Identifying the upcoming issues

The Canadian mineral industry has spent a great deal of time in the past decade reacting after the fact to changes in the economic, political and social environment that have seriously affected its profitability and even its viability. The words crisis, sunset and even death appeared frequently in headlines about the industry and on the agenda, both formal and informal, of mineral resource industry meetings.

The sense of urgency was accompanied by responses focused on crisis management, survival, downsizing, cost cutting, debt reduction, rationalization and “de-versification.” Many of the more urgent problems have now been resolved, or at least eased, and a recovery in metal markets is in progress. Productivity improvements and restructuring have been significant and adaptation to the new circumstances facing the industry is well under way.

It is essential to recognize, however, that change is a continuing phenomenon. The present reality is only a temporary condition, and today’s solutions may generate, or even be, tomorrow’s problems. In the best of all possible worlds, change would be anticipated and dealt with less traumatically than has been the case with the mineral industry in the last few years.

With this in mind, the Centre for Resources Studies decided it might be useful to organize a seminar around the theme of looking ahead to the next decade. With the lessons of the past still fresh in our minds, perhaps the industry can reduce its chances of being caught flat-footed by the next set of surprises the world has in store.

Participants at the seminar, held in Kingston, Ont., in October, identified a wide range of upcoming issues in need of further study, close watching and even immediate response, and strongly recommended a more active leadership role for the mineral industry in dealing with its own problems.

Areas of concern can be broadly categorized as supply and demand issues, profitability issues, trade issues, and environmental and health and safety issues. All are inter-related and some are in fact causes of, or responses to, others. It became apparent in the course of the discussion that, even among a group of industry experts, there is still considerable uncertainty about the nature and severity of the likely effects of the issues identified. Supply and demand

On the supply side, participants warned of continuing overcapacity and oversupply for most minerals in the foreseeable future, on a worldwide basis. At the same time, declining base metal reserves in Canada raise questions about Canada’s future role as a supplier of base metals, increased volatility of both world supply and world demand was predicted, a situation that will be worsened by uncertainties over the supply and demand potentialities of newly developed countries, of China, of the U.S.S.R. and of other regions and countries.

On the demand side, additional uncertainty surrounds the potential impact of advanced materials, both as competition for minerals and as opportunity for mineral producers. Profitability

Canadian mineral producers will have to fight to maintain their place (along with, it was suggested, 75% of the world’s mineral producers) on the lower half of the cost curve, in order to stay competitive. This will require continued as well as novel efforts at cost cutting, through new technologies and management strategies, improved capital and labor productivity, and better use of human resources.

It will require closer attention to quality of product and possibly a shift to higher-value-added product lines. Strong emphasis was placed on the need for defence of existing markets against the encroachments of new producers and new materials, and for the creation of new markets. Tax reform and capital markets also present areas of uncertainty and potential problems for profitability in the industry. Trade issues

Not surprisingly, the Canada/ U.S. trade negotiations were of considerable interest. While the mineral industry strongly favors free trade, related uncertainties in need of further study and appropriate early response include the potential effects of exchange rate fluctuations, and the quality of the response that can be expected from Canadian producers in the face of opportunities offered by free trade.

In the U.S., agreement and other trading arrangements, questions of definition and measurement of subsidies are in urgent need of resolving, and the issues of growing protectionism must be faced. Health and safety

Participants warned that Canadian mineral producers are facing two “time bombs” in these fields that will have to be dealt with in the near future: the problems of unfunded reclamation requirements for old or former mineral production facilities, and unfunded liability for occupational illnesses that are now being identified as related to past work experience and exposure. Both the timing and the extent of these two issues are still unknown, but the financial implications are significant, to say the least.

Participants noted that, in these two areas in particular, industry has an opportunity to exercise a pro- active and constructive leadership role: for example, by working on alternative models for regulatory systems; or by generating initiatives in reclamation techniques, pollution control, recycling, quality of working environment, and compensation equity.

Such initiatives, although not without cost, will serve the industry in two ways. First, they would cut costs in the long term and possibly generate goodwill to counteract a predicted decline in relative economic and therefore in political clout, a goodwill that would be useful in attempting to maintain better political and economic environments for facing an uncertain future. Margot Wojciechowski is a spokesperson for the Centre for Resource Studies, Kingston, Ont.