VANCOUVER — The Association for Mineral Exploration British Columbia’s (AME BC) annual Roundup conference each January marks the beginning of a new year, and reflects many of the themes and topics that will come to define the industry in the year ahead. Since the attendees range from junior explorers to folks from major mining outfits, the conference offers unique insight into the concerns of some of the world’s top exploration talent.
It’s no secret that the industry has been through a savage period over the past three years, with volatile commodity prices, rising cash costs and socio-political uncertainly causing mayhem amongst majors and juniors alike.
As average head grades at major mines have declined and explorers have looked farther afield for quality deposits, it has become necessary for the industry to acknowledge and solve a diverse set of challenges that range from resource nationalism and environmental protests to emerging trends in social media.
On Jan. 30 the president of the International Council on Mining & Metals (ICMM) Anthony Hodge took to the podium to close out Roundup, and touched on the themes that ran through many of the conference’s technical and keynote presentations.
“There is a change in the spirit of the world, in the way we can move forward using relationships and engaging communities in a way that is utterly marked by integrity and respect,” Hodge began his address. “The days of coming in from the outside and imposing on communities a recipe for development and success are over. We as an industry only have one choice, and that is to gain the skills needed to build those types of relationships. It has changed because of a communication system in the world today that is empowering citizens in a way that they have never been before.”
The ICMM took form in 2001 from a research project called the Global Mining Initiative (GMI), which was motivated by a dozen CEOs of major mining companies operating worldwide. The GMI was a response to a large drop in commodity prices in the late 1990s that coincided with what Hodge refers to as “the peak of the contemporary environmental movement.”
ICMM’s membership roster is a list of industry heavy hitters, including BHP Billiton, Rio Tinto and Glencore Xstrata, along with Canadian majors Teck Resources, Barrick Gold and Goldcorp. There are 21 companies on the council employing 1 million people. In 2014 the ICMM companies estimate they will spend US$160 billion on their operations.
At the macro level the concerns are well-known territory. Will China’s economy keep driving demand for base metals? What effect will the U.S. Federal Reserve’s tapering of its quantitative easing have on precious-metal prices? Will the financial sector balance its quarterly profit expectations with the longer timeline associated with discovery and mine building?
These concerns are shared by major producers looking at mines that will run for decades, and explorers looking for a way to fill the project pipeline with economic discoveries.
During the Roundup talks, there seemed to be a general sentiment that base metals prices would strengthen moving forward.
In an anecdote that would suggest continued strong metal demand in China, Hodge noted that during a recent trip to the World Economic Forum in Davos, Switzerland, a senior economist from China told him that the central government has 400 public infrastructure projects in its back pocket that would ensure it meets its gross domestic product growth target of 7.5% in 2014.
Numerous speakers identified the growing global population and advancing urbanization in developing nations as stoking demand for raw commodities. And the research appears to indicate that many resource industries will struggle to meet that demand.
For example, research outfit SNL Metals Economics Group noted in July 2013 that 100 copper deposits have been discovered between 1998 and 2012 containing 395 million tonnes of copper, but the industry has converted just 10% of that total into reserves. In terms of copper mines, 47 comparable operations saw weighted average head grades fall by 30% between 2001 and 2012.
The drop in quality deposits has led majors and explorers alike to new and more difficult jurisdictions in search of frontier discoveries. That challenge has coincided with increasingly militant environmental movements and the rise of fledgling democratic governments tasked with dragging under-developed countries into the modern industrial era, with mining often playing a central role in providing the capital and infrastructure needed to achieve those goals.
A common observation at the conference involves the disconnect of a world that requires more raw commodities even as it tightens regulations, taxes and scrutiny on the companies seeking to meet those demands.
Hodge told of the panel meetings he attended in Davos with world-economic leaders who cited the grinding poverty and inequality in developing nations. He noted that the mining industry could reduce poverty, as it often operates in under-developed areas that can benefit from infrastructure and social improvements.
And many major companies and developers have emerged as socio-political players that well understand their impact on surrounding communities.
Hodge underlined the importance for the industry to get involved in these conversations in order to apply its expertise to new legislation and ensure that cash flows from taxes and royalties move efficiently from central governments to regions directly afflicted by income and development inequality.
Hodge and outgoing AME BC chairman Michael McPhie both highlighted the importance of education in moving the industry forward. Canada’s role as a global mining leader was mentioned repeatedly, with both its technical processes and mining legislation exported regularly to countries whose governments are aiming to establish sustainable and responsible extractive frameworks.
Better educating local communities and regions in the face of competing influence from heavily funded non-governmental organizational movements is also an pressing issue amongst majors and juniors.
In the exploration sector, there is a consensus that something needs to change in order to strengthen junior companies through the cyclical bear markets of the business.
Many speakers — including Hodge — noted another disconnect between the financial-service sector and the mining business in terms of operational time horizons and profit targets.
Even amongst larger-cap companies that have been cutting costs, most of those cuts are geared towards projects that are not yet built. Hodge labelled explorers the “foundation of the mining ecosystem,” and noted that weak markets are ideal times to support discovery funding and revitalize project pipelines.
The debate continues over the pros and cons of the “project generation” model, wherein explorers operate as de facto research-and-development teams for larger mining outfits. Project generators were well represented at the conference, and have demonstrated resiliency through today’s tough markets.
A phrase that’s been bandied about of late is “cautious optimism,” and that seems to coincide with the sentiment at Roundup. Global economic issues appeared to take a back seat to a desire to more directly foster a healthier junior sector, and improve corporate social responsibility efforts and community relations.
“I could not help but come to a conclusion recently that’s been simmering for some time,” Hodge said. “When you look at the grand scheme of things in the world right now, the solutions we need to address those very large questions are, in fact, staring us in the face in the periphery, in the communities where mining operations are building strong relationships, where people work together and there is dialogue and constructive movement forward. We have lessons to share from our industry that have much broader implications.”
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