'Limited supply of experienced people': Recruiter
TORONTO/VANCOUVER (Reuters) — As if slumping commodity prices and unhappy shareholders were not enough, global mining companies are also facing a looming succession crisis.
Several mining CEOs have reached or are nearing retirement age and industry executives, recruiters and analysts worry that there is not enough people with the right skills and experience to replace the old guard.
It is the price of a "lost generation" — those now in their 40s who failed to find jobs in the industry during a mining downturn in the 1990s and early 2000s and have drifted elsewhere.
"There is a shortage of potential CEOs because the industry doesn't invest in people," said Mark Bristow, the 56-year-old CEO of mid-tier gold miner Randgold Resources.
As a result, companies may need to promote relatively green management or recruit outsiders, raising the risk of costly strategic mistakes at a time when the industry can least afford them.
For example, Kinross Gold replaced CEO Tye Burt, a former investment banker, in 2012 after its share price cratered and a blockbuster acquisition went sour.
Burt led Kinross to a $7.1-billion purchase of Red Back Mining in 2010, a deal that contributed to more than $6 billion in writedowns and provoked deep investor discontent.
Mining companies typically focus on building projects when they plot the future, not career paths, said Douglas Groh, portfolio manager at Tocqueville Asset Management.
"The industry is not good at succession planning. It is more in the moment," said Groh, whose fund is a major gold sector investor.
The boom-bust nature of the industry makes recruiting and grooming the workforce particularly challenging.
"The mining cycle tends to be the same length as a university cycle," said Mark Selby, CEO of developer Royal Nickel. "People go into a program because it's hot and by the time they graduate, it's not."
Industry data shows a 15-year hiring slump in mining that mirrors a similar generation gap in the oil and gas industry.
"Some companies will not survive because they don't have enough competence to operate as a standalone company," said Bristow.
The talent pinch extends beyond the C-suite, said Ryan Montpellier, executive director of Canada's Mining Industry Human Resources Council.
"It's hard to find seasoned engineers with 15-20 years experience," he said.
HEADING FOR THE EXIT
At the world's 10 biggest public mining companies, four of the top executives are over 60, and their median age is over 59 compared with 56 for CEOs of the top 10 S&P500 companies.
Several mining CEOs are well into their 60s and seen on their way out.
"They've made money, they're in a bad market — they've probably been through one before — and they may not want to be in one again," said Clive Johnson, CEO of small Canadian gold miner B2Gold.
Freeport-McMoRan's CEO, Richard Adkerson, is 68, Rio Tinto's chief, Sam Walsh, is 65, First Quantum's Philip Pascall is 67, and New Gold CEO Robert Gallagher is 64. They have not detailed their retirement plans,though, and some who have done so have no designated successors yet.
Centerra Gold said in March that CEO Ian Atkinson, 65, would retire by year end, but is still searching for successors.
Harmony Gold Mining shares fell six per cent on Thursday after the company said 62-year-old CEO Graham Briggs would retire and that it was seeking a replacement.
To be sure, some miners have mapped out succession plans.
In a "signal to the market", Primero Mining CEO Joseph Conway, 57, gave up his president title earlier this year. And Silver Standard Resources named Paul Benson, 52, as its new CEO effective August 1, with the retirement of John Smith, 58.
EATING SEED CORN
With many commodities skipping along multi-year lows, mining companies have been forced to delay projects, cut staff and slash costs. That means the next generation of CEOs will need operating expertise more than deal-making or financial acumen to hone efficiencies and sell non-core assets, experts say.
"It's a very limited supply of experienced people who know the industry and who have the capability of getting it out of the very difficult place it is in today," said John Byrne, managing partner at global recruiter Boyden World Corp.
Some companies, however, such as debt-laden Barrick Gold, believe that hiring an outsider is just the medicine they need.
Barrick founder Peter Munk told skeptical investors in 2013 that new executive chairman John Thornton's experience as a banker and international academic could attract capital and open doors to governments.
It's too soon to tell whether that strategy will pay off for the world's biggest gold miner.
Many mining executives say outsiders struggle to grasp the unique challenges of mining, noting that it can take decades to determine if a new mine will be profitable.
They add that lawyers and accountants without a mining background are overly concerned with pleasing stock analysts.
Others argue that the mining industry's poor performance shows it needs a fresh perspective.
"We have an industry where our core skill is eating our own seed corn. We don't bother to plant the corn, we eat it," said Benjamin Cox, the CEO of junior miner Aston Bay Holdings. "I'm a second generation mining executive; I wonder if there will be a third."