By: Chad Williams, Chairman & Founder
THE #1 PROBLEM FACING THE MINING INDUSTRY RIGHT NOW
Mining is a tough business. Geology is fickle, markets are cyclical, and many outside forces want to prevent mining in the first place.
Yet, our biggest problem is lack of investor attention.
This has resulted in low capital in flows – a problem that has plagued the industry over the past decade and which will have a severe impact on the next.
Let’s face it, mining has been in the doldrums for over the last 10 years. Sure there have been some brief periods of joy, but the financing windows have been brief.
The larger, more advanced mining companies were able to secure funding but most of the small speculative names simply couldn’t get the capital they needed. Exploration and development projects have been chronically under-funded for many years.
As a result, even if the price of a mined commodity were to spike up, supply would not be able to respond. Take molybdenum for example – the price of moly has spiked from about $15/lb last summer to $35/lb recently. The supply response has been minimal. Most people aren’t even aware that this happened. We will see the same lack of supply response for copper, nickel – any element really.
The supply of mined metals is very inelastic because of tight labour markets, supply chain issues, and chronic underinvestment. Simply put, think of mines as a huge ship: slow to start, slow to turn, and slow to accelerate.
The implication is that a mined commodity price rally will be met with… an even greater price rally. The moves will be exponential to the upside. Get ready for that.
WHO WILL INVEST IN MINING AND FUND THE FUTURE PROJECTS?
What keeps me up at night is the question of who will invest in mining going forward.
The baby boomers have become very risk averse. Gen-X and younger investors don’t understand mining (or worse – are against it) and they aren’t wealthy enough to invest in a niche investment class like mining. But perhaps the solution to this dilemma will come from the higher commodity prices discussed above. Maybe, just maybe, a sustained rise in mined commodity prices will attract capital from those that haven’t even thought about investing in mining before.
We will need to educate these new young investors about our industry. New, easier/simpler ways to invest will need to be created. And the mining industry will need to manage their capital wisely.
That is a nice dream.