That Glencore and those who invested in the company appear to have misjudged the market is perhaps no surprise given that there does not appear to be a consensus on where markets are headed. Only last week, on consecutive days, MiningNews.net published two starkly contrasting views of the industry.
On Thursday 24 September, Robin Bromby was asking the question “Two more years of this?” quoting various sources including Macquarie Research, the Bank of England and Goldman Sachs, all of whom have a gloomy outlook for commodities over the next couple of years.
However on Friday 25 September, Hedley Widdup of Lion Selection Group told the Rising Stars conference that “Mining (was) past the bottom", and he was ringing the bell on the new mining cycle. Lion Selection’s "mining clock" is well known, at least in the Australian mining sector and Hedley confidently stated that it was currently at 4:30, this is early in the period when mergers and acquisitions take place before the upswing.
Two commentators in two days presenting two different views of the sector to me illustrates the uncertainty that currently exists in the market. It is no wonder that retail investors are scared of the resources sector at present as the "experts" appear unable to agree.
I have always taken a rather cynical view of forecasters. For any economic parameter that one might wish to forecast, there will be a range of views, often quite a wide range. Inevitably someone is always right, or at least close enough to be able to claim that honour. In my view that makes them lucky rather than right. The real use of forecasts is to use the multitude of forecasts to arrive at some form of consensus, at least of market direction. So in absolute terms I do not believe any single forecast but in overall terms I believe that forecasts give us a vector on where the market is heading.
I believe that the complicating factor in the present environment with commodities having fallen so far from their peaks, is that every forecaster is now taking a very conservative view because they don't want to be wrong, more than the want to be right.
I also believe that sentiment does indeed play a role and industry commentators, politicians and economists may be surprised how much influence their talking up or talking down the economy can have on public sentiment and hence the markets and perhaps even the economy. In other words I believe that we need more people like Hedley talking the economy and the industry up, so it was great to see Christine Legard being cautiously optimistic about the world economy in her IMF speech yesterday.
The media's role is interesting, particularly with its commentary on Glencore suggesting that it is the new Lehman Brothers with potentially worldwide consequences in the event of its collapse. Again my cynicism comes to the fore and I wonder if the media, having not foreseen Lehman Brothers collapse is trying to get in early and make its "forecast" on the collapse of Glencore.
Obviously only Glencore knows the true extent of its exposure, particularly with regard to its trading arm and whether there is a real risk that the company may collapse or not. If it does survive then I am sure that there is still a story in it for the media!
Turning to the unemployment levels amongst mining professionals, at least in Australia. At 16% of professionals, this is around three times the national average rate of unemployment, and if one looks at the granularity, the rates of unemployment amongst those previously employed in the iron ore industry are higher still at around 23%.
At the risk of stating the bleeding obvious, such an outcome is not unexpected given the relatively small number of people employed in the mining industry compared with other sectors, the significant fall in commodity prices and consequential company failures and mine closures. That being said I feel for each and every one of those people. It is a hard thing to swallow, to be out of work when your mates are still in jobs.
However, I perhaps have a more optimistic view of the world than many others who have been made redundant in recent years.
Firstly, there are still mining jobs available, it's just that most of them don't happen to be in Australia. I, like many in the industry, receive a daily update on the employment market from CareerMine, part of InfoMine. This consistently lists jobs available in Canada, Russia and to a lesser extent, the USA and this trend has been sustained for several months.
Miners have always been itinerants. The Cornish set the trend in the 18th and 19th Centuries travelling to all corners of the world when tin and copper mining in Cornwall declined. Indeed there is a saying that the definition of a mine is, "a hole with a Cornishman at the bottom of it."
Many miners in Australia have been itinerant. The mines of Kalgoorlie and Kambalda in the 80’s were full of people from everywhere it seemed, except Western Australia. So for those who are prepared to take up an itinerant lifestyle once again, there are jobs available, it just means that you need to roam little further than you once did.
For those of us who don't fancy upping stumps and moving to yet another country, there is still opportunity because the mining industry has taught us a multitude of skills that are applicable in many other industries.
Whilst it is perhaps more true of mining engineers, who, let's face it are generalists, most mining professionals who enter the industry based on a technical skill, sooner or later end up in management at some level or other. This requires us to call on skills that we often only paid scant attention to during our university time. We bolster them with a good dose of on-the-job training. If we have been lucky our employers have supported us by providing additional training to help us deal with the requirements of a management position.
In these management roles we have learned a multitude of skills; problem solving, project management, industrial relations, OH&S, human resources management, environmental and social management, regulatory compliance, approvals processing, budgeting and financial management are those that spring immediately to mind, there are probably more.
The great news is all of these skills are applicable to other industries, indeed many mining industry professionals are better prepared for management and ownership roles in other industries and in particular in SME’s than many people working in these positions.
The AusIMM has expressed concern that the industry will lose a significant number of experienced and knowledgeable professionals who will choose to go into other industries in order to gain employment during this downturn. I certainly agree that this is true, indeed I believe it is inevitable. However, I do not share the institute’s pessimism regarding the impact of this "brain drain" on the industry’s future.
The industry has been through many cycles in the past 30 years and on each dip we lose professionals permanently from industry, yet the industry has always survived. As on previous cycles there will be sufficient number of experienced and knowledgeable professionals who remain employed to be able to coach and mentor those less experienced as well as the new entrants who will join the ranks on the next upswing in the cycle.
I agree that it is hard to leave an industry that one loves and in many cases has given many years of commitment to, but for those who want to remain in the industry there are positions if they are prepared to travel to other countries and for those who remain in Australia, I believe that they are highly employable in other industries, where they will undoubtedly have successful careers.
To sum up I can do no better than to quote Monty Python, “Always look on the bright side of life!”