Industry leaders weighed in on whether the mining sector has performed poorly on its return on investment (ROI), and what can be done about it, at The Northern Miner’s roundtable discussion in Toronto in mid-January.
The roundtable — sponsored by PwC and moderated by Northern Miner publisher Anthony Vaccaro — augments the Miner’s independent research on the topic, which will be published in early March.
Results from our survey on ROI show that 71% of respondents share the impression that mining ranks worse than the average of all sectors of the economy, while 52% of those polled agree or strongly agree that an overabundance of capital entering the mining industry in the mid-2000s led to development of lower-quality projects that wound up driving down ROI in the sector.
President and CEO of Goldcorp (TSX: G; NYSE: GG) Chuck Jeannes kicked off the roundtable discussion by noting that during the last bull market the industry — including Goldcorp — “chased ounces” and “allowed cut-off grades to decline just about as fast as the gold price was going up,” which lifted costs per ounce. Over 10 years, he added, the “compound annual growth rate (CAGR) of the gold price was 16% and the CAGR of the cost was 15%, and so that’s what happened to our margins.”
Rob McEwen, founder and executive chairman of McEwen Mining (TSX: MUX; NYSE: MUX), pointed out that current capital constraints are imposing “discipline to the market,” after financiers and investment dealers “seduced the industry into believing there was an endless supply of money, and they’d give it to you on a handshake, almost, and you’d go build.” Companies then built bigger and bigger operations with a lot of moving parts that could be easily delayed, throwing projects off schedule and budget.
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