Prominent mining commentator Allan Trench believes corporate decision makers in the mining industry aren’t paying heed to the lessons of Australia’s boom and bust cycle.
Famously, the Australian mining industry went through a decade of huge growth from around 2003 to 2013 in a boom period that proved the country’s largest since the gold rush of the mid-19th century.
Moving into 2013, the mining industry entered a period of serious downturn (or bust) from which it is just now starting to recover.
Trench, a professor and MBA director at the University of Western Australia’s business school, was speaking ahead of his appearance at an upcoming mining conference in Adelaide in October, the Australian Geoscience Council Convention (AGCC). Trench is also a non-executive chairperson of several ASX companies including Enterprise Metals and Pioneer Resources.
Trench explained that while mining majors were reluctant to spend during downturns, they also had a tendency to overspend during booms, thus feeding the cycle.
He also suggested that board-level decision makers in the resources sector were obliged to provide a positive influence on the challenges of this cycle.
“My hypothesis is that many investment decisions — or just as importantly, the lack of new mining investments periodically — inadvertently act to drive an exaggeration of the commodity cycle,” Trench said.
“Few boards of the resources majors seem inclined to invest, for example, during a downturn.
“But on the other side of the ledger, these same boards seem to have a habit of paying too much for assets in the ‘good times’.”
Trench added that mining downturns had a knock-on effect for geoscientists, suggesting that multitasking would be necessary in times of bust to overcome being “in the firing line” during a downturn.
“We would need to ensure however, that such multiskilling does not rob the mining and energy sector permanently of the key expertise it needs to develop and operate ever more complex and difficult ore bodies or gas and oil basins in the future,” he said.