PDAC 2017: Ever the Risky Business

March 10, 2017

BDO's National Natural Resources Leader Bryndon Kydd explores top trends and key takeaways from PDAC 2017.

The mining sector has always been fraught with risk. The very nature of geology itself is both fascinating and uncertain. Combined with sometimes fickle and always cyclical markets, the sector has never been for the faint of heart. At this year's PDAC Convention, I've seen a couple themes arise that seem to have been added to the mix for the coming year and beyond: advancements in technology and the geopolitical environment.

Advancements in technology

Technology and innovation are double-edged buzzwords often thrown around as we prepare for a cautious resurrection of the sector. The mining industry has long been characterized as slow to adopt new technology, with this trait having logical roots given long project lives with high initial capital costs. As the market recovers, many have adopted - and some bet the farm - on the mantra of innovative approaches to traditional methods, designed to build improved margins on a foundation of lower grades typically realized in today's environment.

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There are certainly opportunities in technology, with autonomous equipment and data analytics being the brightest points currently under consideration by many mining companies. These technologies have significant potential to reduce downtime and labour costs, while improving safety and allowing companies to burrow deeper, accessing resources previous deemed out of reach.

The risky side of innovation is on the type of resource itself. While the historical staples of gold and iron ore remain old faithfuls, uncertainty prevails on which minerals tomorrow's markets will demand. For example, there's much talk about lithium recently, given advancements in battery technology and the aforementioned demand for autonomous vehicle technology, which is expected to disrupt a variety of industries. However, with technology advancing at an ever accelerating rate, the longest period we can be sure there will be significant demand for lithium is ten years, which is roughly the best case scenario for construction of a new mine from grassroots drilling through to production, not to mention an expected mine life of 25 years or longer.

There is an inherent disconnect between today's rapidly evolving technological consumption and an industry that simply cannot move quickly due to the complex and uncertain nature of its resources. This may be a key impediment to the advancement of some new technologies, as the risks involved may be beyond the appetite of companies with the means to pursue development of mineral deposits containing the resources needed to mass produce certain new technologies.

Geopolitical environment

Geopolitical risk has quickly accelerated as a major uncertainty for many industries, and mining is not immune. In our post-Brexit world rocked by random and vague Tweets, mining companies are left wondering what the demand may be for their products and where they may be safe to develop long-term projects. Never before has so much conflicting, and often dubious, information played on the whims of those who influence demand for the products of the mining sector.

Lofty promises of major infrastructure spending have been made recently by more than one major Western nation as a means to jump-start economies. Should these plans move forward, they could provide a boost in the demand for a variety of metals and minerals. However, many are skeptical of these promises coming to fruition given mixed opinions on this strategy's effectiveness, especially given its recent failure when applied by Japan. This may cause decision makers to rescind these commitments.

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Expanding division among socioeconomic classes in developed nations threatens the economic stability of some established nations, potentially passing global economic influence to developing nations with differing priorities than those of Western nations. Ironically, the technological advancements that the mining industry is cautiously embracing threaten to aggravate unemployment, as robotics and technological efficiencies replace traditionally manual processes.

While there was much positivity at this year's PDAC, my observation is that decision making in the sector is only becoming harder, likely resulting in a slow recovery as companies move ahead cautiously. The majors may be hesitant to invest significant capital in the pursuit of non-traditional resources, potentially allowing opportunity for the juniors to capitalize on high-risk, high-reward opportunities.

Interested in reading more? Read Bryndon's observations from PDAC 2016 here.

To learn more, contact your local BDO office or:

Kydd Bryndon
Bryndon L. Kydd, CPA, CA
National Natural Resources Leader

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