Mining sector faces rising costs, uncertain demand

Canada’s mining industry faces significant challenges in the near term, including higher prices, uncertain demand and depressed commodity prices, according to an annual report card on the industry by Deloitte.

But the report cautions that demand for commodities will rebound in the longer term and companies should be investing now in anticipation.

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The industry is in an awkward transition period, facing growing resource nationalism, demands for greater corporate responsibility and a looming labour shortage, at a time when companies are struggling with volatile commodity prices, said Jurgen Beier, a national mining practice leader at Deloitte.

Embrace innovation

But that will force mining companies to be nimble and innovative, he said.

"There are a number of proven technologies and things that are out there today that radically change the way ore is extracted and change the way mining occurs,” Beier said.

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"We think this is the opportunity to embrace that innovation, to get to that point of sustainability."

The Canadian mining sector is seeing a lot of cost-cutting and rationalization in the face of slowing demand from China. Barrick Gold has suspended work on its massive Pascua-Lama mine in South America as the gold miner moved to cut costs.

Just today, Potash Corp. announced more than 1,000 layoffs in the face of falling potash prices and Rio Tinto said it would pull back on capital investment in its iron ore and copper projects.

Commodities slide temporary

Jim Rogers, author of Street Smarts: Adventures on the Road and in the Markets and the chairman of investment group Rogers Holdings agrees the slide in commodity prices is temporary.

“Commodities have pulled back but I would remind you that in all bull markets there are periods of correction. In 1987, during the great bull market in stocks, stocks went down 40 to 80 per cent around the world, again in 1989, 1990, 1994, etc, ‘’ he said in an interview with Lang & O’Leary Exchange.

“Every time people said the bull market’s over, but it wasn’t.  I think that’s what ‘s happening with commodities now.”

Rogers said the oil and gas sector is facing supply constraints on top of low commodity prices.

The Deloitte report warns mining firms they must be careful about how far and how fast they pull back, because they have to be prepared to meet future global demand.

Deloitte urges more corporate responsibility

“By focusing on some key areas, such as combatting corruption, enhancing corporate social responsibility practices and making increasing use of information technology and data analytics, companies can improve their prospects when global demand inevitably rebounds,” Beier said.

In the near term, Beier expects a wave of mergers and acquisitions in the sector and has an eye on Asian players as major partners and suppliers of capital. slurry pump

Among the longer-term trends Deloitte’s report warns miners to prepare for:

• Resource nationalism: Governments around the world are exercising several forms of resource nationalism, from mining industry privatization and expropriation to windfall taxes, resource taxes and export controls. Miners are going to have build relationships with national governments to demonstrate industry value.
• Combatting corruption: Mining companies will need more responsible practices in the face of heightened regulatory scrutiny, both of themselves and their partners, suppliers and agents.
• Corporate social responsibility:  Mining will need higher levels of transparency and sustainability to withstand scrutiny from none-governmental organizations, including those involved with the environment and human rights.