Who said that first is a mystery, and it might even have started as graffiti on a bathroom wall somewhere in Texas.
The genesis of the remark is irrelevant. It’s the sentiment and the power of the content which counts because the meaning behind the oilman’s lament is largely in line with what was said in this column a couple of weeks ago: we need a bust so we can get ready for the next boom – and hopefully not waste the wealth created in the way it has been wasted over the past few years.
What’s changed since Blower reminded his readers of the fact that we’re all working in a cyclical industry is the volume of the moaning coming from some of the new players in the game.
The unkind reaction to the bleating about the current market for small mining stocks being the worst in 20 years is “get over it”, because if you couldn’t see the downturn coming then you really are guilty of not paying attention to the tell-tale signs evident for the past two years.
Most of those signs were blowing off the commodity market and in the grim economic news from depressed regions such as Europe, where demand for minerals has plummeted as industrial production has slowed.
China too has not been immune from the global slowdown which was always going to follow the global financial crisis.
The point reached today, which is close to or actually at the bottom of cycle, feels a lot worse than it really is because this time around there are more people caught in the meltdown process, a result of the boom being one of the biggest ever – which means that the bust is one of the biggest ever.
Debating the size of the boom and the bust is pointless. What is useful is to consider the question in the oilman’s lament: how much of the pain in the downturn is a result of falling commodity prices and how is a result of failing management?
Commodity prices are undoubtedly a factor, but they are also an easy excuse for incompetent managers who failed to understand the most basic force at work in all resource industries – you have little, or no control, over the price received for your product.
All that a miner, or oilman, can do in controlling the performance of his business is to manage costs and hope that commodity prices are favourable.
Many of today’s managers in small exploration and mining companies have limited experience of cyclical downturns of the sort being experienced today.
They are boom-time babies who were quick to take credit for a rising share price which was due entirely to rising commodity prices, but unwilling to share the blame when commodity prices fall and they are left in charge of a business which has not taken good care of shareholders’ funds.
Two observations reinforced that point. One was a comment by Bill Beament, chief executive of the goldmining company Northern Star Resources, who was reported to have said over the weekend that the industry had itself to blame on the question of failing to control costs. “We should have been doing it 18 months ago.” Spot on Bill!
The other observation was from an investor who called Blower to comment on the fact that there was a stark contrast on display in the seating arrangements of delegates flying to the latest Mines and Money conference in Hong Kong – investors were in economy and managers were in business.
In a way that second observation is a variation of the famous question from the 1980s boom about “where are the client’s yachts” from a New York investment banker who was contemplating a day on Long Island Sound.
Cost control and ensuring that a company has sufficient funds to ride out a downturn are the two most important jobs of a mining company manager – plus an ability to pick talented staff and know where to explore, and for what commodity.
Commodity prices will take care of themselves, and while it is too early to tip an upturn it is possible to say that an upturn will come simply because there are billions of people in the emerging world who want a chance to live a first-world lifestyle and that means increasing (not decreasing) demand for minerals and metals.
But before we get to the tipping point where demand outstrips supply there needs to be a cull of the managers who took false credit for the boom and are now looking for someone else to blame.