February 2014

President's notes

Mapping the future

By Robert Schafer

These are interesting times. For most commodities, prices – standard measures of the health of the minerals industry – have fluctuated within narrow, acceptable ranges. Yet the industry is behaving as though prices have slumped and demand is off.

Major mining companies are consolidating core assets, avoiding major investments while shedding assets that fall outside their long-term agendas. Mid-tier producers are relying upon their flagship operations to build stores of cash and cautiously evaluating potential growth opportunities. For junior miners, greenfields exploration has effectively come to a halt as investors hold tightly to their cash.

This trend has been growing since the 2008–09 economic crisis. It is a double-edged sword for our business: as the mine operators consolidate their assets and operations and postpone taking on exploration risk, the industry is positioning itself for a future shock.

In a paper presented at the AEMQ annual meeting in Quebec City last November, Richard Schodde, managing director of MinEx Consulting, stated that, on average, Canadian mines have reserves (not resources) that will sustain operations for only six to seven years. Further, there is little investment going into exploration to replace reserves and discover new mines. Lastly, to advance a discovery through delineation to permitting and finally construction, it now requires 10 to 15 years across Canada.

A bit of math suggests that a domestic mineral supply crisis looms within a decade or so. Short-term fixes as prices rise include dropping cut-off grades, converting currently sub-economic resources to reserves to extend mine life, and incrementally expanding throughput to meet demand.

To be sustainable, Canada’s junior sector needs to get back to successful exploration, with joint public-privately supported infrastructure to access frontier areas, especially in the North. These investments will increase the wealth of the country, while improving many aspects of the quality of life for aboriginal and northern citizens.

Robert Schafer
CIM President

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