Labour shortage threatens to put mining industry on shaky ground

Major Drilling Group International (TSX: MDI) had an early Christmas present for investors in December. The specialized drilling services company reported a 50% increase in revenue in the second quarter of the 2022 fiscal year ended Oct. 31, 2021, compared to the same period last year, and a doubling of its net earnings year-over-year.

But underneath the rosy performance, which the company attributed to increasing mining exploration activity, Major Drilling highlighted a potential headwind: a shortage of skilled drill teams.

“It’s certainly a challenge right now,” Ian Ross, chief financial officer of the Moncton-based company, told The Northern Miner in an interview. He said it hasn’t impacted the business yet, but “that would be, from our standpoint, one barrier to growth. Some people would think it’s machinery and equipment, but it’s a labour constraint.”

While the company has enough experienced drillers, it’s had the most trouble attracting assistant drillers. He attributed the labour shortages to the cyclical nature of the industry, early retirements and the changing priorities of new drillers, who are more interested in job stability and going home at night, and less open to working at ultra-remote locations in inclement weather.

The Canadian mining industry is experiencing a significant labour shortage. Job vacancy rates in the mining, quarrying and oil and gas sector in the third quarter of last year reached a record high of 4.3%, representing more than 8,600 open positions, according to Statistics Canada data from late December.

“Demand for talent has outpaced supply and we’re hearing it anecdotally from companies where they have hundreds of positions and just can’t fill them,” Ryan Montpellier, executive director of the Mining Industry Human Resources Council (MIHR), said in an interview. MIHR is a nonprofit that works with industry and other players to address labour market challenges in mining. “We fully expect we’re going to see that number continue to rise, just given what we’re seeing in the industry.”

“These shortages are not ideal and they’re going to impact the industry and its ability to remain competitive.”

Montpellier also noted labour constraints are being felt across numerous occupations, including skilled trades such as maintenance roles, heavy equipment mechanics, electricians, pipe fitters and welders — occupations the sector shares with other industries — as well as diamond drillers and professional occupations including engineers, geoscientists and metallurgists.

Workforce challenges are on the minds of global mining executives, with consultants EY ranking them among the top ten mining industry risks for 2022. Multiple mining companies have noted increased labour costs in quarterly results, including Barrick Gold (TSX: ABX; NYSE: GOLD) and Teck Resources (TSX: TECK.A/B; NYSE: TECK). Coeur Mining (NYSE: CDE) reported in its third quarter earnings that the preliminary capital estimates for an accelerated expansion and restart of its Silvertip mine in British Columbia were higher than expected, reflecting inflationary pressures, supply disruptions and “labor market tightness.”

Pan American Silver (TSX: PAAS; NASDAQ: PAAS) cut its 2021 guidance in November to between 19 and 20 million ounces of silver, down from its earlier estimate of 20.5 to 22 million oz., with president and CEO Michael Steinmann saying in a press release that the company “continued to face challenges with availability of qualified labor and costs related to the Covid pandemic.”

Pan American declined an interview request, but Siren Fisekci, vice-president of investor relations and corporate communications, wrote in an email that the company was still in the process of developing its guidance for 2022 and was “not prepared to discuss any assumptions potentially affecting our guidance at this time.”

The industry is no stranger to labour shortages and experts say they’re unlikely to be a short-lived phenomenon due to a number of structural factors. According to theMining Industry Human Resources Council, roughly 60,000 mining workers will retire by 2030, forcing companies to deal with “replacement demand” even as they need to fill net new positions.

Some workers may also be leaving for entirely different industries. Workers in the energy and mining industry have on average been applying for work in other industries more frequently than applicants in other sectors, LinkedIn said in its December Workforce Report. While cross-industry transitions were muted for most workers, they jumped 60% in early 2020 among energy and mining workers, and continued through the pandemic.

The report said energy and mining workers who have transitioned have primarily moved into manufacturing, construction, software and IT services, corporate services and finance occupations since 2019.

At the same time, a December 2020 survey of 3,000 young Canadians aged 15 to 30 by MIHR and Abacus Data found 42% “definitely would not” consider working in the mining industry and a further 28% “probably would not.” A combined total of 11% of young Canadians definitely or probably would work in the sector.

“There has constantly been a challenge of downturns and upturns for talent, [but] I think it’s getting worse because students aren’t considering mining as an option for a career,” said Mary McKenzie, principal in the mining and metals practice at executive search firm Odgers Berndtson in Toronto, who said enrolment in Canadian mining engineering programs is declining.

“Mining, I think, needs to do a bit of marketing and branding of itself so those folks understand how the industry contributes to daily life,” McKenzie said in an interview.

For his part, Montpellier said the industry is also struggling to attract diverse talent and immigrants to its ranks.

According to EY’s September 2021 survey of more than 200 global mining executives, 64% said they were collaborating with industry associations and academia to attain the skills necessary for the mine of the future, 56% said they were re-skilling existing employees internally, and 52% said they’re attempting to recruit new skills from other industries.

Montpellier said the sector is trying to boost the talent pool by subsidizing co-op programs, creating more work-integrated learning opportunities and career ambassador programs, among other initiatives. At the company level, miners are trying to distinguish themselves to prospective hires by developing inclusive and supportive workplace cultures and offering professional development opportunities, as well as competitive compensation and benefits.

Ross at Major Drilling said the company has ramped up its week-long training programs that educate new employees on heavy machinery operation and safety standards, which he said helps with recruitment and retention: new drillers are more likely to stay if they feel safety is a priority. The company also invested in its drill fleet and inventory, which beyond insulating the company from supply chain challenges also ensures drillers, whose compensation is partly based on productivity, can continue to drill meters and earn their bonuses.

The company also introduced retention bonuses in 2021, and evaluated its compensation package to ensure it’s competitive in the market.

“From our standpoint it’s certainly a challenge,” Ross said. “But I think we feel with our approach we’re managing it.”

—Kelsey Rolfe is a freelancer in Toronto who specializes in the mining industry.