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Why mining is on the decline

Now faced with the formidable challenge of supplying enough minerals for the global energy transition, the industry has to dig deep — both literally and metaphorically — to improve its performance, writes Rick Mills for Kitco News.

This is an edited version of the 4600-word think-piece by Mills which appears at the URL given at the end of this report.

However, the root of the problem is multifaceted, and headwinds are coming from all sorts of directions. Among the key issues include a global skills shortage, environmental and human rights concerns, as well as the availability and use of funding.

Until those are addressed, the value of mining won't be maximised, and the industry will likely suffer the same fate for the next ten years.

We take a look at each of the major obstacles to the long-term sustainability of mining, and what the industry has (or hasn't done) to mitigate these risks.

Critical skills gap

One of the biggest challenges facing the mining industry is a growing skills gap created by an aging workforce and a dearth of talent waiting next in line.

According to Walter Copan, VP Research and Technology Transfer at Colorado School of Mines, the mining industry is facing a critical skills gap, compounded with the so-called ‘grey tsunami' impending with regard to the amount of retirements anticipated.

A study put out by Deloitte earlier this year revealed that nearly 50% of skilled mining engineers are reaching retirement age within the next decade. Many mine workers are at least 46 years and older.

Industry losing appeal

Copan, as many of the industry's prominent figures had done in the past, also voiced concerns about the future of the talent pipeline. He noted that academia has seen a decline in programs related to mining, engineering, and extractive metallurgy.

"This industry has lost its lustre, with regard to being attractive to the next generation of leaders at all levels in the sector and the lack of interest in the geosciences more broadly," he stated. "It is doubly concerning because as we look at the reliance of this world on the materials that are sourced from the Earth's crust, the entire mining sector is key to the energy transition."

Resource nationalism

Rising political tensions across the world are also proving to be a tough challenge for the mining industry to navigate.

According to the World Economic Forum: "The geopolitics of natural resource access and management is critical for the metals and mining sector. Geopolitical tensions affect demand-side indicators. Conflicts can lead to a decline in demand for new investments and, therefore, the demand for raw materials."

One explanation of why resource nationalism has picked up in recent years has to do with globalization. During the 1970s and 80s it was common to see developing world governments nationalizing industries. However when globalization emerged in the 1990s, there was a need for foreign investment as governments privatized industries, resulting in fewer attempts to seize foreign-owned assets like mines and factories.

ESG concerns

While ESG (environmental, social and governance) is a relatively novel term in the mining world, the underlying issues represented by each letter have been ever-present throughout its history.

The mining sector has long struggled with some poor environmental and social legacies that have impacted its ability to recruit young talent and attract investments. Recent high-profile cases such as the tailings dam collapse in Brazil and sexual assault at Rio Tinto's Australian mines illustrate that the industry is still facing an uphill battle to repair its reputation to this day.

Decline in capital spending

A direct consequence of these risks associated with the sector is an overall lack of investment in mineral exploration. Understandably, investors' standards are continuing to rise, as seen with ESG, and now it's not always about the bottom line.

This is why, despite enjoying strong balance sheets and healthy margins, the mining industry is coming off almost ten years of underinvestment.

According to the Prospectors and Developers Association of Canada (PDAC), 2022 marked a reversal of money flowing into the mineral industry from virtually every global source as equity financing was down 50% from the nearly $35 billion raised in 2021. Canada appears one of only few countries holding up as well or better than the other major marketplaces around the world.

In addition, the amount of both equity and debt invested into the mineral industry dropped by a substantial amount in 2022, following along with declining economic conditions and broader market slowdown seen throughout the year, PDAC found.

Corruption and misuse of funds

But even if the investments grow, no one can guarantee they will be used in the right place. Sadly, misappropriation of funds is rife within the mining industry, highlighting the weakness of oversight and institutional structure in many parts of the world.

Recent examples include an audit of SolGold that revealed as much as $4.6 million spent by the Ecuador-focused miner between 2017 and 2021 was "misappropriated", alarming its big shareholders such as BHP and Newcrest. SolGold's Cascabel project is considered one of the world's lowest-cost, lowest-carbon copper mines.

Two years ago, the Northern Territory government and Glencore's massive lead-zinc mine were accused of misusing millions of dollars set aside for the benefit of traditional owners. Back in 2007, a community benefits trust totalling $32 million was set up as a condition of expanding the McArthur River mine operation, yet it was alleged that most of the money went into government infrastructure projects.