Miners face ‘production cliff ’ amid a new cycle of uncertainty
TORONTO — Fears of oversupply have been replaced by demand-related pricing woes as the top concern among miners in 2017 as they gather for the 85th Prospectors & Developers Association of Canada convention in Toronto this week.
KPMG’s latest Insights Into Mining survey found that mining executives believe the ability to develop and replace reserves, including access to new projects, is the biggest concern in 2017. Concerns over production declines have risen steadily since 2013, when it was considered the 10th biggest issue.
Many analysts have raised the issue of a “production cliff ” said to peak sometime this decade, declining steadily thereafter due in part to a lack of investment toward new discoveries and the shelving of some planned projects amid low metals prices.
But as many observers point to the start of a new cycle, miners are once again focused on the longerterm, including exploration, merger and acquisition opportunities, and new sources of capital.
“I think that reflects some of the sentiment in the industry following the supercycle several years ago down to the commodity price decline and almost crisis over the last few years,” said Heather Cheeseman, a partner in energy and natural resources at KPMG.
“Now people are beginning to put their heads up and look forward.”
It was the first time in the short history of the consulting firm’s survey that commodity price risks did not top miners’ list of concerns. Still, even as commodity prices have improved, worries over low prices did not fall far from their minds. Selling prices were miners’ number two concern.
The new-found focus on production comes after years of focusing on managing the bottom line through cuts at operations, including slashing production levels and divesting some assets to ride out the commodity price bust.
Many companies cut back not only on operating costs but on development projects, acquisitions and exploration spending, Cheeseman said.
“The lasting effect of that or the impact now is that some of their options may be more limited as they start to look ahead. They need to be able to find these projects in order to sustain production.”
Resource nationalism, fiscal and political risk, which was not even in the top 10 issues cited in the previous year, shot up as the sixth largest risk amid heightened geopolitical uncertainty.
Economist Dambisa Moyo, one of Time Magazine’s most 100 influential people and a keynote speaker at PDAC this year, said the de-globalization backlash spreading across the world is a key driver of uncertainty.
Major causes of heightened instability include unknowns over the timing and impact of Britain’s exit from the European Union and whether U.S. President Donald Trump’s rhetoric will actually result in the country turning inward to become more isolationist, she said.