In March 2007 at the Fairmont Royal York Hotel in Toronto, amongst a gaggle of wine-sipping mining executives, bigname analysts and big-bucks investment bankers, the head of a British Columbiabased junior drilling in Nevada said to me in mid-conversation, “Lack of human resources. Now there’s a story for you!”
On a parallel plane, the famous industrial tire shortage was evolving into a serious scarcity of all types of equipment, from drills to mills, and waiting times were growing noticeably.
The situation has not shown any signs of subsiding and, needless to say, it creates a bit of a quandary for miners looking to take advantage of high metal prices. The irony, of course, is that the shortage may not even exist if it weren’t for the prices’ exhilarating climb over the past few years. The machines have become a commodity in and of themselves.
The fact of the matter is that HR and equipment scarcity is taking a real toll on the biggest of fi sh right down to the juniors, posing a daunting challenge to an industry where the desire for rapid growth is widespread.
Vale, the Latin American miner awash with perhaps the most cash fl ow, is actually limiting investment because it simply can’t count on adequate equipment or personnel for more. The Brazilian company’s US$11bn 2008 investment plan could have surpassed US$15bn if it weren’t for such restraints, according to CEO Roger Agnelli. Meanwhile numerous midsize Greenfi eld projects have seen delays. “We’re having trouble getting drills and contractors, and our engineers are spread thin throughout all the projects they are being asked to work on,” Constellation Copper CEO Gregory Hahn said in an October 2006 interview while explaining a delay in the feasibility study for its US$500mn Terrazas zinc-copper project in Mexico’s Chihuahua state.
The irony is that the shortage may not even exist if it weren’t for the prices’ exhilarating climbToronto’s Karmin Exploration reported in June 2007 a delay to an independent scoping study for the Arex and Ambrex deposits at its 30%-owned Aripuanã zinc project in Brazil’s Mato Grosso state due to “limited human resources at the consultant.”The problem is not limited to Brazil and Mexico, though Brazil is suffering the added blow of seeing many of its native professionals leave the country, seduced by bigger salaries and the prospect of working abroad. Perhaps the same is true in other countries as well.
Planning well ahead when ordering equipment seems to be the most common tactic in combating the long lead times. Buying used equipment is another option, while strategic alliances like contract mining seem ever more prolifi c.
Bigger companies can acquire already producing mines or companies in order to rapidly inject more output into their production profi les, but while acquiring existing mines may help a particular company grow its profi ts, it doesn’t have much impact on world metals supply.
Perhaps the angle from which to view the situation is as such: Scant supplies and people will end up being one of the strongest forces in sustaining the current boom.
China, the main propeller of world metals demand, is showing no signs of a slowdown in the near or midterm and the day it does, surely India will come out of the wings to take its place. Even Latin America itself has huge potential as a consumer of metals.
It won’t be until the supply side catches up that prices decline, and the extra year it might take a mine or expansion project to come on stream means an extra year in which that potential output will not reach the market.
And it’s not as if juniors with no output aren’t benefi ting from the situation. The successful explorers have seen their share prices skyrocket along with metals prices.
On an individual level, the delay of a project due to lack of equipment or an incomplete engineering team can be a frustrating setback that impacts potential profi ts. But thinking in terms of the collective, the industry as a whole might be better off because of it.
