| Photo: Simon Blackley via Flickr |  |
In the week in which Australia defeated New Zealand in the latest test series, which included the first day-night test match, the cricket analogy seems a rather apt. More so perhaps because of the inclusion of the unusual day-night test match and it’s much talked about pink ball.
Perhaps the day-night test match is a metaphor for the unusual and unknown circumstances that the mining industry now finds itself in.
Over the weekend I had a visit from a friend, another mining engineer, who was visiting Perth to attend a job interview. He has been out of work for two years and is obviously eager to secure the position for which he was interviewed. For my part I sincerely hope that he is successful but I'm also somewhat alarmed by the fact that someone with his skill set can be unemployed for such a lengthy period.
During the course of our conversations over the weekend he told me that another mutual friend, also a mining engineer, who works as a consultant and has been living overseas for the last several years, is now returning to Australia as his work has completely dried up. This friend is apparently returning with the intention of buying a business such as Jim's Mowing, Jim’s Painting or Jim’s Something Else. The only thing for certain is that it will not be Jim's Mining.
For my part I have been trying to secure clients or at least build a list, as the online marketing fraternity term it, by offering to undertake up to 10 days free consulting work as five packages of two days each, to the first five companies that signed up on my website.
I ran the offer for around three weeks and received absolutely zero interest. Not a single person was interested in having me work for them for two days for free!
Now I know from my statistics that I average about 40 page views per day from 10 to 15 unique visitors. Perhaps not blisteringly hot statistics, but it does suggest that the website is not a complete backwater. The campaign was supported by a few Tweets and I also emailed the offer to approximately 320 mining and exploration companies.
My Mail Chimp reports indicate that I had a 16.7% open rate for my emails which is slightly above the 14.9% average for consulting. Yet not one of those who opened my email acted on it and took up my offer.
Perhaps my call to action was wrong? Perhaps I was targeting the wrong audience? Although with an email being sent to targeted list of mining and exploration companies I would suggest that the latter cause was unlikely.
Perhaps, and this is my suspicion, it is simply a sign of the times in the industry. That in reality very few companies are actually doing anything. They are all hunkered down just hoping that they can survive until better times arrive. Cast your eyes over a lot of 5B’s and you will note that very few juniors are showing any significant expenditure against 1.2 (a) or (b). Nearly all expenditure of those companies is booked against 1.2 (d) Administration.
My motives in making the offer were quite clear. I had hoped that if five companies had taken up my offer that for at least one of them, the work required may have extended beyond my two-day free offer and therefore I may have secured some paid work. I also hoped that even if none of the engagements extend beyond the free offer period, that the clients would have been impressed enough by my performance to come back to me in the future with paid engagements.
I also intended to use it as a way of increasing my list as in order to qualify for the free offer, companies had to register on my website.
My somewhat gloomy thoughts about the industry were mirrored in last Friday's Whitman Howard Mining Morning Summary. In their sector overview they had the following:
It is useful to borrow something from the Anglesey Mining (AYM) Chairman’s statement out this morning. One hopes he won’t mind. “the hoped for resurgence in the resources sector has not yet occurred and indeed” “the investment climate has further deteriorated. Continuing economic difficulties in Europe and a deepening slowdown in Chinese consumption, coupled with an apparent increasing involvement of hedge funds and sovereign investment funds in resource derivative markets, have resulted in further worsening of key commodity prices during the last three months.” “prices for base metals such as copper, lead and zinc are now at multi-year lows.”
"It is unclear how matters will resolve themselves in both the next few months and in the next few years. However it is apparent that with continuing low commodity prices there will be shut downs of a number of producing mines and it is highly unlikely that there will be significant new investment to replace all of this lost production. Production on a global level must therefore fall. Despite the Chinese slowdown in rate of economic growth, consumption of major metals continues to increase. Initially this is likely to reduce the levels of stocks firstly of concentrates and eventually of finished products and metals. Inevitably and notwithstanding the activities of the hedge funds and sovereign investment funds this must lead to a net deficit of supply over demand. The problem will be further exacerbated by the near cessation of mineral exploration particularly at the grass roots level which must severely limit the flow of potential new projects to even maintain production levels as current mines reach the end of their natural life. “
“The real question of course is over what time frame will these events unfold? The minerals sector has always operated in cycles but the current trough following the super-cycle of the early part of this century is deeper than experienced by any currently working in the sector and there is little in the way of guidance from the past to try to be certain of the way the cycle will move in the future. Past cycles have often had a sharp increase once the bottom was reached and hopefully that will again be the case this time round. But as a word of caution it is by no means certain that we have yet seen the bottom, nor is it clear how the new derivative players will affect the rate of recovery and it is far from certain that capital will return to the sector to fund a rapid regrowth after the pain that investors in the sector have suffered in the last two or three years.
