Tim you are on record as a supporter of the “super cycle” or “the mother of all booms” as you have described it.  Where are we now?

Tim Goldsmith –China and India combined are 10% of the world’s economy yet house 50% of the worlds’ population, whereas 200 years earlier they had 50% of the world’s population but 50% of the world’s economy. They are both industrializing to rectify this and improve the lives of their people. They started this movement some 30 years ago and that is when the “super cycle” began.

In the first 20 years of their industrialization, China’s centrally planned economy enabled it to achieve progress more rapidly. We didn’t see it from a mining perspective because early needs were supplied internally and from a very low base but as the economy grew at 10% annually, it couldn’t continue to supply itself. We finally realized it was coming but not how hard or fast, having seen enough false starts from China we under-invested.  It may have paused for the moment, but China’s economy is on track and it’s going to use lots of commodities.

Add other countries with similar levels of commodity requirement and that is where the “mother of all booms” could occur.  Half of the world’s population - 3billion people - are poor and trying to improve their lives;  it’s going to be very hard for the world to meet that demand.

Paul Murphy – China is a real wild card, because of government policy as opposed to basic supply and demand. Who knows when demand is going to be choked off, but long term China will return to being a huge consumer of base metals particularly.

I agree with Tim that this has really been a “hiccup” and metal prices are going to recover very strongly over the next couple of years. Currently there are a lot of difficulties in Russia which may have returned temporarily to being an exporter rather than importer. We see a lot of investment happening in Brazil now, but I think this is going to be driven by its export markets as opposed to markets in South America.

The evolution of a middle class will be the factor in China that determines when and how heavily they come back on stream and a small segment of the population will generate that demand; - India is the same.

Indicators point towards a pretty tough short term period for the industry – do you agree?

TG – We have had a shocking 12 months. Last September was a nasty time for mining and commodity prices collapsed. Although juniors who needed to seek capital probably felt that in January 2008. If we have learnt one thing from that, it will be that survival is paramount and to manage our companies at all times so that we can survive a worst case scenario and not have to sell our souls to survive. Timing is also critical; think back to Xstrata and MIM – in retrospect a beautifully timed acquisition.

PM – We are seeing real signs of recovery. Nickel is back over $9, Copper is around $2.80, lead/Zinc are around 83/84 cents; 5 years ago they were good prices. Long term feasibility is $1.50 for Copper and long term engineering prices around $8-$9 for nickel.

Look at the prices during November, December, January and February and the lack of liquidity in the market; there has been considerable recovery since then. Could we go back to those levels? I don’t think so.

There is M&A activity and the junior exploration play will be next to recover. Juniors will always feed the cycle and those with outstanding management or wonderful property will be the next round of consolidation. The intermediates are often where the best value is; for example - Aur Resources, taken over by Teck.

TG – If you “have your house in order” you can capitalize on it. BHP Billiton has managed its way through this downturn and the last 10 years pretty nicely. It has a very clear gearing strategy and they have never veered too much from it, maintaining a very careful gearing ratio (it also helps when you are the lowest cost producer, so no matter how bad things get, they are never going to be too bad). Of course they were on a collision course with $50 billion of debt. Timing is everything, if you buy at the wrong time and push your gearing ratio too high, it will be problematic.

PM – When growth in the North American and European economies returns, prices will strengthen. Projects coming on-stream may weaken them over the short term but the big challenge is cost containment. How do small and medium sized companies compete against “China Inc”?

TG – The challenge is working out what is going to happen before it happens and then work with whoever is going to be making it happen to see how you can assist. 5 years ago Andrew Forrest did exactly that, and developed something that was “undevelopable”.  He could see the Chinese need and acted upon it. Envision the next 5 or 10 years and position yourself to benefit from that.

If you compare the top 40 (companies) 10 years ago and today, the top guys have gotten a lot bigger and there are a lot from outside traditional mining countries. Both of those trends will continue. If Xstrata and Anglo don’t get together, others will. At a certain size it gets harder as BHPB have found with Rio. Indian, Chinese, Russian and Brazilians will emerge and take a role and they are almost impenetrable because they can’t be acquired.

