By: Charles Carlisle, Mineweb,
http://www.mineweb.net/mining_finance/996028.htm

05-SEP-06

LONDON (Mineweb.com) –It’s particularly tough being a mining industry executive owadays. Indeed, I suppose it always has been a highly stressful job, but there is an aura to the sector - particularly in metals mining, which keeps people coming back for more. It’s not coincidence that the all-action hero of many of the between-the-wars 20th century English novelist John Buchan’s books was a macho mining engineer - Richard Hannay. You have to be able to think on your feet and be extremely resourceful to survive in this industry of ours.

It is easy to criticise mining executives from afar, or with the benefits of hindsight when things go wrong. However the investor and employee should have sympathy with the problems faced, and handled, by management on a day-to-day basis, without which the industry would grind to a halt. As in all business, wrong decisions are made sometimes. Mining is a risk business, but with the potential of above-average returns. If you don’t want risk in your life, don’t invest in mining.

Some years ago I was in the Philippines, speaking to Jesus Cabarrus, a member of a renowned Filipino mining family, which at the time controlled some of the country’s biggest mining and metallurgical operations. “You have to be a masochist to manage in the mining sector,” he told me. At the time he was going through some very stressful major financial and technical
problems with the family company’s Nonoc nickel smelter, but his comment did not just refer to current specifics, but to the ongoing problems faced by management in such a basic and valuable industry.

Arguably, nowadays the industry has to cope with even more pressures than it did in the past. Some problems have always been with us - mining has always been one of the most dangerous industries to work in - although it is still only the second most dangerous in the US, after agriculture (according to official statistics). Others are relatively new. Financial and
environmental pressures are far greater than they were several decades ago for example.

Nowadays the top executive can be called to account in the courts over actions taken by people way down the chain of command located tens of thousands of miles away. These can range from corporate manslaughter to responsibility for pollution, despoiling the environment and more, many of which could theoretically land them in jail. You have to be able to keep your finger on every aspect of the industry you control nowadays, and be prepared to accept responsibility for virtually any employee’s actions - not easy when your personnel number many thousands in perhaps thirty or forty or more countries.

But the stresses formed by these specific responsibilities are perhaps nothing compared with the financial and political ones in managing a corporation with a market capitalisation of billions of dollars. The adage ‘Mines are where you find them’ is perhaps truer today than it ever
was. To keep reserves, production levels and profits up, mining companies are having
to invest billions of dollars in countries with every political shade of government. And a government can alter from one which has favoured foreign mining investment to being replaced by one which doesn’t. Cast iron agreements can be revoked - or other murkier pretexts can be applied to relieve a mining company of its investment. Political risk assessments have to be part of major investment decisions - and these assessments cannot
be an exact science and can subsequently prove to be horribly wrong.

Financially too, today’s mining executive faces a difficult time. Institutional investors and hedge funds hold ever increasing sway over corporate governance and their aims and objectives are often not those of the mining company executive who may want to build for the future,
rather than for the short term benefit of shareholders. The two are not always compatible leading to friction and division in the boardroom.

To take a corporate example of the kind of matters top executives have to deal with on an almost daily basis, US multinational miner, Newmont, is currently facing effective expropriation of its operations in Uzbekistan - probably without compensation; major power shutdowns for climatic reasons of mining operations in Ghana; a senior executive having to defend the company in court on environmental breach charges in Indonesia; ever increasing
costs pressures on operations; worldwide shortages of capital equipment; and huge
pressures elsewhere from governments and labour wishing to share more from the profits increases resulting from the current high gold and base metals prices. And all this on top of the normal day to day corporate governance of one of the world’s largest and most successful mining corporations.

Newmont, of course, is not the only company facing these kinds of pressures. Virtually all the big natural resource companies will have faced, or are currently facing, identical difficulties. BP in the oil sector is another where somewhat similar problems are being experienced. A Texas Court is trying to summon the company’s CEO, Lord Browne, to appear at the court case
looking into the deaths of workers in a tragic accident at its Texas City refinery; the company is facing fraud charges elsewhere; it has taken a huge amount of criticism over a major pipeline shutdown in Alaska and is forever having to battle with environmental opposition on major projects worldwide. Problems of this type are the norm for the mining executive, not the
exception.

Going back to another of Jesus Cabarrus’s comments to me in the mid-70s - “Who would want to run a mining company nowadays?” The fact is that mining gets in one’s blood and there are always people who thrive on these kinds of macho challenges. The world cannot manage without the mining of metals and minerals and it is lucky for us normal souls that there are enough mining industry masochists out there to meet the demands involved and keep the
industry thriving.