Mining and Exploration 2015: Was it pushed, or did it jump?

Written by Andy Randell and published on LinkedIn on January 6th, 2015

As we enter the New Year, many of us are wondering what it will bring for our beloved industry. Recent declines in demand, financial instability and a drop in oil prices has continued to shake our foundations in a way that has not been seen before. This ‘perfect storm’ is setting research, development and extraction back many years, the ripples of which will be felt far into the future.

But recently I have been looking at the situation in a more pragmatic fashion. I, like many, have been deeply affected by the situation, but are the reasons for this decline the same today as they were in 2012?

The crash of gold was the start of it all, when its peak started to crumble in 2012-2013. The first to go was exploration activity – public funds were drying up rapidly for speculative work in a field that may not produce a return, and as such ‘risk’ was dead. Juniors faced a decline, people were laid off in their thousands and properties went into ‘care and maintenance’.

After this, the producers started to suffer – the cost of extraction left little to no profit margin, especially with a decline in demand, and so they also started cost cutting by shutting down operations and laying off even more staff.

As a result, we now have an industry that is clinging to life, a shadow of its former self – all due to the markets, right? I beg to differ.

Throughout 2014 and even into these first few days of 2015, I have been getting to understand the situation from all angles, and feel that as an industry, we are killing ourselves now. Let me expand.

It is indisputable that the stock decline started all of this, but now we have lost ourselves into such a fog of apathy and negativity that we have become our own worst enemy. If mining and exploration were a person, they would be deemed a suicide risk; a person who after years of depression has decided that it is just not worth trying anymore, and looking for a way to shuffle off the mortal coil.

A pretty dark comparison I know, but the best I could muster. I shall explain.

Sorrow

Encyclopedia Britannica describes psychological depression as “feelings of sadness, hopelessness, or pessimism; lowered self-esteem and heightened self-depreciation; a decrease or loss of ability to take pleasure in ordinary activities; reduced energy and vitality; slowness of thought or action; loss of appetite; and disturbed sleep or insomnia”. Whether you look at an individual person, a company or the Industry as a whole, many of these characteristics are applicable in some form. We have got used to the ‘status quo’ of the markets, which has led to these feelings of “sadness, hopelessness and pessimism”. If a company does not believe that they can do anything that would result in a positive investment, then this is a form of “low self-esteem”. All of this eventually results in “reduced energy and vitality” for a company, especially in its public perception, which starts to feed the loop again, and deepen the depression. The lack of a natural rhythm of exploration / development could also be interpreted as the ‘disturbed sleep or insomnia”, thus destabilizing the situation further.

Our Own Worst Enemy?

The risk in depression is ‘giving up’. This is where we are right now it seems, as the industry has reached a level so low that it may just self-destruct.

But does it need to be like that? I have met many die hard geologists, including myself, who are trying to be the positive reinforcement and support network for the industry we have worked so hard for. We are loitering on the periphery, poised and ready for action, we just need to be accepted!

There is also money out there – lots of it – and more appearing every month. Savvy investors are starting to see that there are some excellent properties out there gathering dust that could be snapped up at a bargain price. Many of these people seemed to be based in London, UK, and themselves are geologists or engineers who are riding the waves too. Having spoken to many of them, their impression is that North America has hung a ‘closed’ sign on the door and switched the lights off – not even going through the ‘closing down, everything must go!’ phase.

So why are the lights out? Communication. The biggest complaint I get from these potential investors is that the CEO / CFO of the company they are trying to reach simply does not return calls or emails. As such they reach out to people like myself who have experience and knowledge, but sadly do not hold the keys to any property. The more I deal with this, the more I see that the situation in North America is unique in that it seems to be wallowing in its own self pity whilst the rest of the world looks for ways to recover. Maybe we have been in the fug longer and as such have had more time to resign ourselves to this fate?

Another complaint I have seen is that many of the people who are not communicating do not have a geoscience background, coming instead from Finance or some other discipline.This is not necessarily a bad thing, but it seems that these individuals were happy to take the risk when the chance of a return was good, but since the slump have jumped ship, leaving the hull of their company adrift. No news releases are made, and only the required annual financial documents are filed, and the remaining investors seem to sit quietly and accept this scenario.

This is the slow choking of the industry – there is only so much you can do for someone who does not want to accept the help, and has given up on a dream.

Depleting the Life Force

But we are not just choking, we are hemorrhaging too – and this bleed is in the form of people. The industry has lost so many professionals and talent now that it seems that the loss may be fatal.

We could get a transfusion of new graduate talent, but a lack of experience will slow progress significantly during any recovery. We could also bring in overseas professionals, but as this is a global issue, the resources are finite and there is no guarantee that there will be enough to run all the projects a new demand would require.

Resuscitation Techniques

2015 needs to be a year of overwhelming positivity and cooperation. First of all, we must learn to accept help: whether that is from a professional consultant like myself or overseas funding to advance a project. We must also break the depressive cycle and reinforce the idea that this is a ‘blip’, not the new normal. To those who are holding properties but are perhaps not interested in the risk anymore, spend some time looking to offload the property and then get out of the business altogether – this is obviously not the kind of risk / return profile you are looking for. Not every property will be snapped up (we all know that there are a lot of ‘polished turds’ out there!), but the die hard professionals can help sort the ‘wheat from the chaff’ pretty easily, if only we are given access to the data.

I realize that many reading this will say ‘it is not that simple’. I agree, it is not a simple process, or a quick one, but we need to start taking control of our own destiny again. If we continue to be defeatist then we are doomed to be stuck in a rut. I am a big proponent for trying to think differently about our Industry and challenging the ‘norms’, this is what keeps me positive and engaged as an individual – can you imagine the paradigm shift we would see if we collectively increased our positivity? I challenge you to try in 2015!