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TABLE OF CONTENTS Nov 11 - 17, 2013 Volume 99 Number 39 - 0 comments

Commentary: The bear is losing its bite

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By: Andrew Pollard, Special to The Northern Miner

We are only just entering the fourth quarter, though for anyone involved in the mining industry it has been a very long year already, as is reflected in the results of the Mining Recruitment Group’s Executive Q4 2013 Survey. This latest in our series of quarterly surveys was distributed the week of Sept. 16, 2013, and completed by 162 mining leaders. It provides a snapshot of the issues of the day and a look into the mind’s eye of executives tasked to lead through them.

At the time of our last polling in June 2013  (T.N.M., June 17-23/13), sentiment was at newfound lows coinciding with the TSX Venture Exchange finding bottom. As we enter Q4, the issues faced by miners remain the same, though it is evident we are in the midst of a recovery — no matter how tepid it has been to this point. Though short-term sentiment is hardly positive, the pessimism is clearly dissipating amongst executive participants.

Though amongst executives the general consensus is that the markets won’t turn around in the short-term, having administered such surveys over the past five years to our database, the one thing that is evident is that general consensus, whether positive or negative has been almost always wrong in terms of what actually ends up playing out in the markets. Our Q4 report from 2012 had only 11% of executives holding a bearish outlook on the upcoming year for the sector; perhaps the negativity so rampant amongst executives now is the perfect indicator of what could be a massive turnaround.

According to mining executives, the next 6-12 months will be bleak, though the outlook has noticeably improved since our Q3 polling. Fifty-two percent of respondents have a bearish view as to the overall strength of the industry over the short term, down from the 64% that held the same sentiment three months ago. Executives who hold a bullish view over this time period are also up slightly, going from 9% to 11% in our Q4 polling.

It would seem the greatest change in sentiment has come from those executive who held a bearish view at the time of our last polling, moving to a neutral outlook now, accounting for 37% of respondents.

When asked the same question but with a longer, 3-year view, executives appear to be getting even more upbeat, with 74% of executives holding a bullish outlook. This is up from the 66% of respondents holding the same view in our Q3 polling.

Down dramatically from our previous polling are the 4% of executives that hold a bearish outlook, down from 11% in Q3. With the remaining executive holding a neutral outlook over a 3-year time-frame, it is evident that in the minds’ eye of executives the fundamentals of the sector are still very much intact.

In terms of what commodities will likely see the greatest gains over the next three years, gold is still the clear winner with 74% of mining executives thinking it will shine the brightest. Copper came a close second with 64% of respondents expecting to see substantial appreciation in the metal, while silver rounded out the top 3 at 53%. Uranium has fallen off since our last polling, down from 53% in our last polling to 33%.

Commodities that executives see as having the highest likelihood of depreciating in value over the next thee years are nickel, zinc and iron ore, respectively, with 40%, 36% and 31% of the multiple-selection vote.

When asked how current market conditions have affected their short-term business objectives, 42% of executives indicated that they have been launched into pure survival mode. Though alarming, these findings are extremely segmented, as 71% of executives of companies under $10-million market capitalization indicated they were in survival mode, whereas only 8% of executives within companies over $50 million in market cap would say the same.

For companies over $10 million in market cap, it would appear to be business as usual, albeit at a slower pace, with 67% of those executives indicating that they have simply cut back on exploration and development, and 33% had liquidated select projects from their portfolios.

Three out of four executives indicated that they have made a concerted effort to reduce overhead. Where have the budget cuts been made? Two-thirds indicated that they have spent less on investor relations and marketing as opposed to one year ago and 71% stated their exploration spend was less over the same time period.

Broken down further, 88% of respondents from companies with less than a $10-million market cap are spending less on exploration than last year; whereas 66% from companies ranging between $10 million and $49 million have cut back.

Only 12% of executives indicated that their company is actually spending more on investor relations and marketing compared to one year ago. Almost equally dismal, only 8% of respondents said they have increased their exploration spending.

Of those 75% of executives that specifically stated that they have made a concerted effort to reduce overhead: 74% have said they have had to lay off some employees, up from 55% in our last polling; 61% indicated that they have instituted organization-wide hiring restrictions; and 39% have reduced or eliminated incentive pay.

In a new question added to the survey, executives were asked to comment on their outlook on capital raising, specifically equity financing for the fourth quarter as compared to the last six months. Pessimism seems to have passed as only 25% of executives think raising funds in Q4 will be more challenging than it has been. That being said, only 17% of executives are of the mindset that it will get easier, with 58% of respondents indicating it will likely remain equally difficult.

When asked to rate their level of concern on the following issues that the resource sector may face over the next 12-24 months, it seems there is a clear and present danger:  80% of executives were moderately to extremely concerned over a lack of investment capital, up slightly from 74% from our Q3 polling; 61% are moderately to extremely concerned with the volatility in commodities prices, also up slightly from our Q3 polling of 54%        ; 69% of respondents do not expect to recruit over the next six months, up slightly from the 62% who had indicated the same expectations during our Q3 polling, and almost diametrically opposite from our Q4 polling from last year where 66% of executives had indicated that they would be hiring.

Of those Companies that are planning to recruit, geologists will be in highest demand with 74% of those respondents indicating they will have a need. Additionally, 57% of those companies looking to hire will be in need of mining engineers and 28% will be looking to make additions to their executive teams.

When executives were asked how receptive they were to exploring new employment opportunities, only 20% indicated that they would not consider any roles presented to them.

In another new question, we asked executives whether they saw themselves retiring within the next five years. The results (which have us here at MRG salivating at the prospect of raising our fees in years to come) are that 39% of executives expect to retire from full-time engagements or expect to reduce their work-load drastically.

Only 61% of executives polled indicated that they had no intentions of retiring or reducing their workloads over the next 5 years.

As well, only 22% of executives indicated that their company had any sort of succession planning in place.

Survey Methodology: Those that took part in this survey were executives from mining companies of all sizes and stages, divided between explorers, 52%; developers, 33%; and producers, 15%. Of those polled, 71% came from companies with market caps below $50 million, 13% from companies between $51-250 million, 11% from $251-million to $1-billion companies, and 5% from $1+ billion entities. Though the findings are not scientific in nature, I do believe they reflect an accurate cross section of the industry.

— Andrew Pollard is president of Vancouver-based Mining Recruitment Group Ltd. Established in 2006, the Mining Recruitment Group is a leader in executive searches for emerging junior and mid-cap mining companies. The group has advised companies ranging in size from $5 million to $20 billion in market capitalization, and has been involved in successful searches spanning all senior executive and functional leadership positions within the mining industry. Visit for more information.

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