MRG In Northern Miner: Mining Execs becoming Optimistic

The Northern Miner, Monday, May 04, 2009

Mining Execs Becoming Optimistic: Survey

COMMENTARY
By Andrew Pollard

Special To The Northern Miner

Much has changed in the mining industry over the last 12 months. When things could not have been more robust, the proverbial rug was pulled out from underneath us in the fourth quarter of 2008, leaving those at the helm of companies to make some pretty tough decisions.

Most, if not all, were unprepared to deal with the velocity at which the unravelling of the world financial markets took place, and quick cost-cutting and restructuring measures were the only things keeping many resource companies afloat.

So, my team at Mining Recruitment Group has been periodically surveying mining executives to understand their decision-making processes and gauge their sentiments as to the industry’s viability.

The results of our previous survey late last year looked pretty bleak. Sentiment over both the short and long term was unmistakably low. Results indicated many were responding with knee-jerk reactions, with more deep cuts being considered.

Thankfully, our newest survey released in early April provides evidence that an overwhelming majority of mining executives are operating under the notion that the worst may in fact already be behind us.

What is even more striking is how quickly and effectively companies responded to the market downfall and how many have positioned themselves to ride out the storm. For most, it would seem the tough decisions have been made and the knee-jerk reactions are done with, replaced with more of a long-term vision.

Those that took part in our latest polling are executives from mining companies of all sizes and natures, with 45% of the 82 responses coming from CEOs. Though the findings are not scientific in nature, I believe they reflect an accurate cross-section of the industry. Some of the key findings from this research include the following:

Some 40% of respondents think that the mining sector will perform better over the coming 12 months as compared with the last year. There is a notable change in sentiment from the last polling, where only 12% thought this would be the case.
Respondents still feel quite bullish about the prospects for their own businesses in 2009 and beyond. Only 2% felt their own businesses would perform worse than the sector as a whole, while an overwhelming 67% thought that their companies were now positioned to outperform the market moving forward, with 26% expecting to perform about the same. • Long-term sentiment seems to be getting better and better. In the previous survey, 63% were bullish as to the strength of the industry over a period of three years, whereas now, a whopping 86% have a bullish and promising outlook.
When asked to predict when market conditions would take a sustained turn for the better, 67% of executives surveyed thought it would take until the first quarter of 2010 or beyond to develop any sort of real traction. Only 5% thought this would happen before this year’s fourth quarter.
Whereas in the last survey, 84% of those polled indicated they were moderately to extremely concerned by a lack of investment capital, only 45% feel this way now. Down from a dramatic 39% in the previous survey, only 21% of executives say their companies are in pure survival mode right now.

Meanwhile, about the same number, 88%, said they were actively focused on cost-cutting measures.

Respondents described the ways their companies are cutting costs: 84% have scaled back on exploration or development initiatives; 73% have reduced their marketing or investor relations budget; 70% have implemented layoffs; 49% have reduced or eliminated incentive pay; and 34% have taken salary cuts.
Somewhat surprising was how effectively positioned most companies are to ride out the current conditions, with a dramatic 83% of those polled stating that their companies have a runway (months of cash remaining at their current burn rate) of more than nine months. In fact, only 7% seem to be running on fumes with less than three months’ worth of capital left in the treasury.
For those currently employed, a small sigh of relief can be had as 64% of executives indicated they were not considering any additional layoffs in the near future. And to this recruiter’s delight, 50% of respondents indicated they are expecting to recruit over the next six months. Though it is still not at ideal levels for victims of layoffs, it does show a significant shift in momentum from the last survey, where only 22% indicated they would soon be recruiting.

In the eyes of executives, it looks as though the industry isn’t in as rough shape as they had initially pictured it to be. Let’s hope they’re right.

— The author is president of the Mining Recruitment Group, a Vancouver-based boutique executive search firm focused on the unique needs of the mining industry.