Rising Commodity Costs Causing New Turmoil Through The Mining Sector
The Gold and Silver Index (XAU) is holding steady above 120, having reached a high above 156 in January, a level it had not seen given that September 18, 1987. The spot uranium cost is greater than it’s been because January 1980. Crude oil? Filling up your gas tank must remind you that oil prices are still painfully substantial. So all of this must mean mining firms are thrilled with their good fortune? WRONG! There’s a snowballing crisis in the mining sector, which has been kept off the typical investor’s radar screen. This new emergency could drive commodity costs to even increased levels over the coming months, and possibly till the end from the decade.
The two-decade long bear industry drove many geologists out with the mining sector. Drilling firms went bankrupt. Even using the recent explosion of activity within the mining sector, exploration inside the sector is much less than one-third of its peak in 1981, when more than 5,500 drill rigs have been running.
The mining sector’s labor and drill rig shortage has gone past the “we’re in a crisis” stage. Without having qualified geological staff and drill rigs for exploration and development programs, firms may fail to get their projects on the web quick sufficient to satisfy the worldwide demand for their metals, whether it can be gold, silver, copper, or uranium. The Baker Hughes North American rotary rig count can be a good barometer of how strongly the commodities boom has impacted the sector. In 1999, the U.S. and Canadian drill rig count reached its nadir of 488. On March 17th, the amount stood at 1546 and climbing. Over the past seven a long time, the count jumped 316 percent. Compared to a year ago, the North American Rotary Rig Count is up by nearly 20 percent.
During the course of our three-month investigation, we found the labor and equipment shortage applied not only to uranium but also to coal, oil and gas, coal bed methane and precious metals exploration. Ed Calvert, who runs Nucor Drilling Inc in Wyoming, exclaimed, “There just aren’t any rigs available in the U.S. You might locate 1, but it’s a problem finding the best rig at the right time.” His company began searching to get a drill rig in September for drilling scheduled to commence June 1st. Calvert explained that the big oil firms had signed up rig contracts so they wouldn’t get caught short, adding, “Whether the rigs are getting employed every day or not, they may be paying the fees to hold them.”
Vancouver-based Max Resources announced in early January of this year they had received permits to drill on their Thomas Mountain uranium prospect in Utah. They hoped to drill in late January, depending upon drill rig availability. Max Resources recently announced it planned to commence drilling on or concerning the middle of March. Norman Burmeister planned much more wisely, announcing in mid January Kilgore Minerals would drill the company’s Idaho gold property in July.
The drill rig shortage pales when compared towards the frighteningly tight labor market inside the mining sector. According towards the February 2006 Employment Situation Summary, published by the U.S. Department of Labor, “Mining continued its upward trend in February, adding 5,000 jobs.” Cynthia Pomeroy, Director of Wyoming’s Department of Employment confirmed the crisis, “There is definitely a labor shortage.”
Matt Grant, assistant director with the Wyoming Mining Association adamantly announced, “There are 800 direct job openings inside the mining company that could be filled today.” He quickly noted another 2400 indirect jobs to service the mining industry remain empty, begging for bodies to satisfy individuals positions. Starting geologists make between $35,000 and $50,000 annually. Top geologists command $200,000 and higher. Mining consultants get $800-1000/day. Even day helpers on drill rigs can charge $22/hour or more. Wyoming state and county development associations have attended job fairs in Michigan earnestly trying to fill the growing job vacancy by recruiting laid-off auto workers.
David Michaud, president of TheJobPit.com, finds jobs for geologists, metallurgists and others within the mining sector. A mining engineer and consulting metallurgist, having graduated from Queens University in Kingston, Ontario, and until recently the operations manager for Corriente Resources in Ecuador, he began his internet employment agency for the mining sector simply because the demand was overwhelming. “Headhunters who have been around for twenty years say they’ve never seen a marketplace like this,” Michaud stressed. “For the last ten a long time, the mining industry fed mining graduates for the wolves. Now they need them. All are busy with no takers to those people far away places.” Michaud lambasted the mining firms for their lack of foresight, “Mining firms must expect the demand for professionals, for instance production geologists, will go up with the price of metals. There were no jobs for the past eight a long time.” He added, “It takes two to five a long time to train them.”
For example, Michaud is desperately trying to fill a South American mining company’s job opening for an experienced metallurgist. “Free housing, two cars, four weeks off annually, two plane tickets, basically no living expenses, and a salary starting at US$150, 000,” Michaud sadly explained since no one has jumped at the provide. “In the field of metallurgy, including mill managers, metallurgical engineers, techs and operators, about 150 new jobs are offered every month.” Only about one-half will be filled. Michaud warned the copper mining firms had been in specifically dire straits to fill new job openings.
The U.S. Energy Details Administration announced in its most recently published annual report, “The U.S. uranium production industry initiated a turnaround in 2004. All U.S. uranium drilling, mining, production, and employment activities increased for the very first time because 1998. More companies conducted exploration and development drilling than inside the prior 2 years. Employment in the U.S. uranium production industry totaled 420 person-years, an boost of 31 percent from the 2003 total. Wyoming accounted for 33 percent with the total 2004 employment, whilst Colorado and Texas employment almost tripled because 2003. Overall, $86.9 million went to drilling, production, land, exploration, reclamation and restoration activities in 2004.”
