Flexibility Essential for Mexico’s Mining ExecutivesWed, 10/21/2015 - 11:51
Q: What has been the role of mining executives during this period of change, and what will be the relevance of mining companies for investors in the coming years?
JLB: After years of rapid growth pushed by China’s metals appetite, the mining industry is facing a very different environment characterized by lower metal prices, higher costs, and much more inquisitive and demanding shareholders. As most things, the origin of this moment includes the way the business was previously modeled, but it also has a strong connection to the pace of the uncertain and volatile world economy. The super cycle, as some describe the period between 2004 and 2012, was focused on volume and mass production. Prices were better than ever, so not exploiting and not producing meant lost flux. In these paradigm expansions, acquisitions and projects were the main concerns of many companies and costs and controls were the last. Some mining companies grew too much, hired too many people, and invested considerably on low-grade ore projects with insufficient returns on investment. However, there are others that did not follow this general trend and have acted very quickly to the changing conditions. The competitiveness of such a company is visible in the way its share price has evolved in the last ten years. Despite the mistakes that some companies have made, the returns on their investments have been favorable in the long-term. The challenge today is to recognize that change is mandatory. The business model has to shift from maximizing production to maximizing profitability, from the short-term to the long-term, as well as toward sustainability. For big companies, this shift presents a significant challenge because the organization, the processes, and the culture are built differently, meaning they are very hard to change.
Q: What are the main skills that mining executives in Latin America need in order to attract the attention of investors?
AFB: The first skill that is needed is a long-term and sustainable business perspective. Mining is a long-term business and the exploitation of an asset in this industry commonly takes up to 50 years. The fact that you have to deliver exceptional results over longer periods makes the business complicated. There are many changes that happen across the development and life of a mine, as well as within each company and within a country. These changes have to be addressed to avoid any long-term damage. This can include the loss of a social license, aggressive regulation, new taxes, and much more. Sustainability is the only way mining companies will gain the credibility they need to attract investment. Another important skill is the adaptability and the intelligence to quickly read the changes in the environment and move the company accordingly. Clinging to old paradigms and not listening to what stakeholders are saying can be disastrous. New leaders in this volatile world need to be effective at creating flexible organizations that can safely navigate the changes in the industry.
Q: How is Spencer Stuart able to find people that can combine long-term planning with adaptability and capital discipline?
JLB: We are on top of the market by mapping, tracking, interviewing, and referencing people in this industry. This gives us a broad view, the capacity to compare different options, and a deeper understanding of the best practices. Even so, it is still difficult to find people who can encompass all the skills needed by the industry. To increase the possibilities, we leverage our network of people in the industries that are strongly connected, such as energy, mining, engineering, and construction. Today, there is a good opportunity to hire talent from around the globe, and it is common to have candidates from different countries competing for the same role. We leverage our worldwide presence to keep track of this global talent pool.
Q: What is your perspective on Mexico’s future role in the global mining market?
AFB: Mexico still has a lot of mining potential. There is good access to energy at reasonable prices, solid transportation infrastructure, access to funding, a stable economy, a skilled workforce, and a long mining history. Since the mining industry’s value is still a small percentage of GDP, it could be said it is still underdeveloped in comparison to other industries in Mexico. This gives the Mexican mining industry the opportunity to start off with a clean slate. This is not possible in Chile, Peru, or Argentina, where a large portion of the population is already set against mining projects because of past mistakes.