This week I came across an interesting article by Kelly Exeter, titled “How to write a business blog FAST!”, which promised to show me a way to quickly generate blog posts. In fact the article suggested that it should take no more than an hour to write a post. That is certainly an outcome I would be happy to achieve given that my current commitment of time to these posts is considerably more than that!
My cynicism regarding the Kelly’s claim was reinforced when I saw the result of her worked example, which amounted to little more than five paragraphs, a total of 322 words! (This post is one of my shorter ones at 1005 words).
Nonetheless, I did quite like her concept for generating ideas, although I am less convinced with her guidance of providing three key points of discussion with respect to a single idea. In my view that is the approach that you take with the media but blog readers expect something more.
Because of my time constraints this week, this blog is shorter than some of my more recent offerings and after you have read it I invite you to provide some feedback and contribute your thoughts and ideas.
The concept that Kelly was advocating to generate ideas, was to brainstorm the five key issues currently facing your clients or the industry in which you work. I thought that this might be worthwhile exercise to undertake, so here is my take on the current status of the mining industry. I’ve come up with six.
I think that the issue affecting the most companies in the mining sector; rather than the most number of people, is the much talked about "Capital Strike". Many exploration companies have limited and dwindling funds, so long as investors, are not prepared to invest new capital in the resources sector, then the lifeblood of the industry's future, exploration, will grind to a halt. This is borne out by recent statistics on exploration activity. This has obvious implications for future production.
The second issue is also greatly talked about, namely the depressed prices of most commodities. Capital that might be inclined to invest in projects that are development ready or nearly so, are hesitating because no one seems to want to be the one that calls the bottom of the cycle.
One could argue that issues three and four are actually subsets of or at least drivers of issue two, however I will include them as separate issues.
For issue three we have the large official inventories of most metals that are hanging over the price of commodities like the sword of Damocles. Who knows how much additional inventory there is in unofficial stockpiles?
Issue four impacts on issue three and hence issue two. The demand situation for most commodities appears not to be improving. With China going off the boil and many other economies; other than the US, struggling to stage significant recovery, demand is depressed and hence the rate at which stockpiles are being drawn down, if at all, appears painfully slow. Hence recovery in commodity prices would appear destined to be a long drawn out process, maybe taking a couple of years.
My fifth suggestion for a significant issue facing the industry is innovative strategy, or the lack of it.
Whilst one can argue that saying “we will survive until times get better and we can raise more money to continue exploration”, is a valid strategy and support that with tactical responses that see the company hunker down and cut costs, including exploration. It is not exactly positioning the company for long-term success.
Although recent articles have suggested that M&A activity at the large end of town has, in many cases, produced poor results for the participants that does not mean that it does not have merit at the smaller end of the spectrum.
I would have thought that given the current circumstances some of the smaller players would look to combine their assets; cash and tenements and reduce their costs by having fewer people manage a larger number of assets. But it seems not to be happening.
Whilst I have no evidence for this assertion, I believe that the lack of such consolidation is either ego driven or motivated by a desire of directors and management to retain an income stream for as long as possible, i.e. as long as the cash lasts, regardless of the consequences for the company's shareholders.
I think that there is a sixth issue, the impacts of which, will not be realised until there is an upturn in the fortunes of the industry. This is the loss of experience from the industry, particularly technical professionals and operational management.
A lot of people have been made redundant over the last couple of years, many of them veterans of the industry who have been through many commodity price cycles during the course of their working lives and have accumulated a wealth of valuable experience.
We are all aware of the high salaries that were on offer during the peak of the boom and I have no doubt that a large number of experienced industry professionals will decide that they have sufficient savings accumulated, particularly over recent years, that they will take the opportunity of redundancy to call it a day and go and enjoy their retirement.
Whilst this may have no immediate impact, when the industry starts its climb out of its present malaise, I believe that it will find itself desperately short of the kind of experience that such veterans bring to the table. This will inevitably result in some companies re-visiting errors of the past due to their diminished knowledgebase.
So those are my thoughts. What do you think? Have I missed anything significant from the list? Have I got it completely wrong? I would welcome your thoughts.