NEWS RELEASE: Who will win in the resource revolution?

This article was provided by the Ontario Mining Association (OMA), an organization that was established in 1920 to represent the mining industry of the province.

Unless Canadian mining companies do a better job of controlling their costs, they won’t be able to maximize benefits from the global resource revolution, cautioned a leading business consultant. Robert Samek, a director of McKinsey & Company and lead on its Canadian mineral and energy practice, was a keynote speaker at an Ontario Mining Association board of directors meeting earlier this week.

The title of Mr. Samek’s presentation was “Canada’s competitive position in the resource revolution.” “Canadian miners need to figure out how to make the most of that revolution,” he said. Despite short term price fluctuations, he foresees a huge increase in the demand for minerals.

“It took the U.K. 150 years to double its GDP. It took Japan 33 years to double its GDP. Now, China and India are doing that in 10 to 15 years,” said Mr. Samek. “This pace of change is unprecedented. It is a middle class explosion.”

He estimates to size of the middle class consuming society on a global scale to triple between 2010 and 2030. “There is a continuing march to urban centres,” he said. “People are not going to be middle class living on the farm.”

“There will continue to be a building out of the urban landscape in many developing countries and the urban infrastructure that goes behind it,” said Mr. Samek. “There will be huge growth in the consumption of basic building blocks such as energy, steel, water and fertilizer. The resource revolution should be good for Canada.” The anticipated global growth in middle class consumers and the accompanying demand for minerals and energy is the basis of his term resource revolution.

He said that Canada has done extremely well in the highly competitive global commodity market and delivered significant benefits to Canadian society. On a relative scale with other mineral producing jurisdictions, Canada would be classified as “high-cost and low-risk.” He said “Canada’s low-risk profile and its ability to attract funds are the offsets to higher costs.”

However, in Canada, he sees capital costs and production costs rising, partly due to geology in that economic mineral deposits are becoming more difficult to find and maybe be lower grades. He warned that mining enterprises in Canada need to guard against rising costs and a slippage in stability, if they want to more fully benefit from the resource revolution.

“We need to become paranoid about rising costs and we need to guard against risk and fight this back,” he said. Mr. Samek challenged Canadian miners to reinvigorate the industry and reduce capital costs and to become more innovative. He also stressed the importance of the need to find new markets and be less reliant on the United States as a major customer.

Mr. Samek, who earned a MBA from Stanford and a Bachelor of Science degree from the University of Alberta, has been with McKinsey & Company since 1992. The company is a global management consulting firm specializing in strategies and improving business performance. It has consultants stationed in 40 countries and its Canadian practice opened in 1968.