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There is a
manpower crisis in the form of a skilled worker shortage that is having an
adverse impact on the mining industry. Whatever one is interested in, be it
gold, silver, platinum, uranium, base metals, or other mining operations,
this situation is impacting on all forms of mining. It will influence the way
investors view mining companies. Current mining operations will struggle to
maintain production while new projects will be delayed.
Most
importantly, the skilled manpower crisis will slow the supply of newly mined
metals to the market which will have implications for the prices of all
metals.
To properly
appreciate the situation one needs to understand that most metals, gold,
silver, platinum, uranium, base metals and others have been in bear markets
lasting 25, and in some cases 30, years. During those bear market years there
was an attrition of skilled mining manpower. Young people looking for new
careers carefully avoided the "No Go" areas of geology, mining
engineering and other mining skills.
With declining
student demand, Universities and colleges reduced or closed their geology and
mining faculties. The supply of new graduates to the mining industry has been
dropping steadily and there is now only a trickle of graduates coming through
the system.
During the past
few years new bull markets have developed simultaneously
in gold, silver, platinum, uranium and base metals. These bull markets have
spawned a vast array of new companies, all looking to find new large deposits
of their favourite metal and bring new projects on stream. The demand for
skilled workers in the mining industry has mushroomed.
Where will the
additional skilled manpower come from? Not only to find and develop new projects,
but also to keep existing mining operations producing adequately?
Increasingly the
words "production declines due to labour and infrastructure
shortages" are appearing in company reports. Delays in the preparation
of Feasibility Studies are often being blamed on a "labour
shortage". There is an rising incidence of new projects being delayed
and subjected to massively higher capital costs, for example BHP's new Ravensthorpe Nickel
mine where establishment costs have escalated from $1.1 billion to over $2.2
billion. There is no firm indication as to when Ravensthorpe
will come on stream.
The average age
of the existing complement of skilled mining manpower has been rising and
there is a steady loss of people as they reach retirement age. Half the
workers in the Canadian mining industry are between 40 and 54 years of age
and 40% plan to retire in the next 8 years. The supply of new graduates
barely covers the retiree loss.
Another form of
attrition in the skilled mining area is the loss of geologists and mining
engineers to the investment industry. The investment industry must deploy its
research budgets in the most profitable and effective areas. In the 1970's
when resources were booming and mining stocks formed a large proportion of
market capitalisation and volumes traded, stock brokers and investment houses
carried large complements of mining analysts and mining merger and
acquisition teams.
During the
ensuing resources bear markets the trend in stock markets was towards
industrial and technology stocks. Investment industry research budgets were
deployed accordingly. Mining research was slashed and analysts skilled in the
new hot areas were hired. By the turn of the century resources accounted for
low single digit percentages in both market capitalisation and volumes traded
on most stock markets. Mining analysts had become an endangered species.
With the
emergence of firstly the bull market in precious metals followed more
recently by bull markets in uranium and base metals, the situation has
reversed. Mining's share of volume traded and market capitalisation on world
stock exchanges has been increasing steadily, as has merger and acquisition
activity. The investment industry has been caught short of mining analysts
and mining M&A teams.
Good mining
analysts require special skills and they cannot be created quickly. The
investment industry's solution has been to hire geologists and engineers to
work with financial analysts to produce the necessary resources research. Those
geologists and engineers who have gone to work in the investment industry's
air-conditioned glass palaces are unlikely to want to get their hands dirty
in the bush again. They are lost to the mining industry forever.
How long will
the present shortage of skilled labour in the mining industry last? How long
will it take for Universities to resuscitate their mining related faculties
and generate an increased flow of graduates to the industry? The initial
signs are not good. An Australian University located adjacent to a large mining
area closed their geology and mining engineering departments many years ago
and said that they had no intention of restarting these facilities. They did
not want to get involved in a "boom and bust" situation again.
Those
Universities with a more amenable attitude towards resuscitating their mining
departments will find difficulty obtaining good teaching staff. When
potential teaching candidates can earn several times what a Professor is paid
by working in the mining industry, why would they want to go teaching? It
will also take time to persuade new students to make mining their career
after University mining faculties have been beefed up.
It will probably
take several years to reach the point where sufficient Universities have
increased their mining facilities to the point where they can attract an
increasing flow of students. Then 4 to 5 years of study will be required for
new students before an increased flow of skilled graduates is available to
the mining industry.
A best case
scenario would be 7 to 8 years before one could expect an increased flow of
new mining graduates. A more realistic expectation would probably be 10
years.
The next decade
looks as if it is going to be a period where mining companies will only be
able to increase their skilled staff complement by pinching people from other
companies. It is a zero sum game. If the total skilled staff situation is
going to be static, or possibly even declining, then the mining industry as a
whole will struggle to maintain current levels of production and will simply
not have the people available to get new projects underway.
Mining staff
will gravitate to those companies where the rewards are greatest and where
there are facilities for a good family life. Mining labour costs will
naturally rise sharply.
During the next
decade most analysts expect an increasing demand for metals of all kinds. There
are differences of opinion as to the rate of demand growth that can be
expected but whatever it is, the total supply of new
metals to the market is going to be stagnant during this coming decade due to
the skilled labour shortage. If this is the case, then shortages will
inevitably develop in markets for different metals leading to higher prices.
The basic
economic law that higher prices will generate new supply may have to be
postponed for a decade or so in the mining industry and metal markets.
There are
implications for investors in the mining industry that need to be studied. In
the envisaged circumstance for the coming decade, will a premium develop for
those companies that are already in production, or about to do so within the
next few months, as they will benefit most from rising metal prices? Will
companies with great development projects be downgraded because of likely
substantial delays in bringing their projects to the production stage?
Is this the
reason why the larger mergers and acquisitions in the mining industry in
recent years have been for companies that are already in production?
Naturally those
companies that have already recognised the coming problems in the supply of
skilled labour and have built up good teams that are locked in with
"golden handcuffs" will be deserving of an improved rating.
The situation
will almost certainly be different from country to country and from continent
to continent. Are there countries that are better placed than others to cope
with this labour shortage situation?
It is almost
impossible for an individual to assess this problem across such a vast array
of territories. The beauty of the internet is that these articles are read in
virtually all countries. I know this from the emails that I receive from time
to time in response to my articles.
I share my views
freely but for once I would like to make a special request of readers. I
would greatly value input about the status of Universities in your country or
area with relation to the production of new mining graduates. Is the
situation in your country or area as grave as described in this article?
If you are in
the mining industry, how do you view this problem and how are you coping with
it? What action is the mining industry taking in your country or area to
increase the supply of new skilled workers?
I will undertake
to collate all responses received into a later article that will present the
results of the comments that I receive.
Alf Field
Disclosure and Disclaimer
Statement: The author is not a disinterested party in that he has personal investments
gold and silver bullion, gold and silver mining shares as well as in base
metal and uranium mining companies. The author’s objective in writing
this article is to interest potential investors in this subject to the point
where they are encouraged to conduct their own further diligent research.
Neither the information nor the opinions expressed should be construed as a
solicitation to buy or sell any stock, currency or commodity. Investors are
recommended to obtain the advice of a qualified investment advisor before
entering into any transactions. The author has neither been paid nor received
any other inducement to write this article
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