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Today there are many developments occurring in the industry that lead us to think that strong changes are taking place and that the nature of mining may change profoundly in the future. This article will briefly look at the major factors affecting the mining industry, some of the Canadian industry’s responses, as well as the lessons that should be learned by companies that provide mining services.

In the past decade, several factors have emerged which have put pressure on mining companies to reduce costs and re-evaluate management procedures. Some of these factors are as follows:

* New technologies, such as fibre optics, have generally promoted plastics and other materials to the detriment of metals.

* Our economicicrowth has slowed down and there generally has been too much capacity for metal production in existence.

* Pollution concerns are putting pressure on costs. An example of this concern is international agreements to reduce acid rain substantially. However, combatting sulphur dioxide pollution is expected to result in a significant increase in smelting costs.

* The relative value of our currency on international markets has risen considerably in the past. This factor has had a large impact on reducing Canada’s competitiveness in mineral production in recent years.

Governments control a large percentage of world metal production. If the communist bloc (or former bloc) is included, government involvement is significant for most of the principal metals produced. For example, the state controls well over half of all copper produced and close to half of all nickel produced.

Governments often have concerns other than simply maximizing the return on their mining investments. Socio-economic concerns are important. Also, many lesser developed countries generate most of the foreign exchange with which they purchase food and other critical goods from exports of minerals products. Zambia, for example, earns most of its foreign exchange from copper exports.

Canadian producers are re-evaluating some of their strategies and management processes. Management layers have been reduced and all operating levels made leaner. Productivity and bottom-line performance are key concerns today.

Productivity concerns are, however, being tempered by concerns for people. So-called “human resources management” has become widely recognized. An example of the priority given to this area of management is the assistance frequently given by companies to place employees, laid off after mine closures, in other jobs in the mining industry. Profit-sharing programs, designed to improve productivity by eliciting greater participation from workers, are becoming more and more common. Union and company officials are talking more openly about what they can afford to give during contract bargaining.

There have been other responses by the mining industry, several examples of which follow:

* Risk reduction — Companies are entering more often into joint ventures. This strategy has several advantages; capital is easier to raise and risk is spread over several participants.

Companies are also reducing risk by entering into long-term price contracts. Uranium and coal producers have actively sought contracts for price and production. Forward selling of gold has become increasingly popular.

* Project evaluation — In the past, a great deal of reliance was placed on discounted cashflow (DCF) methods,in evaluating capital expenditures. Of course, this type of analysis is of great importance in determining the best use of capital funds.

However, technical concerns were often secondary to concerns of the financial analysts. Today, we realize that no one can predict the future with sufficient accuracy to use the dcf criterion alone. A trend today is for mining executives to use the criterion of competitive production cost ranking to justify capital programs.

* Financing — Financing is becoming extremely complex. In the past, internal funds were generally used to finance new investments. Today, the large size of projects and the volatility of borrowing rates demand a careful planning of a company’s financial structure. Many forms of financing are now available, with these markets becoming much more competitive and international. As well, tax laws are exceedingly complex. Nowadays, proper financial management is just as critical to a mining company’s success as good technical management.

For companies providing a professional service to the mining industry, there are several important rules that must be followed in these changing times. “Simple” is a key word. The days are gone when a mine will install systems or buy products that require a lot of time to implement and support. “Profits” is also a key word. Mining companies will want to see clear benefits and costs with little risk attached.

In order to be successful, organizations marketing a service to the industry will have to be “cost-competitive,” will have to offer flexible financing terms, and will have to supply products and services of high quality. These requirements will be paramount as th service sector of the economy continues to respond to constant changes in technology.

There are many skills that service companies must demonstrate if they want to succeed in the future. The one activity that strikes me as being extremely important is implementation. Products and services must be smoothly and quickly applicable to mining operations.

Of paramount importance is this country’s ability to market its mining expertise internationally. We have a wealth of mining experience and good overseas credibility. There is great potential for exporting mining services, and service-oriented industries with solid experience in Canada can be successful abroad.

Service companies will have to stay very close to their customers. They will have to have people who are familiar with mining terminology and who clearly understand mining company concerns. The mining industry is not a static one. Commodities that appear unattractive today can become very attractive tomorrow. It is especially important that service companies anticipate these trends and modify their services accordingly.

Finally, service companies must be perceived as specialists by the mining industry. Size is not the important thing. Large organizations such as heavy equipment manufacturers, or small ones such as small pump manufacturers, can be successful. A mining company will only purchase services from companies that know their products and that provide superior service.