Look taken at petroleum’s impact on the minerals industry

Introduction It is the morning after and there is one monumental hangover among many, if not most, of the oil companies that invested in mining in the past decade. How an oil company looks at mining depends on the time period. A few years back, around the time of investment, they were probably looking at a balance sheet of their own that was beginning to go wild. Many of their commodity prices already increased two-, three-, or fourfold, with no end in sight. There was a need to invest their earnings someplace before the stockholders or the government got too interested. And that someplace needed to be an industry where their own management skills could be applied. In mining there was an industry amazingly similar to their own. Both worked with nonrenewable natural resources, dealt with the same types of government agencies, and had the same type of critics and pressures from the general population. Oil executives saw mining as an industry that was somewhat backward as compared with their own. They also saw how a generous ration of the capital and management skills, so handsomely bestowed upon the oil industry, could be used to great advantage. But, looking at mining through the eyes of an oil company today, this is what might be seen: • An industry that has been spectacularly unprofitable for the past few years; • An industry of many commodities, any of which can go bad on short notice for protracted periods, for a variety of unpredictable and uncontrollable reasons, or for no reason at all; • A labor-intensive industry, often beset by labor problems. And with only limited potential for further economic mechanization or automation in today's primitive mining environment; • An industry confronted with external, foreign, and political problems, with no reasonable expectation of near-term relief; and • An industry that does not appear to have many "up" periods in its immediate future. And, there is little chance for either big, fast bucks or long periods of large, steady earnings. What Went Wrong? The visions of a few years back seemed as correct then as today's viewpoints seem to be now. What happened to change these views? What went wrong? The simplest and easiest answer is that if the economy was normal back then, nothing would have gone wrong. This is an easy answer but, unfortunately, probably incorrect. Let us take a broad overview. Certain events enabled and prompted oil companies to invest heavily in mining. These same events were major factors in precipitating the worldwide recession that has grievously injured mining and has brought those mining investments into disrepute. Taking a somewhat narrower, but still broad overview, the simi-