Whilst the spot uranium cost continues rising, exploration companies may find it harder to recruit veteran uranium geologists, to sign contracts for drill rigs, and to operate those rigs. Nucor’s Calvert laughed, “Finding and keeping employees is definitely a problem.” Michaud explained, “Finding a metallurgist is hard sufficient. Finding 1 with uranium encounter is almost impossible.” David Miller, president of Strathmore Minerals, lamented, “Expertise in the uranium industry started with geologists who created discoveries inside the late 1940s through the late 1970s. They trained the next generation, which coincided with the 1970s uranium boom. That boom was short lived and fizzled out by 1981. A very tiny quantity of professionals continued inside the uranium industry, during the twenty-year bear marketplace. Now that the amount of uranium businesses has skyrocketed to much more than 420, there is a potentially catastrophic shortage of uranium expertise.” The generation gap has come to haunt the industry.
What’s the solution? Several, such as Michaud, believe, “Retired baby boomers are coming out of retirement to fill the generational gap and ride their last metal rush into the sunset.” Bloomberg News ran a story on December 8th discussing developments inside the oil sector, “U.S. producers and contractors such as Ryder Scott, which assesses drilling projects and oil and natural-gas reserves, are working harder to maintain their oldest employees and recruit college graduates simply because there aren’t sufficient new engineers to go around. Engineers who help locate petroleum deposits are in demand…”
Aging talent has found its way back into the uranium sector. Aging geologists for instance Dr. Boen Tan, who helped discover two with the Key Lake uranium deposits in Canada’s uranium-rich Athabasca Basin inside the early 1970s, is now helping Forum Development explore for new uranium deposits at its Costigan Lake, Key Lake Road and Maurice Point projects in Athabasca. Uranerz Energy’s entire advisory board consists of former Uranerz professionals, including top geologists, Dr. Franz Dahlkamp and Dr. Gerhard Ruhrmann. Respectively, they’ve 45 and almost 30 a long time encounter in the sector. Strathmore Minerals geological team includes former Pathfinder Mines employees, a subsidiary of Cogema, including board member Dieter Krewedl, President David Miller, and vice president of technical services, John DeJoia. Some of these businesses bring much more than 200 many years of experience, collectively, to their new ventures. But without sufficient new mining school graduates to mentor below them, long term exploration and development may possibly become stalled.
What is troubling about the uranium marketplace, in particular, is that the soaring spot uranium price shows no signs of abating. The crisis comes at a time when President Bush announced his nuclear initiative, as more U.S. utilities plan to add for the country’s nuclear fleet, and as China and India clamor for a reliable source of uranium to fuel their aggressive nuclear energy programs. With out uranium for those reactors, the power plants won’t produce the electricity required to meet their demand. As an aside, uranium mining may be the stage within the nuclear fuel cycle where the environmentalist fanatics are baring their teeth. This past November, an office manager at Albuquerque’s Southwest Research and Information Center, an anti-nuclear activist group reportedly funded by Mott’s Applesauce and Ben & Jerry’s ice cream, told us when we went undercover, “We wish to stop the front end of the nuclear fuel cycle, which is uranium mining.”
Don’t say the warnings weren’t made nicely in advance. At the Planet Nuclear Association (WNA) Symposium in 2004, Dr Moukhtar Dzhakishev, a Russian physicist and a former deputy minister of energy and mineral resources, presented his conclusions, “Firstly, organic uranium mining capacities cannot satisfy reactor requirements. Secondly, accumulated uranium inventories will be exhausted sooner or later. Thirdly, the spot price does not reflect the actual issues and, on the contrary, is capable of misleading all of us about the urgency of investments to be created within the development of new mining facilities.”
In his speech, Dr. Dzhakishev emphasized towards the WNA, “Judging by these facts, the conclusion is evident: a single day nuclear power plants will face a normal uranium shortage and it’s not essential to be a prophet to foresee this. It can be clear today that the key to the solution from the major problems with the uranium industry lies using the development of the potential from the uranium producers.”
This past August, Angela Jameson reported in the online version with the London Times, “A GLOBAL shortage of uranium could jeopardise plans to build a new generation of nuclear power stations in Britain… a recent report by the Asia Pacific Foundation of Canada said that there was likely to be a 45,000-tonne shortage of uranium in the next decade, largely because of growing Chinese demand for the metal.”
The upward spiral with the commodities boom is racing ahead at full speed. Depending upon whom you talk to, the labor and drill rig shortage is either really poor or worse than it is possible to possibly imagine. If you can find commodity inventory shortages correct now, what happens by the end of this year, or later this decade, if current exploration efforts get grounded because firms lack the trained personnel, the proper equipment and the expertise to explore and/or develop their properties? You can’t run a drill rig if you can’t get your hands on a single. You can’t drill the property in case you can’t find drillers to run the rig. While commodities costs soar to levels not seen in twenty or thirty many years, the tight labor and equipment market could ratchet prices to much greater levels. And junior uranium development firms, with proven pounds-in-the-ground assets, must turn out to be sought-after acquisition targets by those who have the staff and drill rigs to bring the projects on the internet.
For investors, the labor and drill rig shortage has a silver lining. As inventories dwindle reduce, commodity costs will continue rising. For junior uranium investors, this might someday be realized since the “hidden reason” why spot uranium prices continued rising past $40/pound. If you don’t drill for the commodity, you can’t locate it and develop it. This strengthens the case for $50/pound uranium inside the near future. Now we understand why Strathmore Minerals’ David Miller warned us in November, “I wouldn’t be surprised to see uranium costs double again.”
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