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MRG IN Northern Miner: Survey shows miners upbeat over the long term

The Northern Miner, Monday, December 15, 2008

Commentary: Survey Shows Miners Upbeat Over The Long Term

By Andrew Pollard

Special To The Northern Miner

It doesn’t take a genius to figure out that the mining industry is not immune to the goings on of the world financial markets. Anyone who opens a newspaper, or better yet, has a stock portfolio with a resource component can tell you that the industry is hurting.

Besides depressed share prices and shareholders, there is no shortage of evidence that the mining industry is currently going through a major transition.

While constant mention of the lack of investment capital, low commodities prices, layoffs and corporate restructurings paints a bleak picture of the whole sector, what has been the market turmoil’s effects on individual mining companies? Further, where do we as an industry go from here?

These are the questions that I set out to have answered and in so doing, reached out to executives within the industry for their input. My aim was to get a statistically relevant idea as to how companies are managing themselves during these uncertain times, and the effects the current conditions have had on them. The survey was distributed to 700 executives throughout the industry, and so far there have been 75 responses, with about 40% coming from CEOs and presidents. Companies of all sizes (those with market caps less than $1 million to those in excess of $1 billion) and natures (exploration, development, production) responded.

The results of the survey have been compiled into a comprehensive research report, though I will share the key findings with you here:

Only 12% of respondents thought that the mining sector would perform better in 2009 than 2008, with 85% suggesting it would be the same or worse.

However, respondents felt bullish about the prospects for their own businesses in 2009. Only 10% felt their own businesses would have a worse time in the year ahead, which shows a high degree of confidence in their own organizations. This emphasizes that senior management teams have absolute confidence in achieving growth in their companies but have disparaging views of the competition, and the sector in general.

Though the short-term outlook is quite meagre, there was a marked difference on their perspectives over the next three years. Some 63% of respondents are bullish as to the strength of the industry over this time, whereas only 4% are bearish to any degree. The remaining 33% had a neutral view.

69% of respondents were extremely concerned over the lack of investment capital moving into the industry, whereas only 20% were extremely concerned with facing low commodities prices over the next two years.

When asked how the current conditions have affected their short-term business objectives, 39% of those who answered admitted that their companies have been launched into a survival mode, whereas only 10% said that current conditions have had no effect on their plans.

An overwhelming 90% of those polled said that their companies have made a concerted effort to reduce overhead.

This been accomplished in several ways: 85% have scaled back on their exploration and development plans; 68% have reduced their marketing and investor relations budget; 60% have already begun laying off existing employees; 40% have implemented organization-wide hiring restrictions; 34% noted a reduction or elimination of incentive pay; and 32% have made salary cuts.

With the uncertainty currently in the marketplace, executives for the most part are committed to riding it out at their companies, with 41% expecting to stay with their current employer for at least three to five more years, and 29% committing to at least one to two. Only 16% of respondents are planning on leaving their company within the next year.

For companies in need of executive leadership, it may prove to be more difficult than ever to convince candidates who are currently employed to make a move from the familiar into the unknown.

Obviously, the effects of the downturn have been as far-reaching as they have been dramatic. As capital has dried up, and commodities prices have fallen steeply, the expected and necessary reactions have already appeared.

With 90% of respondents saying that their companies have had to change course in some aspect due to current conditions, this takes a tremendous toll, both on the morale of the management who have had to create new strategies and those beneath them required to execute those strategies.

Based on the sentiments of industry leaders, we are experiencing a short-term setback on the path to a robust future.

It is in these times when careers are made and reputations are strengthened, where management can truly showcase their leadership prowess in relation to their peers. The issues at hand place everyone on a level playing field. It is how those issues are dealt with that will prove to be the defining factor. — Andrew Pollard is president of The Mining Recruitment Group, a Vancouver-based boutique executive search firm focused on the unique needs of the mining industry.

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