Rising Commodity Prices 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 because September 18, 1987. The spot uranium price tag is greater than it’s been since January 1980. Crude oil? Filling up your gas tank ought to remind you that oil rates are even now painfully substantial. So all of this ought to imply mining companies are thrilled with their great fortune? WRONG! There’s a snowballing crisis within the mining sector, which has been kept off the typical investor’s radar screen. This new emergency could drive commodity prices to even increased levels over the coming months, and possibly right up until the end with the decade.
The two-decade extended bear market drove numerous geologists out from the mining sector. Drilling companies went bankrupt. Even while using recent explosion of activity in the mining sector, exploration inside the sector is less than one-third of its peak in 1981, when a lot more than five,500 drill rigs have been running.
The mining sector’s labor and drill rig shortage has gone past the “we’re inside a crisis” stage. With out qualified geological staff and drill rigs for exploration and development programs, companies may fail to get their projects on the web fast enough to satisfy the worldwide demand for their metals, regardless of whether it’s gold, silver, copper, or uranium. The Baker Hughes North American rotary rig count is really 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 number 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.
In the course of 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 within the U.S. You may find one, but it’s a problem finding the right rig at the right time.” His business began searching for a drill rig in September for drilling scheduled to commence June 1st. Calvert explained that the big oil companies had signed up rig contracts so they wouldn’t get caught short, adding, “Whether the rigs are being employed daily 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 begin drilling on or concerning the middle of March. Norman Burmeister planned a lot 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 to the frighteningly tight labor marketplace within 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 of the Wyoming Mining Association adamantly announced, “There are 800 direct job openings in the mining business 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 increased. Mining consultants get $800-1000/day. Even day helpers on drill rigs can charge $22/hour or a lot 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 inside 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 because the demand was overwhelming. “Headhunters who have been around for twenty a long time say they’ve by no means seen a market like this,” Michaud stressed. “For the last ten years, the mining industry fed mining graduates towards the wolves. Now they need them. All are busy with no takers to individuals far away places.” Michaud lambasted the mining firms for their lack of foresight, “Mining firms have to expect the demand for professionals, such as production geologists, will go up while using price tag of metals. There have been 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 1 has jumped at the offer you. “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 have been in especially dire straits to fill new job openings.
The U.S. Energy Info Administration announced in its most recently published annual statement, “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 given that 1998. Much more firms conducted exploration and development drilling than inside the prior 2 many 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 of 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 price tag continues rising, exploration companies might locate it harder to recruit veteran uranium geologists, to sign contracts for drill rigs, and to operate those people rigs. Nucor’s Calvert laughed, “Finding and keeping employees is definitely a problem.” Michaud explained, “Finding a metallurgist is hard enough. Finding a single with uranium knowledge is almost impossible.” David Miller, president of Strathmore Minerals, lamented, “Expertise within the uranium industry started with geologists who produced discoveries in 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 extremely little amount of professionals continued inside the uranium industry, throughout the twenty-year bear market. Now that the number of uranium businesses has skyrocketed to more than 420, there’s a potentially catastrophic shortage of uranium expertise.” The generation gap has come to haunt the industry.
What’s the solution? Many, for example 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 keep their oldest employees and recruit college graduates because there aren’t enough new engineers to go around. Engineers who aid 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 from the Key Lake uranium deposits in Canada’s uranium-rich Athabasca Basin in 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 nearly 30 a long time knowledge inside 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 firms bring a lot more than 200 many years of experience, collectively, to their new ventures. But without sufficient new mining school graduates to mentor under them, long term exploration and development may turn out to be stalled.
What is troubling in regards to the uranium industry, in particular, is that the soaring spot uranium cost 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. Without having uranium for individuals reactors, the power plants won’t produce the electricity required to meet their demand. As an aside, uranium mining may be the stage in the nuclear fuel cycle exactly where the environmentalist fanatics are baring their teeth. This past November, an office manager at Albuquerque’s Southwest Research and Info 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 want to stop the front end with the nuclear fuel cycle, which is uranium mining.”
Don’t say the warnings weren’t created properly 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 cost does not reflect the actual difficulties and, for the contrary, is capable of misleading all of us about the urgency of investments to be made inside 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 organic uranium shortage and it’s not necessary to be a prophet to foresee this. It’s clear today that the key for the solution with the major difficulties with the uranium marketplace lies while using development of the potential with the uranium producers.”
This past August, Angela Jameson reported inside the on the web version from the London Times, “A GLOBAL shortage of uranium could jeopardise plans to build a new generation of nuclear power stations in Britain… a recent statement 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 you are able 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 since companies lack the trained personnel, the correct 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. Whilst commodities costs soar to levels not seen in twenty or thirty years, the tight labor and equipment market could ratchet rates 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 individuals 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 lower, commodity costs will continue rising. For junior uranium investors, this might someday be realized since the “hidden reason” why spot uranium rates continued rising past $40/pound. If you don’t drill for the commodity, you can’t discover it and develop it. This strengthens the case for $50/pound uranium in the near future. Now we understand why Strathmore Minerals’ David Miller warned us in November, “I wouldn’t be surprised to see uranium prices double again.”
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