Lower commodity prices have forced miners to focus on what they do best.
Business people aren't known as big believers in fate, but some mining executives are now telling themselves that "everything happens for a reason."
Over the last couple of years, the sector's fortunes have taken a nosedive. The industry has been built on feeding China's insatiable growth and that's pushed up company cost structures and created oversupply.
Now, though, China is in the midst of a slowdown. Its GDP has gone from 10.4 percent growth in 2010 to 7.8 percent in 2013. It's slowed enough to cause global commodity prices to fall and that's affecting Canadian miners.
In 2013, Canada's miners saw their net profits drop by about 72 percent, according to PricewaterhouseCoopers, and while that has certainly sent the industry into a panic, in the long-run this downturn may be just what the sector needs.
For much of the last decade, commodity prices have been soaring and that's caused a lot of exuberance in the market place, says Deepak Dave, senior risk officer for mining and metals, with GE Capital. Companies spent money without paying enough attention to balance sheets and took on large greenfield projects that promised potentially big payoffs. Little attention was paid to project financing risks.
The recent downturn has forced miners to rethink their strategy and become far better operators, says Dave. "Companies are starting to focus more on what they're already good at doing," he explains. "They're focusing on managing existing long life operating mines in countries they understand and they're doing it through leaner head offices. They're also focusing on metals they have historically excelled at extracting."
One way companies are being more prudent stewards of cash is by spending their capital expense-related budgets on equipment they truly need to run their mines. They also are replacing old equipment and introducing new technologies that will make their operations more efficient. Every dollar spent and saved matters now, says Dave. "Executives have to justify what things cost and what the equipment is going to do for them and how," he says.
Fortunately, the industry is constantly innovating and there are ways to do more, while spending less. A big pain point is getting energy and water to sites, says Dave, and executives are looking to suppliers to help alleviate that problem in a more efficient and less costly way.
To this point, Robert Dyck, senior account manager, mining and commodities with GE Capital, sees more miners looking to lessen their dependence on diesel, which is usually one of the top three mine site expenses.
Some companies are also looking at liquefied natural gas options for large haul open pit vehicles and battery powered alternatives for underground vehicles, he says.
Ultimately, it's the companies that can lower operating costs and become more efficient that will see success when this sector rebounds. "Reducing costs will add to the bottom line, but it will also make mines economical for longer," he says. "This is good for Canadian miners."
This content was produced by The Globe and Mail's advertising department, in consultation with GE Capital. The Globe's editorial department was not involved in its creation.