Robert Bassett of Holland & Hart takes an in-depth look at the cyclical nature of the mining industry and offers his insight into the downtimes.
"Mining lawyers would do well to heed the advice given to all mining companies during downtimes: 'Just keep digging!'."
How can mining lawyers survive downturns in the industry? Mining may be more cyclical than any other industry. The mining industry undergoes many changes during down cycles and so do its demands for legal services. But despite these changes, opportunity awaits those who maintain their long-term focus and relationships.
Mining is always “boom and bust”
The mining industry has always been cyclical. Like the general world economy, the mining industry has come through what has been called the worst economic crisis since the great depression of the 1930s.
Unlike most industries, however, the mining industry has survived through many extreme cycles and in fact mining terminology is often used to describe cycles in other industries. The tech company boom of the 1980s was compared to a “gold rush” where it was easy to create a company and cash in your findings with little effort. During the first decade of the 21st century, Wall Street traders were advised to “stake your claim” by creating new financial instruments as quickly and often as possible. During the real estate refinancing boom, homes were compared to “gold mines” where exorbitant profits could be made with just a little hard work to navigate the mortgage market.
Currently some experts in the industry are declaring the end of the “super-cycle” of commodity prices which occurred during the last several years and predicting low prices for the foreseeable future. Other experts disagree and are predicting that prices will continue to increase, driven in large part by demand from China and India, and that the price of gold may well exceed $2,000 per ounce in 2014. Clearly, no one knows for certain where the markets are headed.
In the last two years, large mining companies have undertaken wholesale employee layoffs and have written down billions of dollars in reserves. The mood of the industry has been uniformly dour. But this is not new. In fact, entire legal institutes were dedicated to “hard times” in the mining industry as recently as 1986.
Mining lawyers are not immune to the boom and bust nature of the industry, but there is no reason to abandon the field. History has shown that conditions will change in the future and another “rush” into the industry will occur. No one knows for sure when this will happen, but one thing is for certain: the next mining boom will occur.
Downtimes are an opportunity
The American Bar Association noted that the general economic downturn has resulted in lawyers having to face “a sea change in clients’ demands and expectations”. This is also true in the practice of mining law during the downturns in the mining industry. However, times like this create many opportunities for lawyers, both individually and as law firms. Two examples are readily apparent.
First, the widespread layoffs within mining companies have eliminated a great deal of in-house legal expertise and experience. This knowledge gap requires that companies look to outside law firms to fill the companies’ internal needs. This increases the need for legal services in many areas of law that are not necessarily thought of as the practice of “mining law”. Mining lawyers and the firms in which they practise are asked to provide advice in such non-mining areas as financial workouts, bankruptcy, securities regulation non-compliance, permit termination or suspension, employee benefit and termination matters, tax planning and a host of other specialties. While no single lawyer can become an expert in all areas, it is during the downtimes that a “mining lawyer” with contacts in the industry often has the opportunity assist clients in finding other lawyers with substantive expertise, to work with them by providing knowledge of the industry, and thus to broaden his or her expertise and to build an expanded knowledge and experience base. Experiences of this type enable the lawyer to provide more efficient and complete services to clients when markets recover.
Second, the economic downturn has exacerbated the need for mining companies to reduce their overhead. Mining company clients are thus demanding alternative billing for legal services, reviewing legal costs with care, seeking discounts, and managing outside law firm performance with great vigor. This has created the opportunity for law firms to improve their relationships with clients by working closely on cost management efforts, and the opportunity to improve internal financial discipline, all without impacting law firm profitability. Making these changes enables law firms to be well positioned for the next mining boom.
The American Bar Association has also noted that during downturns, certain individuals and companies are able to survive and favourably place themselves in positions to take advantage of subsequent economic recoveries. Mining lawyers and law firms who can adapt quickly and effectively to the industry’s currently changing needs will be those most sought after when the industry recovers.
What is happening to individual mining companies is not unique, and the impact to law firms representing those clients is also similar throughout the mining law bar. Most mining lawyers appear to have kept busy providing services to the mining industry during the recent economic downturn, even though the focus of their practices may have shifted from financing transactions, property acquisitions, environmental permitting, and contracting for production services, toward financial workouts, maintenance of existing properties and permits, and various types of litigation.
It is during these times that relationships within the industry, and particularly within the worldwide mining bar, become particularly important. One must keep the long-term focus on deepening understanding of the mining industry, gaining knowledge to serve that industry, and on expanding (and commiserating with) the circle of colleagues of all disciplines that serve the industry.
The best way for mining lawyers to survive downturns in the mining industry is no different from how lawyers survive in good times. As Becky Beaupre Gillespie and Hollee Schwartz Temple wrote in “Hunting Happy: In Grim Times, a Search for Joy in Law Practice Gains Ground” (published in ABA Journal blog in February 2011): “Do what you love... Think about what kind of life you’re trying to create; get out and interact with people who can help you and... help lead you to the right place.”
The mining bar is full of dedicated practitioners who have survived previous downturns, who will be present when the industry booms again, and who are genuinely willing to assist others to do the same.
A few thoughts
Analysing the industry downturn in 1986, James F Engelking and Peter H Evans (of the former firm Saunders, Snyder, Ross & Dickson) wrote, in their paper “Maintaining Mining Permits/Government Authorizations and Water Rights”, the following:
The natural resources industry is one of the few generators of original wealth and will continue to be a viable endeavor as long as our economic, social and governmental systems remain intact. There’s no reason to expect that this cycle has been broken. Without much imagination, we can assume that conditions will change in the future that will generate another rush back into the industry.
The mining industry will remain viable despite the cycle of boom and bust. Practising mining law requires identifying the needs of mining clients at all stages of the cycle and then providing top quality legal services in ways that fulfill needs of individual clients. The mining community is small despite the enormous capital involved, and people in the industry tend to be very loyal. They will be around for a long time, and so will their lawyers.
Mining lawyers would do well to heed the advice given to all mining companies during downtimes: “Just keep digging!”.