Commentary: Execs’ short-term outlook: Oh brother, is it grim

The year 2013 is one that the mining industry will not soon forget, though most will not want to remember. Through the eyes of mining executives, the Mining Recruitment Group’s Executive Q2 2013 Survey shows that companies of all sizes and stages have had to make tough decisions in the wake of nearly unprecedented market turmoil. 

Our survey was distributed throughout May and completed by 210 mining leaders. As this survey is a direct follow-up to one completed in the fourth quarter of 2012, the results highlight just how dramatically sentiment and strategies can adapt over a short time.

Grappling with investors sitting on the sidelines, wildly fluctuating commodity prices and escalating costs, executives aren’t counting on a short-term fix, though long term, their sentiment is refreshingly rosy.

In the eyes of mining executives, the next six to 12 months will prove to be bleak, with 64% taking a bearish view when asked to comment on the overall strength of the industry. This is in stark contrast to the 9% of respondents who hold a bullish view over the same time period, leaving the remaining 27% thinking it will be neutral. These findings have fluctuated dramatically since our last polling in the fourth quarter, when only 11% of respondents held a bearish outlook when asked the same question.

However, when taking a longer-term (three-year) view, executives tend to be much more upbeat when responding to the same question, with 66% of respondents being bullish about the industry’s overall strength. Only 11% of executives are bearish over this longer time horizon, with the remaining 21% holding a neutral view. This is incredibly similar to our previous polling from the fourth quarter, when 69% of respondents were bullish, 8% bearish and 23% had a neutral view.

It would appear that for most executives, the industry’s long-term fundamentals are intact, despite the view that things will likely get worse before they get better.

In terms of what commodities will likely see the greatest gains over the next three years, gold is the clear winner, with 74% of mining executives thinking it will shine the brightest. Copper comes in a close second, with 63% of respondents expecting to see appreciation in the metal, while uranium rounds out the top three at 53%. Trailing close behind is silver at 50%, which is the only other commodity that there seems to be a long-term consensus on.  

Commodities that executives see as having the highest likelihood of depreciating in value over the next three years are molybdenum, nickel and iron ore, with 44%, 36% and 27% of the multiple-selection vote.  

When asked how current market conditions have affected their short-term business objectives, 39% of executives indicated that they have been launched into survival mode. Though alarming, these findings are segmented, as 65% of executives of companies under $10 million in market capitalization indicated they were in survival mode, whereas only 15% of executives within companies over $50 million in market cap would say the same.

For companies over $10 million in market cap, it would appear to be business as usual, albeit at a slower pace, with 50% of those executives indicating that they have simply cut back on exploration and development.

Some 80% of executives indicated that they have made a concerted effort to reduce overhead.

How has this been accomplished? Surprisingly, executives from companies of all stages and sizes responded in much the same way: 65% of respondents indicated that they have spent less on investor relations and marketing as opposed to one year ago, and 61% stated their exploration spending was less over the same time period.

Only 7% of executives indicated that their company is spending more on investor relations and marketing compared to one year ago. Almost as dismally, only 12% of respondents said they have increased their exploration spending.  

Of the 80% of executives who stated that they tried to reduce overhead, 55% laid off some employees; 53% instituted organization-wide hiring restrictions; 47% reduced or eliminated incentive pay; and 32% resorted to pay cuts.

We found that 82% of executives said the fear of a sustained downturn has impacted their budgeting and hiring behaviour.

When asked if layoffs or employee reductions were being seriously considered for the third quarter, 46% of respondents indicated that they were. Those working for the smaller mining companies (below a $50-million market cap) seem to be safer than those of their larger peers, with only 27% of executives within these smaller companies considering further layoffs. This differs to the 63% of executives in larger companies (over $50-million market cap) who indicated that they’re seriously considering further reductions.

When asked to rate their level of concern on the following issues that the resource sector may face over the next 12 to 24 months, it seems there is a clear and present danger: 74% of executives were moderately to extremely concerned over a lack of investment capital; 54% moderately to extremely concerned with the volatility in commodities prices; and 39% moderately to extremely concerned about rising operating costs.

With respect to hiring, on the bright side, it can’t get much worse: 62% of respondents do not expect to recruit over the next six months. This is a major reversal in outlook from our last polling in the fourth quarter, when 66% of executives had indicated that they would be hiring. 

Of those companies that are planning to recruit, geologists will be in highest demand, with 62% of respondents indicating they would have a need. Notably, 33% of those companies looking to hire will look to make additions to their executive teams, and 18% will be in need of mining engineers. Only 6% of hiring companies will be looking for investor relations professionals.

But only 26% of executives indicated that their company had any sort of succession planning in place.

In the wake of turmoil in the marketplace, only 10% of executives indicated that they have received a raise in base salary over the past 12 months. Despite this and given the market unrest, 68% of executives are satisfied with their current remuneration packages.

A few background notes on the survey: Those who took part were executives from mining companies of all sizes and stages. Most of the 210 responses came from executives at companies that could be described as explorers at 46%. Among those remaining, 35% were mostly at the development stage, and 19% were producers.

Of those polled, 73% came from companies with market caps below $50 million; 13% from companies between $51 million and $250 million; and 7% from companies with market caps between $251 million and $1 billion. Additionally, 7% were made up of executives from $1-billion-plus entities. The percentage of respondents coming from sub-$50 million market-cap companies went up dramatically when compared to our last polling, though given the massive sell-off mining equities have faced recently, it is our opinion that these findings represent a true cross-section of the industry at this time. More responses came from smaller companies because there are many smaller companies in the marketplace. 

— Andrew Pollard is president of the Mining Recruitment Group Ltd.

Established in 2006, the Mining Recruitment Group is a leader in executive searches for emerging junior and mid-cap mining companies. The group has advised companies ranging in size from $5 million to $20 billion in market capitalization, and has been involved in successful searches spanning all senior
executive and functional leadership positions within the mining industry. Visit www.miningrecruitmentgroup.com for more information.