I would characterise that statement as being on the gloomy side of optimism! However, from where I sit it "feels" like a realistic assessment of the current market.
Adding to the gloom, as we all know, since Friday the iron ore price has continued to fall and is now at the lowest level for 20 years when reporting of the spot market commenced.
To the weight of evidence for the “day-night match” scenario can be added the BIS Shrapnel report that suggests a further 20,000 jobs will be lost in the industry over the next couple of years, in a sector that is already experiencing around a 16% unemployment rate; 23% in the Iron Ore sector.
In an article entitled "Picking the winners in recovery mode", PCF Capital Group Managing Director Liam Twigger talked at length about the banking sector and its negative impact on the resources industry as well as mentioning some "fabulous opportunities", before acknowledging that they are in fact few in number, largely a function of the significantly depleted exploration budget of most companies.
Twigger observes that, with the exception of S2, a spin-off of Sirius Resources, there have been no resource sector IPO’s this year, completing a four-year, year-on-year decline. He then goes on to quote Denham Capital who have described exploration as a "company value destroyer, writing off 80¢ in every dollar". As we all know, without exploration, there are no new mines.
Whilst the article ends on a positive note, it acknowledges the current level of uncertainty as noted in the Anglesey Mining Chairman’s comments.
So what is my take on the day-night match currently being played out in the Resources Cricket Ground (RCG)? Like many commentators, I am finding it rather difficult to keep track of the pink ball as it seems to get lost amongst the taillights of yet another falling commodity price! Nonetheless I hope to see Aussie miners emerge triumphant from another international challenge in the near future.
This will be my last blog for this year and it is unfortunate to finish the year on such a gloomy note but it is a sentiment that is rather hard to avoid.
Whilst I remain positive about the future of the industry, it is all in the timing. There will eventually be an upturn that much is certain. The question is when?
I wish you and yours all the best for the festive season and sincerely hope that 2016 really does mark the re-emergence of the mining industry.
References:
http://www.miningnews.net/markets/investment/mining-investment-set-to-plunge
http://www.miningnews.net/resource-stocks/picking-the-winners-in-recovery-mode
http://www.whitman-howard.com/
Perhaps the day-night test match is a metaphor for the unusual and unknown circumstances that the mining industry now finds itself in.
Over the weekend I had a visit from a friend, another mining engineer, who was visiting Perth to attend a job interview. He has been out of work for two years and is obviously eager to secure the position for which he was interviewed. For my part I sincerely hope that he is successful but I'm also somewhat alarmed by the fact that someone with his skill set can be unemployed for such a lengthy period.
During the course of our conversations over the weekend he told me that another mutual friend, also a mining engineer, who works as a consultant and has been living overseas for the last several years, is now returning to Australia as his work has completely dried up. This friend is apparently returning with the intention of buying a business such as Jim's Mowing, Jim’s Painting or Jim’s Something Else. The only thing for certain is that it will not be Jim's Mining.
For my part I have been trying to secure clients or at least build a list, as the online marketing fraternity term it, by offering to undertake up to 10 days free consulting work as five packages of two days each, to the first five companies that signed up on my website.
I ran the offer for around three weeks and received absolutely zero interest. Not a single person was interested in having me work for them for two days for free!
Now I know from my statistics that I average about 40 page views per day from 10 to 15 unique visitors. Perhaps not blisteringly hot statistics, but it does suggest that the website is not a complete backwater. The campaign was supported by a few Tweets and I also emailed the offer to approximately 320 mining and exploration companies.
My Mail Chimp reports indicate that I had a 16.7% open rate for my emails which is slightly above the 14.9% average for consulting. Yet not one of those who opened my email acted on it and took up my offer.
Perhaps my call to action was wrong? Perhaps I was targeting the wrong audience? Although with an email being sent to targeted list of mining and exploration companies I would suggest that the latter cause was unlikely.
Perhaps, and this is my suspicion, it is simply a sign of the times in the industry. That in reality very few companies are actually doing anything. They are all hunkered down just hoping that they can survive until better times arrive. Cast your eyes over a lot of 5B’s and you will note that very few juniors are showing any significant expenditure against 1.2 (a) or (b). Nearly all expenditure of those companies is booked against 1.2 (d) Administration.
