MRG President Andrew Pollard in the Northern Miner: Juniors looking for a lifeline

Daily News Wednesday, December 31, 2008

Juniors looking for a lifeline

With commodities prices at multi-year lows, nickel and zinc mines closing, and exploration programs being scaled back or even cancelled, anxiety is mounting at all levels of the mining and exploration industries.

And although Canada’s mining and exploration sectors have so far avoided the massive job losses other sectors have seen, the effects of the downturn are going to make themselves very apparent by the spring, when new exploration programs don’t go ahead, warns the chair of the Prospectors and Developers Association of Canada (PDAC) financial and taxation committee.

“By March, I think people will really start to realize that the junior exploration industry has a huge economic impact in this country,” Christie says.

While job losses in mining are evident right away with concentrated layoffs that make the evening news, the downturn’s effects on the exploration industry are less visible and harder to quantify. That’s why the PDAC is lobbying for the inclusion of measures to help the exploration industry in the federal government’s next budget, to be tabled on Jan. 27. Having already extended some aid to the ailing auto sector and the financial sector, miners will be looking to the feds for a lifeline as well.

And the association is doing its best to ensure juniors don’t get overlooked in the fray of politics on the Hill –- which almost saw Prime Minister Stephen Harper’s Conservative government toppled in December.

“The exploration industry affects communities across Canada in incremental ways, and that’s one (reason) why I think the government should really take a hard look at how they can help our sector,” Christie says. “We provide jobs and employment in rural and remote places that otherwise it would be very difficult for the government to provide economic stimulus in. . . There isn’t a lot else that those communities have.”

The industry is not looking for a bailout, just some modest tax relief that will help some capital-starved juniors stay afloat a little longer.

The financial and taxation committee presented four proposals to civil servants with the ministries of Finance and Natural Resources in late December, and is scheduling meetings with MPs for January in advance of the budget presentation.

The PDAC wants the government to make the Mineral Exploration Tax Credit or “super flow-through” share program permanent, and increase the credit to 30% from 15% for the next two years. The temporary increase is aimed at helping juniors compete for risk capital and at giving investors an extra incentive to come back to the exploration sector they have been so assiduously avoiding.

The organization is also proposing a loosening of restrictions on expenses that can be financed by flow-through so that overhead expenses qualify as Canadian Exploration Expenses (CEE), and that CEE also be expanded to cover exploration on former mine sites. Finally, the PDAC is asking the government to help retain expertise in the exploration sector by putting juniors to work on the $100 million federal Geo-mapping for Energy and Minerals program, announced in August. The Mining Association of Canada has also prepared a prebudget submission for the federal government that asks for interest charges on tax payments due next year to be waived and more time for miners to make pension plan payments.

The proposals are not a blanket solution, and will help some juniors, but not others, Christie says.

“It’s really difficult to know how to help the sector,” she says. “Really, what we need is venture capital, and that’s hard to come by right now.”

Certainly, mine closures and the inability of juniors to raise significant funds from investors who are shunning risk, have a lot of people preparing for the worst.

Executive recruiter Andrew Pollard is seeing a lot more resumes cross his desk these days.

“There’s a lot more fear out there, so I am seeing more resumes across the board,” says the president of Vancouver-based Mining Recruitment Group. “People aren’t necessarily looking at making a move for any personal reasons. . . they’re just looking to get the process started and cover their bases if their company should go under or if there should be layoffs.”

Perhaps some of that fear comes from past experience of mining’s boom/bust cycle and the industry’s poor reputation for retaining people during downturns.

In the 1990s downturn, letting staff go was “the last and first step,” including some of the finest young engineers in the business, says Toronto-based recruiter Chris Stafford, president and founder of C.J. Stafford & Associates. “I don’t think that’s going to happen this time. I think we’ve learned a few lessons.”

Says Stafford: “It was so difficult to get talent when this turnaround started about five or six years ago, and I would hope the industry has learned a lesson from that.”

But Pollard doesn’t see much long-term planning going on, but rather a “knee-jerk reaction” in the industry “because of how fast the bottom’s been pulled out from underneath them.”

Falling prey to short-term thinking could leave the whole industry unprepared for the inevitable upturn — whenever that comes.

“Everyone’s concerned with finding money and a lot of people are concerned with low commodities prices,” Pollard says. “They’re just looking to get through the coming months and what I’ve noticed is there isn’t really a long-term vision for what’s going to happen if the economy does rebound in the way that most of the people within the industry think it will.”

“People are waiting for some stability, some of the fundamentals to be put back in place,” Stafford says. “We’re hoping that the market is going to stabilize in sort of six months, at least to the point that people know where they are.”

While the industry waits for metals prices and demand to pick up again — which some forecasts are predicting could start in the second half of 2009 — Ryan Montpellier, executive director of the Mining Industry Human Resources Council (MiHR) is hoping the bad news and uncertainty don’t scare too many people off.

“We’re not talking about structural changes to employment, unlike what we’re seeing in the automotive, manufacturing, textiles or forestry sectors,” Montpellier says, adding that mining is one industry that can’t be outsourced. “These are cyclical changes and when the cycle does rebound –- and it will –- the labour shortage may be even more acute than it was a few years ago.”

Even if the mining industry undergoes a contraction over a period of four years in Canada, between 4,600 and 6,200 workers a year will still be needed over the next eight years because of retiring workers and those leaving for other sectors, according to recent projections by the MiHR show. It previously had forecast a need for 9,200 new workers a year over the same period.

While commodities prices are not expected to again reach their fantastic pre-downturn heights in the foreseeable future, banks such as TD Bank are predicting a modest rebound starting late next year.

And the layoffs and bad news in mining are not yet dampening the enthusiasm of students at the Haileybury School of Mines, says associate regional director of Northern College’s south campus, Shawn Chorney.

“We’re viewing this as a blip and I think most of our students and our partners are as well,” he says.

New students are still signing on for January, even in the current environment, he says.

Neither are graduating students — whether in the mining technician, diamond drilling or mineral processing streams — worried about the job market that awaits them.

While there have been mine closures — mostly marginal operations that required high prices to be profitable — Chorney says there continues to be strength in gold and copper prices, and new mines are still opening up. Permitted northern Ontario gold projects such as Lake Shore Gold’s (LSG-T) Timmins West and Apollo Gold’s (APG-T) Black Fox are hiring staff complements in the hundreds, he says.

“There’s still a lot of good news, in spite of layoffs,” Chorney says.