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THE ECONOMY  

What does the deflating mining industry mean for Sierra Leone?
By Edward Tommy
Oct 14, 2013, 12:08
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You dont have to wear a hard hat to know that the mining industry is experiencing a slump; and, with the mining sector seen as being a key driver of Sierra Leones GDP growth going forward, the state of the mining industry matters.The mining companies themselves are remaining relatively upbeat about the situation, even if their suppliers are not.  Last week Richard OBrien, boss of Boart Longyear, a global mineral exploration company founded over 100 years ago, stated that the last six months in the mining sector have been the toughest he has experienced in the last 25 years.   The month before it was the turn of Danish engineering group FLSmidth, who shed 1,100 jobs and lowered its financial forecasts.  Evidence of the mining booms fading glory is most telling in the financial reports of the mining companies themselves.  Earnings at Rio Tinto, the FTSE 100 mining giant, fell by nearly a fifth in the first half of this year as it felt the effects of falling commodity prices.  BHP Billiton, another of the mining greats, reported full-year profits had fallen by 30%.

Closer to home, Sierra Rutiles own profits have taken a hit.  Despite a 40% rise in sales volumes at the half-year stage, revenue was down by 33% - reflecting a price slump for titanium feedstock minerals.

They are not alone in reporting falling profits despite increased sales.  In its annual review of global trends in the mining industry, PriceWaterhouseCoopers (PwC) says higher costs, more writedowns and fluctuating commodity prices have hit the fortunes of the top 40 mining companies: During 2012 the Top 40s production volumes increased by 6%, but softer commodity prices meant that 2012 revenue of $731 billion was only the second year in a decade that mining revenue did not increase.  Net profit was down 49% to $68 billion.  Decreased commodity prices, an escalating cost base, and $45 billion in impairment charges hit the bottom line.

With prices falling and costs rising, the mining industry is taking action. 

Whereas boom-time strategies focused predominantly on increasing production volumes and expansion at any price - the so called volume frenzy;  todays are targeted at better managing productivity and improving efficiencies, particularly with regard to the operations side and the workforce.

On the operations side PwC reports that many of the top 40 mining companies have undertaken studies to unlock latent capacity. We have seen miners add new fleet to address production inefficiencies when chasing higher utilisation from existing equipment would give the same result at lower cost.  And of course workforces are being trimmed, with the Australian mining industry reportedly shedding a staggering 26,000 jobs since May last year.

There is evidence that mining companies are divesting non-core assets and postponing or scaling back expansion plans until the market improves.  Last year, the top 40 mining firms spent $140billion on capital projects.  This year they have forecast $110 billion in capital spending a reduction of 21%.  Sierra Leones mining industry has not been exempt and last week Sierra Rutiles John Sisay said in the companys Q3 operational update that: the Board has made the decision to postpone the commencement of the Gangama Dry Mining project until current positive market developments are fully embedded so that we can ensure that the project commences at a time that will maximise returns to shareholders. 

While talk of deferred projects and workforce rationalisation can be depressing, John Sisay believes that the industrys focus on productivity is potentially a good thing for Africa, encouraging mining companies to search for sustainable and creative approaches to workforce planning that both tackle spiralling labour costs and the problem of Africas skills deficit.  With the mining industry increasingly looking to emerging markets for its projects, the issue of recruiting skilled workforces becomes ever more pressing.  The fly-in/fly-out approach to human resources is unsustainable, particularly in todays leaner market, he says.  But we have a skills shortage we have to tackle.  Ernst & Youngs yearly report on business risks in the mining and metals field has, for the last five years, placed skills shortages firmly amongst the top ten.  As a consequence mining companies are looking at their national workforces with fresh eyes and calculating that providing them with training and development is a better long-term solution. To that end, both Sierra Rutile and London Mining are focusing on the transfer of skills from the expatriate to the local workforce.

Sierra Rutile has formalised this approach by introducing a localisation policy which will fast track even more high-potential Sierra Leonean employees into managerial, technical and supervisory positions.

Both organisations are also taking a longer-term view of the industrys training needs by investing in technical training.  London Mining has partnered with GIZ (German Society for International Cooperation) and St Josephs Vocational College in Lunsar to provide training in engineering skills, IT skills, adult literacy and building/civil works skills.   The Sierra Rutile Foundation sponsors the Jackson and Devon Anderson Technical College which offers courses in computing, electrical engineering, auto mechanics and business studies to students in its area of operations.

This trend for focusing on the advantages of training and developing a local workforce is reflected elsewhere. Launched last year, The African Mineral Skills Initiative (AMSI) is a private-public partnership including the United Nations Economic Commission for Africa (UNECA), AngloGold Ashanti and AusAID. Its website says: African skills grown in African institutions are the key to using the continents mineral assets to deliver economic growth and social development. With mining companies also focusing on developing national skills, it could be that for once we have achieved a perfect alignment of goals.


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