Multiple Threats in Mining: Limit these with the best commercial and technical management team

– by Cheryl Zeghers, Principal Consultant – InterSearch Oman

The driving force behind what used to be Africa’s most advanced and richest economy, South Africa, was the mining industry. Lesson’s to be learnt.

Today South Africa is still the world’s richest nation in commodity wealth with mineral reserves estimated at USD2.5 trillion. Twenty five percent of the economy can be attributed to mining.  Mining started in 1867 with the discovery of diamonds and in 1886 in the Johannesburg area with the Witwatersrand gold rush. Today South Africa is the world’s largest producer of chrome, manganese, platinum and vanadium and the second largest producer of ilmenite, palladium, rutile and zirconium.  South Africa is also the world’s 3^rd largest producer of coal and a major producer of iron ore.

Today there are several challenges facing the South African Mining industry:

• Labour
• Rising costs
• Political uncertainty and subsequently policy uncertainty
• Unreliable sources of power
• A long cycle of reduced global demand (China is South Africa’s largest trading partner in commodities)
• Ongoing human rights issues
• Allegations of corruption
• What is known as the “Brain Drain” caused by skilled people leaving the country and a subsequent serious skills shortage

The governments of the Middle East are actively exploring various mining ventures as a way to diversify and boost economies. Investors do not start projects like these with an intention to fail. However, refineries burn, bridges collapse, pipelines burst and the best strategies are defeated.

The main contributor to project failure are known to be human factors. Take this in combination with the various other threats to the success of mining projects (see below) and it’s no wonder investors are nervous:

• Lack of funding
• Fluctuating commodity prices
• Currency fluctuation
• Taxes
• Regulations
• Delays in government approvals
• Community opposition to projects
• Health and safety
• Environmental
• Expertise
• Semi- skilled and unskilled Labour problems
• Security
• Political
• Equipment
• Power & Water resources
• Logistics

It is widely accepted that managerial matters are the reason for 92% of failed projects. It is essential to match competency guidelines with the exact technical and commercial expertise required so that there is alignment with a specific project.

The correct management team will convince investors and create trust in the project. Investors look for management teams with solid track records, the correct skill set, a proven ability to deliver, alignment with shareholders and a solid risk management strategy in place. A bad management team can take a good resource and destroy it.

Trust equals Investment. This means trust that resources will be allocated effectively. Trust that disreputable parts of the industry have been screened out. Trust that there is financial literacy; strong strategic understanding and world-class technical skills.

Even mining giants like Rio Tinto can make mistakes but they focus on the largest and best deposits. They also retain full management control of their projects and have the best regional strength and local knowledge in place. Rio Tinto also makes sure they have world leading commercial expertise, and the very best in project management, geology and mining.

It is imperative that an employer understands whether they need a generalist or a specialist. Different project phases (e.g. exploration; pre-feasibility/ feasibility, mine planning, funding, development and building, operations) require different skills sets from experts. It is also essential to match the skill to the specific resource whether it be a metallic mineral (copper, chrome, laterite or manganese) or an industrial mineral or rock. The specific proposed mining method whether it be underground or open cast is also an important consideration.

In conclusion, the best way to limit many of the multiple threats in new mining projects is to not only focus on the right deposits but also have the very best possible management team in place. Short cuts in either of these areas could well lead to failure.