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 increased than it’s been given that January 1980. Crude oil? Filling up your gas tank should remind you that oil costs are still painfully higher. So all of this must imply mining businesses are thrilled with their great fortune? WRONG! There’s a snowballing crisis inside the mining sector, which has been kept off the typical investor’s radar screen. This new emergency could drive commodity prices to even higher levels over the coming months, and possibly until the end with the decade.
The two-decade extended bear marketplace drove several geologists out of the mining sector. Drilling companies went bankrupt. Even while using recent explosion of activity in the mining sector, exploration in the sector is less than one-third of its peak in 1981, when much more than 5,500 drill rigs had been running.
The mining sector’s labor and drill rig shortage has gone past the “we’re inside a crisis” stage. Without having qualified geological staff and drill rigs for exploration and development programs, companies may possibly fail to get their projects on the internet quick adequate to satisfy the worldwide demand for their metals, regardless of whether it can be 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 quantity stood at 1546 and climbing. Over the past seven years, the count jumped 316 percent. Compared to a year ago, the North American Rotary Rig Count is up by almost 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 might locate a single, but it’s a problem finding the best rig at the proper time.” His organization began searching for 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 in regards to the middle of March. Norman Burmeister planned 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 five,000 jobs.” Cynthia Pomeroy, Director of Wyoming’s Department of Employment confirmed the crisis, “There is definitely a labor shortage.”
Matt Grant, assistant director from the Wyoming Mining Association adamantly announced, “There are 800 direct job openings within 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 those 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 much 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 simply because the demand was overwhelming. “Headhunters who happen to be around for twenty years say they’ve in no way seen a market like this,” Michaud stressed. “For the last ten a long time, the mining industry fed mining graduates to the wolves. Now they need them. All are busy with no takers to those people far away places.” Michaud lambasted the mining businesses for their lack of foresight, “Mining firms have to anticipate the demand for professionals, for instance production geologists, will go up with the cost of metals. There had been no jobs for the past eight years.” He added, “It takes two to five many years 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 each month.” Only about one-half will be filled. Michaud warned the copper mining businesses were in particularly 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 first time given that 1998. More companies conducted exploration and development drilling than inside the prior 2 a long time. Employment inside the U.S. uranium production industry totaled 420 person-years, an increase of 31 percent from the 2003 total. Wyoming accounted for 33 percent of the total 2004 employment, although Colorado and Texas employment almost tripled given that 2003. Overall, $86.9 million went to drilling, production, land, exploration, reclamation and restoration activities in 2004.”
While the spot uranium cost continues rising, exploration firms may locate 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 one with uranium experience is almost impossible.” David Miller, president of Strathmore Minerals, lamented, “Expertise within 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 extremely little amount of professionals continued in the uranium industry, in the course of the twenty-year bear marketplace. 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 in the oil sector, “U.S. producers and contractors for instance Ryder Scott, which assesses drilling projects and oil and natural-gas reserves, are working harder to keep their oldest employees and recruit college graduates since there aren’t sufficient new engineers to go around. Engineers who assist locate petroleum deposits are in demand…”
Aging talent has found its way back again into the uranium sector. Aging geologists such as Dr. Boen Tan, who helped discover two from 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 have 45 and nearly 30 many years experience 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 companies bring more than 200 a long time of knowledge, collectively, to their new ventures. But without sufficient new mining school graduates to mentor below them, long term exploration and development might become stalled.
What is troubling in regards to the uranium market, in specific, is that the soaring spot uranium price tag shows no signs of abating. The crisis comes at a time when President Bush announced his nuclear initiative, as a lot more U.S. utilities plan to add towards the country’s nuclear fleet, and as China and India clamor for any 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 inside 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 wish to stop the front end with the nuclear fuel cycle, which is uranium mining.”
Do not say the warnings weren’t produced properly in advance. At the Globe 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, natural uranium mining capacities cannot satisfy reactor requirements. Secondly, accumulated uranium inventories will be exhausted sooner or later. Thirdly, the spot price tag does not reflect the actual difficulties and, on the contrary, is capable of misleading all of us in regards to the urgency of investments to be produced within the development of new mining facilities.”
In his speech, Dr. Dzhakishev emphasized for the WNA, “Judging by these facts, the conclusion is evident: a single day nuclear power plants will face a natural uranium shortage and it’s not necessary to become a prophet to foresee this. It can be clear today that the key to the solution of the major problems from the uranium industry lies while using development with the potential with the uranium producers.”
This past August, Angela Jameson reported inside the online version of 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 become a 45,000-tonne shortage of uranium inside the next decade, largely since of growing Chinese demand for the metal.”
The upward spiral of the commodities boom is racing ahead at full speed. Depending upon whom you talk to, the labor and drill rig shortage is either very 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 businesses lack the trained personnel, the correct equipment and the expertise to explore and/or develop their properties? You can’t run a drill rig should you can’t get your hands on one. You can’t drill the property in case you can’t locate drillers to run the rig. Although commodities rates soar to levels not seen in twenty or thirty years, the tight labor and equipment industry could ratchet prices to very much increased levels. And junior uranium development firms, with proven pounds-in-the-ground assets, should become sought-after acquisition targets by those people who have the staff and drill rigs to bring the projects online.
For investors, the labor and drill rig shortage has a silver lining. As inventories dwindle reduced, commodity prices will continue rising. For junior uranium investors, this might someday be realized as the “hidden reason” why spot uranium prices continued rising past $40/pound. If you do not drill for the commodity, you can’t locate it and develop it. This strengthens the case for $50/pound uranium in the near long term. Now we understand why Strathmore Minerals’ David Miller warned us in November, “I wouldn’t be surprised to see uranium costs double once again.”
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