March/April 2011

Looking at the big picture

Michael Doggett helps companies ride the waves of economic cycles

By Alexandra Lopez-Pacheco

Michael-DoggettMichael Doggett has a long history of involvement in the mining industry. With more than 25 years of experience in the field of mineral economics, he has carried out numerous consulting assignments advising mining companies, governments and international agencies, and has delivered professional development courses in mineral project evaluation to more than 1,200 people in a dozen countries. In 2002, he was the recipient of CIM’s Robert Elver Mineral Economics Award.

Today, in addition to being president of HanOcci Group, a resource investment and mining advisory service based in Toronto and Vancouver, Doggett is also an adjunct professor at Queen’s University, where he served as director of the Mineral Exploration Master’s Program from 1997 to 2007. He is currently a PDAC director and serves on the board of directors of six publically traded exploration and mining companies. As one of this season’s CIM Distinguished Lecturers, Doggett will be sharing some key observations and analysis on the long- and short-term business cycles faced by the mining industry and how understanding these can help companies better address the associated challenges.

CIM: What are the long- and short-term cycles you have identified?

Doggett: There are short cycles that are in the seven- to 10-year range of ups and downs, based on commodity prices. The longer term cycles have about a 30-year window. Take copper as an example: regardless of the short-term cycles, when looking long term, copper has had a fairly consistent increase in demand. So prices may go up and they may go down, but in the long-term, the demand for copper continues to increase.

CIM: Why is understanding these cycles important?

Doggett: There are challenges and implications in operating in a business environment with often conflicting short- and long-term objectives. From an exploration perspective, if you look at the typical timeline associated with finding, delineating, permitting, financing and building a new copper mine, for example, it can be pretty long, something in the order of 15 to 20 years. So, if you have seven- to 10-year short-term cycles and it takes 15 to 20 years to actually go through all the stages of what I would call the long-term supply issues, then you have a bit of an overlap, or conflict. As a company, you strive to have a consistent approach to overcoming the risks in the long time frames, but at the same time, you’re subject to the commodity swings in the general short-term business cycles.

CIM: How do these cycles impact exploration, in particular?

Doggett: It’s going to impact exploration in two ways. Cash flow companies, or the major companies that are producing metals in an up cycle, are going to have more money for profits and, therefore, they’re more likely to spend money on exploration. If metal prices are high and there’s some expectation of profit in the future, then it is easier for junior companies to finance exploration through straight equity shares rather than profit. The market is more interested. So, you have both things happening at once: more profit from larger companies and easier access to capital markets for the junior companies. But, in the low cycles, many junior exploration companies cease to operate.

CIM: What originally led you to study the cycles in the mining industry?

Doggett: I consider myself a “big picture” guy. I like to step back and look at the whole industry and observe how it functions. Obviously, the juniors and seniors are part of that, as well as the short-term business cycles, but the overriding message is that in the long-run, the demand for mineral commodities has increased by an average of about three per cent per year. When you compound that over 30 years, it means that the output of copper, for example, has doubled in that time. So, even though there are ups and downs and all-time highs and lows, that’s the reality everyone is working within.

CIM: Are there any other important insights to be gained from understanding these cycles?

Doggett: Coming from an academic background, you see the way the commodity and business cycles impact the enrolment numbers in the technical fields in mining and geology. It’s pretty tough if you’re a third- or fourth-year student and you pick up a newspaper and read about geologists and mining engineers being laid off because the cycles are so low. So, part of my thought here is that we need to step back as an industry, including academia, and concentrate on the real long-term positives in growth on the industry. If we focus solely on all the short-term things, we tend to get overwhelmed by what’s going on in the present. We need to stop getting caught up in the highs and lows. Let’s keep a steady approach.

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