Mining sector facing seismic shift

“Embrace innovation” to meet challenges, advises report

Mining investors are accustomed to volatility in a sector that’s ruled by the relative uncertainty of global commodity prices where even a slight slowing of economic growth in major markets can have a significant impact on returns. But when factors like rising costs, scarcity of supply, resource nationalism, shareholder activism, environmental protests and increased regulation are added to the mix, it becomes what professional services firm Deloitte calls a “seismic shift.”

In its report Tracking the trends 2014, which examines the top 10 trends mining companies are facing this year, Deloitte says it’s the first time in recent memory that the mining industry has faced the scale of “recalibration” that’s now underway.

Phil Hopwood, who heads Deloitte’s global mining group, says “Canadian miners should embrace innovation and revise their core systems and processes, from mine design and planning to energy supply and the adoption of emerging technologies.
“Business as usual is no longer an option. Companies that don’t respond appropriately risk not just their profitability, but their long-term survival as well,” he adds.
To survive, says Mr. Hopwood, junior mining companies need to be creative and tap into alternative funding sources.

One company doing just that is Vancouver-based Oxygen Capital Corp., which has three junior mining companies, Pilot Gold, True Gold and Pure Gold, with properties in Nevada, Ontario, Burkina Faso and Turkey. All three have continued to raise capital for ongoing operations in spite of the unfavourable investment climate.
Chairman and founder Mark O’Dea says the secret of survival in tough times is people and projects.

“Groups that have a history of creating real value for shareholders are able to attract capital because there is confidence in their ability to execute. That’s it in a nutshell,” he says.
To cope with the tight capital markets, Oxygen has focused on alternative sources of funding. For example, Liberty Metals and Mining, a subsidiary of Boston-based Liberty Mutual, has a 19.5 per cent stake in True Gold. Liberty’s interest attracted other investors and built confidence in True Gold and Oxygen’s other companies.

Mr. O’Dea has also done deals with Vancouver-based Teck Resources. As with Liberty, having Teck involved in a project helps illuminate it for other investors looking for quality projects run by proven teams, he says.

“Business as usual is no longer an option. Companies that don’t respond appropriately risk not just their profitability, but their long-term survival as well.”
Phil Hopwood is head of Deloitte’s global mining group


Mining firms must adapt quickly to regulatory changes

As if the economic challenges aren’t enough, mining companies are facing a growing list of complex and often onerous regulatory requirements in Canada and globally, according to Dawn Whittaker, mining and commodities practice leader at the law firm Norton Rose Fulbright (pictured above).

“The irony is that when the mining cycle is high, companies have the resources to focus on major new regulations,” says Ms. Whittaker. “But there’s been a lag, the cycle is lower and fundamental new rules are coming in. There’s a disconnect, but nothing is going away.”
She says mining companies need to adapt and be very diligent in complying with new national and global regulations, including those related to resource nationalism.

“It’s a fixture for mining companies in the developing and developed world, and as Canadian companies continue to invest huge amounts outside our borders, the risks increase,” adds Ms. Whittaker.

And with regulators and investigators now co-operating across national boundaries, mining companies need to be aware that issues arising in one country can have a serious impact elsewhere.

“Regulators in Canada and globally are investigating mining companies operating in some of the world’s higher risk jurisdictions, and these are likely to increase in the coming years,” she adds.