Junior Research Associate, Adrian Zorzut (AZ), sat down with Swann’s Group Managing Director, John Murray (JM), to discuss the opportunities and challenges facing the mining industry in 2017. Topics covered included upcoming metal and minerals trends, the pedigree of the modern CEO, the role of Social Media in creating greater transparency and the inner-workings of Swann Global.
Interview with Swann’s Group Managing Director, John Murray
AZ: It seems 2017 will be a good year for base and precious metal markets. Investment banks like Goldman Sachs and Citigroup are feeling bullish about the trend of metals such as Copper and Lithium for 2017. Goldman Sachs has even increased Copper price predictions for the first 6 months of 2017 to USD 6,200/t. How appropriate do you feel these predictions are?
JM: To set the context, I think 2017 will be another year of uncertainty with global political unpredictability having consequences for trade and economics.
Mining has seen a number of green shoots over the last three or four months and there appears to be a slight resurgence in our sector. That said, I don’t think we will see a return to boom prices across the commodities, rather a gradual upward trend over the next two to three years but still with plenty of volatility. We may also find that pricing for some commodities will evolve into a two-tiered structure.
AZ: How do you view the agility of mining companies in facing these upcoming trends?
JM: Companies will need to review their organisations to determine if they have the right structure and people in place to make a profit. The success of a company, of its Board and management, over the last two to three years has been largely measured by the ability to cut costs. I think this has gone on for long enough. Now it’s all about how to grow your business within the confines of tight capital, volatile commodity prices and an increasingly complex socio-political environment.
AZ: Rather than a focus on debt restructuring this year, do you feel there will be a greater incentive for investment?
JM: There appears to be a more positive approach to metal prices. I do think, as mentioned earlier, that prices will trend in the right direction. There has been plenty of evidence of that with iron ore, oil and met coal. In 2017, companies will continue to be very conscious of debt and reduce it where they can. I would not expect to see big commitments to major projects over the next twelve to twenty-four months. However we may see an increase in M&A activity and asset acquisition as evidenced recently by Glencore’s activity in Africa.
AZ: Lithium is on an interesting path. All indicators are showing countries like Australia, Chile and Argentina increasing their lithium output to match demand for the base metal in EV battery production. With this in mind, do you see other speciality minerals doing well this year?
JM: There are a number of companies going down the lithium path because of increased demand due to evolving technologies. Clearly the demand for lithium is significantly greater than in the past but the reality is that if one of these companies becomes operational and produces around 240,000 metric tonnes of lithium per year that will meet annual global consumption. We do not need twenty or thirty lithium producers, we probably need four or five to minimise the risk of supply disruption. The era into which we are moving will see technology having a huge impact on our world and the demand for the likes of lithium and other obscure metals, and rare earths, will increase simply because of the way in which they are used in technology.
AZ: Aside from market predictions, I would like to focus on which structural issues you find most pressing in the Natural Resources sector for 2017 and how many of these issues boil down to inexperienced leadership.
JM: Currently there are few precedents for many of the challenges facing Chief Executives and Management teams across all industries. The demands on CEOs today are far more complex than in the past with issues such as governance, the socio-political environment, social licence, shareholder disenchantment, governments of all persuasions and rising Resource Nationalism across the globe demands constant attention and awareness. Other challenges include adapting to the differing needs, expectations and values of Millennials in the workforce and integrating that with the aging workforce. The complexity of issues that the modern CEO and Board will have to work with is increasing and dynamic.
AZ: Thus, the modern CEO of a mining company will not only require a strong technical understanding of the mining industry but also possess solid knowledge of geopolitics and economics to deal with issues such as Resource Nationalism?
JM: CEOs of today and tomorrow must have a better understanding of the cost and application of capital. The money that was available to companies five years ago is not available today and the justification for investing money is going to be more rigorously questioned.
Nationalism was once the province of third world countries but today it’s evident in all countries. One only has to consider the recent push by politicians in Western Australia demanding Rio Tinto, BHPB and FMG either significantly increase the current royalty or give the WA Government a very large lump sum to balance the budget.
There is no doubt that the cyclical nature of the resource industry has led to skills shortages over the last fifty years. For example, five to ten years ago there was a severe shortage of skilled engineers leading to a demand for increased graduate numbers, many of whom now have to seek employment in different industries. We are now moving into an era where skills and experience required are going to be different to those of the past. Many of the jobs of the future will centre on technology and innovation. Disruptive technology will play an enormous role in shaping jobs and industries in the next decade and beyond.
AZ: How important is Social Media in relaying the changing nature of the mining industry to the public?
JM: Being a Baby Boomer I find Social Media challenging, the demand for instant news, and the constant need for interaction on social networks is a different form of communication from what I am comfortable with. However I am increasingly of the view that unless we can embrace it and recognise the challenge, opportunities and risks it presents, we will find ourselves trailing behind. I’m not sure that all people at board level understand how important Social Media is to their business as, traditionally, risk to business was all about operations. These days, risks to business are outside that parameter and Social Media is one of those many ‘imponderables’ which could bring the business to a halt overnight if someone decided to engage in a campaign against you and destroy your reputation. We have already seen the impact of this during the recent American Presidential election. What has been described as fake news can do untold damage to reputations and credibility in a very short period of time, such is the instant nature of social media.