My motives in making the offer were quite clear. I had hoped that if five companies had taken up my offer that for at least one of them, the work required may have extended beyond my two-day free offer and therefore I may have secured some paid work. I also hoped that even if none of the engagements extend beyond the free offer period, that the clients would have been impressed enough by my performance to come back to me in the future with paid engagements.
I also intended to use it as a way of increasing my list as in order to qualify for the free offer, companies had to register on my website.
My somewhat gloomy thoughts about the industry were mirrored in last Friday's Whitman Howard Mining Morning Summary. In their sector overview they had the following:
It is useful to borrow something from the Anglesey Mining (AYM) Chairman’s statement out this morning. One hopes he won’t mind. “the hoped for resurgence in the resources sector has not yet occurred and indeed” “the investment climate has further deteriorated. Continuing economic difficulties in Europe and a deepening slowdown in Chinese consumption, coupled with an apparent increasing involvement of hedge funds and sovereign investment funds in resource derivative markets, have resulted in further worsening of key commodity prices during the last three months.” “prices for base metals such as copper, lead and zinc are now at multi-year lows.”
"It is unclear how matters will resolve themselves in both the next few months and in the next few years. However it is apparent that with continuing low commodity prices there will be shut downs of a number of producing mines and it is highly unlikely that there will be significant new investment to replace all of this lost production. Production on a global level must therefore fall. Despite the Chinese slowdown in rate of economic growth, consumption of major metals continues to increase. Initially this is likely to reduce the levels of stocks firstly of concentrates and eventually of finished products and metals. Inevitably and notwithstanding the activities of the hedge funds and sovereign investment funds this must lead to a net deficit of supply over demand. The problem will be further exacerbated by the near cessation of mineral exploration particularly at the grass roots level which must severely limit the flow of potential new projects to even maintain production levels as current mines reach the end of their natural life. “
“The real question of course is over what time frame will these events unfold? The minerals sector has always operated in cycles but the current trough following the super-cycle of the early part of this century is deeper than experienced by any currently working in the sector and there is little in the way of guidance from the past to try to be certain of the way the cycle will move in the future. Past cycles have often had a sharp increase once the bottom was reached and hopefully that will again be the case this time round. But as a word of caution it is by no means certain that we have yet seen the bottom, nor is it clear how the new derivative players will affect the rate of recovery and it is far from certain that capital will return to the sector to fund a rapid regrowth after the pain that investors in the sector have suffered in the last two or three years.
I would characterise that statement as being on the gloomy side of optimism! However, from where I sit it "feels" like a realistic assessment of the current market.
Adding to the gloom, as we all know, since Friday the iron ore price has continued to fall and is now at the lowest level for 20 years when reporting of the spot market commenced.
To the weight of evidence for the “day-night match” scenario can be added the BIS Shrapnel report that suggests a further 20,000 jobs will be lost in the industry over the next couple of years, in a sector that is already experiencing around a 16% unemployment rate; 23% in the Iron Ore sector.
In an article entitled "Picking the winners in recovery mode", PCF Capital Group Managing Director Liam Twigger talked at length about the banking sector and its negative impact on the resources industry as well as mentioning some "fabulous opportunities", before acknowledging that they are in fact few in number, largely a function of the significantly depleted exploration budget of most companies.
Twigger observes that, with the exception of S2, a spin-off of Sirius Resources, there have been no resource sector IPO’s this year, completing a four-year, year-on-year decline. He then goes on to quote Denham Capital who have described exploration as a "company value destroyer, writing off 80¢ in every dollar". As we all know, without exploration, there are no new mines.
Whilst the article ends on a positive note, it acknowledges the current level of uncertainty as noted in the Anglesey Mining Chairman’s comments.
So what is my take on the day-night match currently being played out in the Resources Cricket Ground (RCG)? Like many commentators, I am finding it rather difficult to keep track of the pink ball as it seems to get lost amongst the taillights of yet another falling commodity price! Nonetheless I hope to see Aussie miners emerge triumphant from another international challenge in the near future.
This will be my last blog for this year and it is unfortunate to finish the year on such a gloomy note but it is a sentiment that is rather hard to avoid.
Whilst I remain positive about the future of the industry, it is all in the timing. There will eventually be an upturn that much is certain. The question is when?
I wish you and yours all the best for the festive season and sincerely hope that 2016 really does mark the re-emergence of the mining industry.
References:
http://www.miningnews.net/markets/investment/mining-investment-set-to-plunge
http://www.miningnews.net/resource-stocks/picking-the-winners-in-recovery-mode
http://www.whitman-howard.com/
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