PM – Organizations will find different ways to conduct commerce. Rio Tinto and BHPB for example in iron ore have come together in their dealings with China Inc, but it is very difficult in lead/zinc or copper to do the same thing. For nickel there are probably only 3 or 4 places to shop and so joint marketing is probably the best way to have a say in setting prices.

How will mining attract the brightest talent in an era with fewer employers, who have to go further afield at a time when fewer employees are prepared to relocate?

PM - There are going to be tremendous challenges for people in the industry and the industry traditionally has had difficulty recruiting the brightest and the best…

Everybody I have visited in universities over the past few years wanted to be an investment banker. Somehow through movies or word of mouth or a recruiter’s presence on campus telling their stories, there was a lot of enthusiasm generated for that industry and it seemed to attract the brightest and the best from our Ivy League schools.

TG –Australia will benefit from the over-populated Asian region which is underdeveloped. Australia is in a unique position to benefit from the “super cycle”– China as a nation understands that they have insufficient resources for their needs and that they need to go off shore and acquire it - from countries that have more than they will need for their populations. Australia is the only country with more resources than its small population needs and is close to China. That is the reason that we are not in as deep a recession as other westernized countries. Our prosperity in the future relies on the resources sector. To position ourselves as the country of choice for further development we need people. 

We also need less red tape. When I speak to mining company CEO’s about coming to Australia they quote different regulations, different taxes in each state as an issue for them – it’s easier to go elsewhere.

The big cities where 80-90% of the population lives, people don’t understand where their prosperity comes from. We have insufficient mining and geological schools. As a nation we don’t understand the importance of the sector and don’t encourage it, through the education system or city life.

PM – We did go through a very long period of negative returns, added to which certain mining locations tend not to be as alluring work locations as London, New York and Hong Kong.  I also think we need to get the sense of treasure hunting and high reward back into the industry.

TG – Yes, but it’s not the gold rush era any more. We need to start encouraging people through their school years to gain tertiary education or skills shortages are only going to get worse.  The emerging nations see the harder skills as vital and we see only softer skills and we need a combination…

PM – “Boomers” were attracted to travel and pioneering - we can get that back but we do need to do different things – remuneration needs some tailoring and more productivity gain sharing at mine sites for the people who make things happen. A sense of excitement and team rewards. As VP Exploration you find the next Voiseys Bay you expect a “mine finders” bonus, but the people running Voiseys Bay deserve something too.

What skill shortages are you concerned about on behalf of your clients and your business?

TG – Geologists, mining engineers, metallurgists, not the environmental, I think they will be OK.

PM – As accounting regulation and oversight changes, and tax regimes become increasingly aggressive as metal prices increase, we need people with mathematical backgrounds.  But increasingly we will need engineering and software types who specialize in equipment availability and monitoring, and maintenance scheduling to get at productivity and cost, industrial psychologists to help organizations build teams and focus on joint goals. These are new skills for us but in all cases people with a sense of adventure committed to the industry. Nothing is as exciting to a client as discovering a new mine.

Political risk will continue to be an issue. We have seen some of our clients investing in China, former Soviet states and Indonesia without much success.  I believe that Africa is ahead of former Soviet states in this area. Many regimes and countries are “high risk” from a fraud and bribery perspective and with Foreign Corrupt Practices Act and similar legislation in other countries we mistakenly thought that this would reduce.

We saw 2 years ago competition for ground in the Congo with the newspapers saying that that was a sure sign that the “end was nigh”.  There is a herd affect and particularly juniors need to be cautious of political, tax and land tenure risk - the discovery promise always seems to run ahead of everything else.

TG – Historically we have not invested enough in traditional management skills but there has been movement recently.  Each company is driven by the culture of the company and its CEO. You hear everyone talk about “the importance of our people” - the real acid test is how many get hired.

How do we reward and retain people in this changing landscape?

TG – Excite them at work! Over the years we have found that people do not leave us for compensation. You will keep talent by helping them grow, good mentoring and having them excited by what they do.