“A well-established feature of the precious metals market is the apparent inability for producers to raise production levels when demand and prices rise,” said HSBC analysts James Steel and Howard Wen.
“The paucity of trained professionals’ expertise helps explain—along with other factors—the weak supply response by producers to the surge in precious metals prices in 200-2012,” observed HSBC. “This is important to investors because it arguably contributed to the height and longevity of the precious metals rally; it also implies that future rallies are unlikely to be cut short by a rapid increase in mine output.”
An important component in our relatively positive long-term outlook for precious metals generally is the fact that demand exceeds supply in all four metals,” said the analysts, who suggest that lack of professional skilled and technical labor may be a key factor in the ability of mining companies to meet demand.
“If precious metals rallies are not be reversed by rapid increases in mine output, in part due to shortages of professional expertise, then prices may have to rise sufficiently to mobilize aboveground stocks, or deter demand,” they advised.
AGING MINING WORKFORCE, LACK OF NEW GRADUATES
“50% of U.S. geoscience professionals, including engineers, are just 10-15 years from retirement; data show similar trends in Canada, South Africa and Australia,” HSBC observed.
Data from the Canadian Mining Industry Human Resources Council indicates that 40% of the professional and technical component of the mining workforce is at least 50 years old, and that one-third of these workers are eligible to retire next year. The Mineral Council of Australia says mining labor shortages have become a permanent feature of the Australian mining sector. The council has predicted the need for an additional 86,000 mining professionals and skilled mine workers by 2020.
A report from the South African Institute of Mining and Metallurgy found that while South African unemployment rate is high, the mining industry faces a skills shortage in many disciplines necessary for its long-term sustainability. The paper said the shortages in many mining-related fields and chronic and that shortages in these areas “will continue to hamper development of the South African mining industry, a large component of which is precious metals.”
Meanwhile, large numbers of well-educated and skilled South African mining professionals have emigrated to other mining nations, including Canada, Australia, the U.S. and Chile.
The HSBC report also observed that specialized geoscience programs at U.S. colleges and university have fallen from a high of 25 in 1982 to 14 in 2014. Only 11% of those recent undergraduates and 4% of postgraduates have chosen to go into mining.
“These trends lead us to conclude that skills shortages will persist with a commensurate impact on bullion output and prices,” said the analysts.
“While the National Council on College Admissions indicates interest in mining-related careers has increased this decade, we believe it will be years before there is sufficient professional expertise to meet demand,” they advised. “One by-product of this is the increasing recruitment of retired skilled personnel, notably mining engineers and geophysicists, but insufficient numbers of active retirees have been attracted back into the industry to fully plug the skills gap.”
Meanwhile, “physical constraints and cost issues are likely to continue to inhibit production growth, we believe despite historically high prices,” the analysts forecast.
While the U.S. Bureau of Labor Statistics projects a 19% increase in all geoscience-related occupations between 2014 and 2018, the average number of geoscience graduate degrees awarded annually by U.S. institutions has average only 1,700. According to the American Geoscience Institute, this supply of new geoscience graduates to the labor market does not meet current demand, much less the projected increase in demand in the next 10 years.
“Government and private sector estimates in other mining nations that traditional produce highly trained mining professionals, including the UK, Canada, South Africa and Australia, reflect similar shortages,” said the HSBC report.
More than one-third of students awarded a bachelor’s degree in geoscience and three fourths of who pursue a master’s degree in geoscience wind up working for the oil and gas industry. Other major employers with whom the mining industry competes for talent are environmental services, higher education, local and central government, and private research and consulting.
Meanwhile, there is a shortage of specialized mining educational programs offered in the U.S. due to a steady decline in the number of mining and mineral engineering programs at colleagues and universities, “which is reducing not just the U.S. labor pool, but the global pool of talent to the mining industry,” according to the Energy Information Agency. There has also been a corresponding decline in available and qualified faculty and few qualified candidates to fill these vacancies, according to the Society for Mining, Metallurgy and Exploration, which has been made worse by cuts in federal funding of studies and research in mining.
“The impact on mining—including precious metals mining—of this has international ramifications as U.S. colleges are traditionally the locus of mining studies with foreign students and with U.S. graduates supplying not just the U.S., but filling a crucial need in the global mining industry,” said HSBC.
“It will take years for the current increase in enrollment in geosciences college and university programs to materially benefit the industry,” HSBC noted. “High wages, as a result of a paucity of talent, may raise costs and indirectly keep precious metals prices higher. While the precious metals output due to the shortage of technical expertise is difficult to gauge, it is fair to say that precious metals production is lower than would otherwise be the case.”
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