Human resource crisis for the mining sector getting worse

The crisis inflicting the global mining sector arising from the lack of young people entering the sector is beginning to have a real impact and is likely to affect mine production adversely for the foreseeable future.

COQUITLAM, BC (AHEADOFTHEHERD.COM) -

Human resource crisis for the mining sector

Richard (Rick) Mills

The crisis inflicting the global mining sector arising from the lack of young people entering the sector is beginning to have a real impact and is likely to affect mine production adversely for the foreseeable future.

Ahead of the Herd

A combination of mass retirements and increasing natural resource demand from emerging economies has created a crisis in the resource extraction. Currently there is a "massive talent gap" that is going to get worse because the global mining industry is experiencing the biggest wave of workforce retirements in 70 years - the oldest baby boomers turned 65 years old in 2011.

The Mining Industry Human Resources Council (MIHRC) has recently said that about 40% of the resource extraction industry's workforce is at least 50 years old and one third of them are expected to retire by 2022.

The organization also forecasts that the Canadian mining industry will face a shortage of 140,000 workers by 2021 - this number of workers being needed just to maintain current levels of production.

The Petroleum Human Resources Council of Canada warned a severe oil patch labor shortage is looming and that the "patch" will need to hire 24,000 new employees by 2014.

Increased resource demand is driving demand for skilled workers. A shortage of skilled workers was the second biggest business risk for mining in 2011 (as it was in 2010) and is forecast to be the number two risk (resource nationalism/country risk is the number one risk) for miners again in 2012. In the coming years a lack of skilled workers is going to be the major cause for concern in the resource extraction industry.

"Government or industry reports in the past few years in Australia, the U.S. and South Africa all highlight growing skills shortages in the mining industry." Recent HSBC commodities report

"A lot of people ask me what is my biggest concern. What keeps me awake? Having skilled people available to do the job... That is one of the biggest challenges. We are looking to build a whole lot of mines in the future. And getting the right skills to build those mines is a challenge, not only for us, but for the various engineering companies... The baby boomers are starting to get to retirement age. And there is a whole lot of them that are going to disappear very quickly... If you look at the youngsters coming through, they are looking at other industries." Gold Fields CEO Nick Holland at the Reuters Global Mining and Metals Summit

The skills shortages are global, shortages are happening in South Africa, Australia, Canada and South America. Costs are increasing, projects are being deferred or perhaps even cancelled outright due to the inability to staff operations - tighter labor markets also provide unions with greater bargaining powers when dealing with companies over wage settlements and other disputes.

"Given the ageing profile of the current workforce and a lack of engineers and geologists with enough experience, the labour resourcing requirements for new mining projects at various stages of development across the globe are simply not going to be met. Production targets and project deadlines are inevitably going to slip. The time taken to train a mining professional can be up to five years, but it is the candidate with around ten years experience who is in particularly short supply. A failure by the mining industry to recruit and train during the tough times in the 1990s, when the price of metals plummeted, has led to particular shortages of mid-career professionals." Mining Global Employment Review 2011, Faststream Recruitment

Analysts say attracting and retaining increasingly scarce skills will:

• Accelerate cost increases
• Squeeze profit margins
• Threaten the viability of some marginal projects

CAUSE FOR CONCERN

Mine production of many metals is showing a number of similarities:

• Slowing production and dwindling reserves at many of the world's largest mines
• The pace of new elephant-sized discoveries has decreased in the mining industry
• All the oz's or pounds are never recovered from a mine - they simply becomes too expensive to recover

Increasingly we will see falling average grades being mined, mines becoming deeper, more remote and come with increased political and nationalization risk. Extraction of metals from the mined ore will become increasingly more complex and expensive, even more so when one considers the effects of Peak Oil - the cost of technology innovation to power mining will be very high.

Broad spectrum peak commodities is a cause for concern over the longer term.

In the shorter to medium term there are several serious concerns in regards to global resource extraction that we need to consider:

• Resource nationalism/Country risk
• A looming skills shortage
• Smaller areas open for exploration
• Competition with Chinese mining investment
• Low hanging fruit, the high quality large deposits have already been found
• Lack of financing options for smaller deposits
• Lack of innovation and technological advancements
• Incredibly difficult and lengthy permitting processes

Just when we need it the most the mining industry is starting to suffer a massive loss of accumulated wisdom, knowledge and field experience. This loss of experience, when combined with labor shortages, means future mineral output will be constrained and that has bullish implications for prices.

CONCLUSION

Who is going to teach the aspiring mining engineers, metallurgists, and geologists when most of the professors and academics are also at, or close to, retirement age? And when they do get trained who is going to mentor and guide the green, fresh out of school, workers in the field - who is going to be left to pass on the years of accumulated wisdom and knowledge, the practical hands on experience - garnered over decades of pounding rocks and actually building mines - that's so necessary to reduce the drastic learning curve and achieve success?

The existing shortage of skilled personnel, the imminent retirement of so many baby boomers and the skills supply gap in the 1980's and 1990's combined with the mining sector being in direct competition with the energy sector for people to train means prospects are bleak for either industry to obtain the necessary bodies and minds.

Richard (Rick) Mills is host of www.aheadoftheherd.com and invests in the junior mining sector.