A scan of recent economic headlines points to a frenzy around the word supercycle. Though industry watchers are dissecting and debating its application to our current economic environment, the very idea is fueling a renewed interest in mining investment and allowing investors to see commodity markets through a refreshed lens.
Strong Signals Point to More Resource Development In Canada
Before COVID entered the general lexicon and massive green stimulus spending was on the horizon, exploration activity was up in general, as Mining Intelligence reported that Canada became the leading country in the number of reported drilling projects in 2019. Of course, the events of 2020 have continued to shift the sand under our feet towards mining that supports renewable energy including demand for battery metals. Recent analysis from StoneX revealed that copper will experience a supply deficit of more than 200,000 tonnes in 2021 alone, and with large and untapped reserves of these commodities in Canada, the underpinnings to launch renewed exploration and increased production in the Canadian mining space is underway.
Whether we are entering a textbook supercycle or a more pointed boom for specific commodities, what matters most to producing miners in Canada right now is the likely squeeze that increased production will place on existing, and already stretched, supply chains and mining infrastructure.
Preparing for Supply Constraints
The pandemic exposed how fragile supply chains can be and, in the ramp-up phase of a supercycle, producing miners have a strategic opportunity to prepare for the next supply crunch.
Applying the lessons of 2020 supply chain hardships, miners know that solidifying supplier networks and relationships is a priority. Suppliers have responded to the pandemic challenges in differing ways and this is an opportune time to evaluate needs and intentionally align relationships going forward. Suppliers that can prove their value now and meet the coming challenges of increased demand will be well positioned.
With increasing demand comes tightening supply and with it, associated cost increases to secure that supply. Protecting against price hikes that will put a dent in all-in-sustaining-costs will be a measure of success. Across the board there are opportunities for producing miners to find savings – often up to 30% of AISC spending – if they are willing to take this opportunity to challenge their procurement status quo and prepare their supply chain for the next supercycle.
Beyond the supply of goods and consumables, labour is another supply constraint in many mining regions. From the difficulty of finding qualified staff to increasing wages to retain existing personnel, exploration projects moving into the production phase will exacerbate the qualified labour challenge.
Look no further than the Abitibi belt for the convergence of these supply constraints. As more than a dozen mines are set to open in the region over the next five years, the supply of labour, services, goods and consumables is a source of concern. A forward-thinking strategy to implement structural changes is necessary to meet demand and to support the future success of the mining region.