In my last note, I stated that a number of factors make mining a challenging business, one of
which is that producers do not have control over the market price of their products. One might
argue that this is not entirely correct, as technology innovation enables more efficient and lower
cost of production and hence the option to sell products at a reduced price. Several examples of
this include the development of very large-scale mining and processing methods and heap
leaching technology, all of which served to lower unit production costs in constant dollar terms.
However, other factors beyond producers’ control determine commodity pricing. The most
obvious is the strength of the global economy, which is variable in the short term and garners
near-constant media attention. But step back from the daily media blasts and consider that we
have just reached the seven billion mark in global population and current projections see it
reaching eight billion as soon as 2035 – it was only two billion as recently as 1920! Pair this
growth with the increase in the global standard of living and associated consumption, and it
becomes apparent that over the longer term commodity supply may struggle to meet demand,
and we know what the result will be.
In the future, commodity prices are bound to increase in real terms. Deposits are difficult to
discover and develop and average grades are decreasing. Fortunately, the application of new
methods and technologies will help make these lower-grade deposits commercially viable. For the
shorter term, say in the next two to three years, commodity prices and the fortunes of our industry
are more difficult to predict. The current softness in many commodity prices has caused our
industry to pull back, cut costs and reduce debt. Investment in the mineral sector has dropped
dramatically over the past two to three years and as a result the industry is in a downturn. These
factors will eventually reverse and long-term growth will return. I, for one, will bet on that.
Next: Letter to the editor
A call to the more fortunate