Beaver Creek: Experts warn poor management sinks mining projects, not rocks

Mining industry experts contend that leadership quality, not just geological assets, determines the success or failure of exploration projects, an industry conference heard Tuesday. They called for more rigorous management due diligence to address persistent shortcomings.

Stephen Enders, executive chairman of Denver-based recruiting firm Brooks & Nelson LLC, argued during his keynote address, The Importance of People in Mining Investments, that poor leadership often leads to mining project failures. He cited the cases of Pure Gold’s Madsen mine in Ontario, Stornoway Diamonds’ Renard mine in Quebec and Horizonte Minerals’ (TSX: HZM; AIM: HZM) failed financing early this year.

“A bad management team can break a great project, but a good management team can make a mediocre project successful,” Enders told the Precious Metals Summit underway in Beaver Creek, Col.

Enders highlighted the industry’s strong technical and legal due diligence processes but stressed its failure to assess management teams thoroughly. A recent Brooks & Nelson research project found that more than 90% of 42 surveyed companies agreed that management is key to a project’s success. However, only a tiny fraction of these companies consistently conduct comprehensive management evaluations.

“There’s a widespread perception that management due diligence is too costly or time-consuming, but it’s far cheaper and faster than technical due diligence,” Enders said.

He linked poor management to project delays, cost overruns and bankruptcies.

“Imagine a year of delay on your project because you didn’t have the right people,” he warned. “You have to give it serious attention,” he said, recommending skills matrices, background checks and structured interviews.

Buy-side and sell-side

Industry professionals echoed Enders’ concerns in a panel discussion. Strong leadership is critical for advancing projects, especially in a risky market.

From the corporate finance side, Nawojka Wachowiak, portfolio manager at Toronto-based 1832 Asset Management which controls $151 billion, explained that investors are increasingly filtering mining projects based on leadership quality as much as on asset potential.

She stressed that portfolio managers look for management teams that can balance upside potential with manageable risks, noting that environmental, social, and governance (ESG) factors are becoming more significant in investment decisions.

“High-quality assets are important, but without the right management, those assets won’t deliver returns,” she said.

Michael Gray, partner and co-founder of Agentis Capital Mining Partners in Vancouver, focused on how companies seeking financing or engaging in mergers and acquisitions must demonstrate strong leadership and a clear value-creation path. He noted that private equity firms, in particular, are more likely to perform rigorous management due diligence, given the sector’s inherent risks.

“It’s not enough to have a promising asset,” Gray said. “The execution of exploration, development and financing plans is critical.”

Gray also addressed consolidation where smaller explorers and developers are acquisition targets for larger producers. He emphasized that companies looking to be acquired must ensure their management teams are up to the task of scaling operations while managing investor expectations.

“The key is for junior companies to demonstrate a strong project pipeline and capable leadership that can guide the project to the next stage,” Gray said.

Challenges and trends

Peter Bell, managing director of research at investment bank Canaccord Genuity, provided the sell-side perspective, stating that his team spends considerable time evaluating management teams when producing research reports.

Even the best technical data cannot overcome weak management, especially in early-stage exploration, where the margin for error is slim, he said.

“The success of an exploration company often comes down to leadership,” Bell said.

Bell discussed current industry trends, including increased investor skepticism towards early-stage exploration companies. Many investors are wary of the high risks and long timelines to production, which makes it crucial for companies to stand out by showcasing exceptional leadership and capital management.

“The companies that succeed are those that combine great assets with great leadership,” Bell said.

The panellists also highlighted the growing importance of environmental, social and governance (ESG) issues in investment decisions. Wachowiak said buy-side investors and corporate acquirers scrutinize companies’ environmental and social impact. Companies with strong ESG practices are more likely to attract institutional capital and avoid regulatory hurdles.

The presenters hammered home the idea that mining companies must fix leadership gaps to avoid high-profile failures that have marred the industry’s reputation. Enders argued that, while technical reviews are prioritized, “management failures are a big part of why the mining industry doesn’t have the greatest track record.”