something the game will change.

SK: Thank you Glenn.

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