Why Canada’s mining companies will survive the downturn

Dave Lawson, president of global mining and metals markets at Amec Foster Wheeler. — Photo courtesy Dave Lawson

While attending this year’s Prospectors and Developers Association of Canada (PDAC) conference in Toronto, Amec Foster Wheeler’s Dave Lawson noted that attendance wasn’t the only thing that was down this year. Like virtually all commodities, metal prices are down, too. But as a 35-year veteran of the industry, he’s seen such cycles before, and he’s confident things will turn around. Not only that, he said Canadian companies are in a much better position to weather the storm than many of their global counterparts.

“If you compare Canada to Australia or South America, Canada is doing much better,” Lawson said. “South America is really struggling right now. Companies are slowing down, postponing projects, and reviewing capital expenditures. However, some projects are still moving ahead.”

Lawson said reduced demand from China is one of the key reasons for the current downturn, not only in metals but also in many other bulk materials such as iron ore, coal and potash.

“If you take a look at copper, 50 per cent of our production ends up in China, and China is not growing at the speed it used to,” Lawson said.

However, he said the volatility is also a product of more people having access to more information.

“I think it’s a normal cycle, but for some reason it seems to be exaggerated a little bit," Lawson said. "Information is more readily available than it was in the past. More information moves faster, and people tend to react quicker and in more extreme ways. There’s more volatility in the market because there are more people involved in the market.”

Lawson believes a bit of perspective is in order, too.

“For many, many years, gold sat around $600 an ounce," he said. "Then it suddenly jumped to $1600 before it dropped to $1300. But it’s still an awful lot higher than it was.”

Despite the obvious strain depressed prices put on the bottom line, Lawson notes that the situation is spurring healthy conversations between contractors and clients about how to make their operations more efficient.

“Previously, there was a way people did things, because they’d done them that way for many years," said Lawson. "Now it’s a case of anything is up for grabs. Let’s talk about how we can make these projects more efficient. Necessity is the mother of invention. Whenever conditions like this arise, people come up with clever ideas, whether it’s robotics, automation or other creative ways to do things. Now there’s lots of discussion.”

Lawson said diversification is also a key survival tactic.

“Anyone who is purely in one commodity or one sector is suffering more right now than someone who is more diversified,” Lawson said.

As for Amec Foster Wheeler, a global company that provides engineering, project management and construction services “from pit to port,” Lawson said the consulting side of their Canadian business has seen growth over the past couple of years, as clients seek advice on how to boost efficiency and cut costs. Mining companies are also looking to other sectors for ideas. “As we sit down and talk to clients from oil, gas, chemical and mining industries, synergies develop. People say, ‘This is how we do things in the oil and gas business, have you considered doing this?’ Clients are keen to learn from anywhere.”

While many companies have trimmed back on exploration and development, postponing development of the next generation of mines, Lawson said when you’re dealing with a depleting reserves, such cost-cutting tactics can only go on for so long.

“I think you’ll see companies going ahead with new projects for a variety of reasons," he said, "primarily because they don’t want to lose market share. But they’ll make better use of resources and spend their money wisely.”

While Lawson thinks we may have reached the bottom of the curve in terms of commodity prices, he’s not anticipating things to turn around overnight.

“I think 2015 will be a very interesting year. I know it’s coming back. It’s only a question of when. I’m optimistic. I’m looking forward.”