April 10, 2013

Sprott: Generation Gap in Mining to Drive Innovation in Sector Says Luke Smith

Guest post by Henry Bonner of Sprott:

Large mining companies and smaller exploration companies alike are experiencing an aging of the talent and expertise behind their success, says Luke Smith, an Investment Executive at Sprott Global Resource Investments Ltd.

Luke says this rapid generational change may disrupt the mining industry, but could also create new opportunities for success in the sector. The ongoing departure of veterans and seasoned professionals occurs as there is a sudden surge of interest from a younger generation that is just graduating from college and starting out in the industry. For a couple of decades, the sector was generally cast aside, as few new people entered the scene. Bloomberg reports that there were 178 mining engineering graduates in 2011, down from 700 in 1982. The technical and investment knowledge and expertise has therefore become concentrated in a generation that is steadily stepping down.

Luke explains why this is important: “The younger generation interested in natural resources seems to be just coming out of college, or are maybe in their early 30’s. Generally speaking they have the passion but not the capital or expertise to dominate the sector. They need to quickly assimilate the knowledge and earn trust to attract capital from the generation that is now leaving the industry.”

Luke continues: “Companies that hire and train young people will generally have better prospects than those that don’t. The older generation has in large part already made money. The younger generation, by contrast, is hungrier and creates action in the markets. This drives innovation and development of new ways of making things happen in the industry.”

The industry has lacked an influx of new people to transfer knowledge and experience to over the years. Many of the veterans hold a depth of experience and a control over capital that is yet to be passed on. Current entrants, such as young professionals and recent college graduates, stand a lot to gain by filling the need for the older generation to find talented successors.

“I foresee this gap in age of market participants to be a great opportunity for the younger generation. I think there is room for billionaires to be made filling that gap in the market place. The keys to the shop are being handed over if you just show up.”

Luke believes that companies with strong technical talent and experience in their ranks will stand a better chance of attracting the new generation and bridging this gap that was created by the period of neglect that the industry faced starting in the late 1980s and lasted through the early 2000s. Companies with good quality projects will better be able to appeal to new entrants to the industry, and build a solid legacy on which projects can continue to rest for technical expertise and marketing and financing capability.

“There is an unprecedented opportunity for those with passion and knowledge to make it in the mining sector,” says Luke, “because there is a need for young engineers and industry leaders. This creates a very exciting set of circumstances to come in the natural resource industry. We should adjust our long-term outlook of mining and natural resource companies to account for the fact that the best ones will be able to thrive from the replacement of a highly experienced older generation with a fresh batch of talent that is on average very new to the industry.”

Thus, part of the long-term potential of a mining firm, says Luke, may lie in its ability to use this rapid generational transfer of responsibility to their advantage. The best projects are likely to attract the best talent entering the industry, and thrive from the wave of new industry players.