Mining CEOs see better days ahead after years of tough belt-tightening
Companies finally rebounding from closures, layoffs
You can either sit and wait (and see) whether or not the storm passes around you, or you look how you can be more competitive in that environment.
JOCHEN TILK, president and CEO, PotashCorp
Last month two of Saskatchewan’s largest mining companies reported quarterly earnings that suggest that difficult cost-cutting measures are taking effect.
Potash Corp. of Saskatchewan Inc. said its decision to close the Picadilly mine in New Brunswick and scale back production at its Cory mine near Saskatoon allowed it to earn US$149 million in the first three months of the year — up 99 per cent from the same period in 2016.
Cameco Corp., meanwhile, recorded an $18 million first-quarter loss but said its decision one year ago to shutter the Rabbit Lake uranium mine and make cuts at its other operations reduced its costs by around 30 per cent — enough to position it for when “unsustainable” uranium prices recover.
“It hasn’t been easy, I will freely admit that,” Cameco president and chief executive officer Tim Gitzel told the Saskatoon StarPhoenix in April. “Six years is a long time to be in a down market. But that’s where it’s at. We can’t control the market. All we can control is how the company operates in it. … We’re going to work our way through this.”
Gitzel told the Business News Network that the fundamentals for uranium pricing have begun to improve. He noted there are 57 nuclear power reactors under construction in the world, including in China, South Korea, Russia and India.
In Japan, where the entire nuclear power industry was shut down after the 2011 tsunami and reactor disaster at Fukushima, applications have been filed to restart 26 reactors. Three have restarted and he expects another four or five by year end.
Gitzel also saw progress on the pricing front, following the Rabbit Lake closure and 10 per cent production cuts in Kazakhstan.
“We’re finally getting to see some supply discipline, which is good,” he said.
While the province’s key potash producers — PotashCorp, Mosaic Co. and Agrium Inc. — maintain that demand for the fertilizer product will grow alongside global demand for food, prices have fallen by around 75 per cent since 2008 due to oversupply.
PotashCorp responded by shifting production to its low-cost operations such as Rocanville in southeast Saskatchewan. That meant 2016 was bracketed by its decisions to shutter Picadilly and cut production — as well as 140 jobs — from its Cory mine west of Saskatoon.
“I can say with conviction that this has been one of the most difficult years in the (company’s) history,” PotashCorp president and CEO Jochen Tilk told the Saskatoon StarPhoenix in January, after reporting a 74 per cent drop in earnings to US$336 million in 2016.
PotashCorp isn’t the only company in the sector to cut costs. BHP Billiton has said it won’t bring its massive Jansen mine into production until after 2020, while Mosaic — which runs three of Saskatchewan’s 10 potash mines — shut down its Colonsay operation for six months.
More recently, Agrium and PotashCorp unveiled plans to merge into a single, diversified US$26 billion company with around 20,000 employees, a decision Tilk said was aimed at increasing competitiveness in response to “fierce” market conditions.
“You can either sit and wait (and see) whether or not the storm passes around you, or you look how you can be more competitive in that environment,” Tilk told the StarPhoenix in September, echoing other mining executives’ statements about the need to be proactive in tough times.
The effects of flatlining potash prices were not confined to the mining companies. Firms that support the industry found themselves short of work, while the government attributed the $685 million hole in its 2017-18 budget to crumbling potash and oil royalties — fees paid by producers to the province.
Cameco responded to prices that have fallen more than 60 per cent since 2011 by cutting costs and moving production to low-cost mines such as Cigar Lake. The strategy entailed closing the Rabbit Lake mine, at the cost of more than 400 jobs, and dozens of positions at its Saskatoon headquarters and other mining operations.
However, the picture was brighter for some of the industry’s smaller companies, including the owner of Saskatchewan’s only producing gold mines.
On May 18, 2016, Claude Resources Inc. shareholders voted in favour of a takeover by Vancouver-based Silver Standard Resources Inc. The $450 million offer highlighted the company’s ability to transform itself from a struggling miner into a tempting takeover target. The turnaround was due to factors such as favourable exchange rates and what its president and CEO Brian Skanderbeg described as the quality of its Santoy gold deposit at its Seabee operation near La Ronge.
“It does give developers and entrepreneurs some encouragement that they can duplicate what (Claude Resources’ first CEO) Bill MacNeill and others did with the Seabee mine in Saskatchewan,” former Claude Resources CEO Neil McMillan told the StarPhoenix after the deal was approved.
That optimism has affected several smaller potash companies that are working to establish their own greenfield projects in the province, in spite of the persistently weak prices.
Encanto PotashCorp is working toward raising the $3 billion it needs to build a mine on Muskowekwan First Nation, which would be the first of its kind in Canada.
Gensource PotashCorp, meanwhile, is pushing ahead with a joint venture aimed at “disrupting ” the existing potash marketing model.
At the same time, K+S Potash Canada is finishing construction at its $4.1 billion Legacy mine near Bethune — Saskatchewan’s first new potash operation in a generation — and plans to bring the massive solution mine into production this quarter.
Shore Gold Inc., another industry veteran, is continuing to develop its Star-Orion-South diamond project near Prince Albert despite the challenges created by a group of shareholders determined to shake up its board of directors and the long process of winning environmental approval for the mine.
Another bright spot was news that Saskatchewan leads the world in terms of its investment attractiveness, according to the Fraser Institute’s 2016 survey of mining and exploration companies, the results of which were released in February.
The survey of about 2,700 firms also found that Saskatchewan ranked second, behind the Republic of Ireland, in terms of its “policy climate,” which the Fraser Institute said affects investment. Over the last five years, the province has ranked high in the annual survey.