Building a stronger Canadian export-oriented economy
If anyone understands the need for risk reduction, it is Vancouver-based Teck's chief executive officer, Don Lindsay. Lindsay guided the mining company through the global economic crisis two years ago, when he aggressively slashed debt incurred from the 2008 acquisition of Fording Canadian Coal Trust.
Teck formed what would become a crucial partnership with Chinese sovereign wealth fund, China Investment Corporation, and the company rebounded. CIC invested $1.5-billion in Teck in exchange for 17 per cent of equity interest in Teck. As a result, new doors opened for Teck in China, and CIC reaped the rewards---recently announcing its Teck holdings are now worth $3.5-billion.
Seated in the 34th floor boardroom of the Bentall V tower, overlooking a panoramic view of Vancouver’s Burrard Inlet and the ships that carry Teck’s steelmaking coal to China, the CEO and mining engineer has the demeanour of a man in total control. He has just returned from a trip to Shanghai, Beijing and Tokyo, one of several trips to Asia that he makes each year. The reason he makes the effort is clear.
“Their steel industry is currently eight times the size of the U.S. industry, and it will be 10 times as big by the end of next year.” There is strong demand in China for copper--in 2011 China’s consumption was estimated to be about four times the consumption of the U.S. Overall, sales to China amount to approximately 40% of Teck’s copper content production. It’s a drastic change in the last 10 years, and Lindsay spends a lot of time thinking about how to keep up with the Chinese demand. A big part of the answer lies in Chile, where Teck has two major feasibility studies underway as part of a plan to step up copper production.
“While we’re putting money into our projects and operations in Chile, that’s really an investment in China,” says Lindsay. “Because we wouldn’t do it unless we had real confidence that China is going to keep going.”
So far, media reports have largely been based on anecdotal evidence, but Teck’s success in hard numbers is proof that China is booming. Japan and Korea are still the company’s biggest buyers, but China’s thriving economy with a hunger for zinc, copper and steelmaking coal makes it a crucial focus for Teck.
“We still underestimate the effect of the Chinese economy on the Canadian economy,” says Lindsay. “We tend to measure imports and exports to measure the importance of the trade relationship of another country, so of course the U.S. will always dominate,” because the majority of Canadian exports go there, he explains. “But we hired 1,500 people in B.C. last year, and not one of those jobs came as a result of the U.S. Not one. They came because of China. That doesn’t show up in any sort of trade statistics.”
Teck’s profile and reputation within China rose because of its affiliation with CIC, which holds about $410-billion in assets. “It adds credibility, and I look at it this way: China is by far the largest consumer of our products, and I don’t just mean Teck,” says Lindsay. “So why wouldn’t you be good friends with the largest customer of the world’s commodities?”
Clearly, it has proven a mutually beneficial relationship. CIC CEO Lou Jiwei happens to be a senior cabinet minister and former vice minister of finance. He was also chosen by Time magazine in 2008 as one of the 100 most powerful people in the world. “He has a vested interest in giving me advice because CIC owns 17 per cent of the company,” says Lindsay.
Lindsay recalls his first trip to Beijing after the deal had closed, and Jiwei invited the CEOs from five of the largest steel companies in China to meet with him and his senior executives. Today, Teck is doing business with those five steel companies.
The benefits are extensive, but keep your ears and your mind open, advises Lindsay. If you go in with a head full of your own plans, you’re going to create challenges. “The most important thing is to listen,” Linsday says, recommending developing knowledge of where stakeholders are coming from and what their concerns are. “If you start with full engagement right from the beginning, then your odds of success are of course much higher…in the past, it really wasn’t that way. And guess what? There was a bit of friction.”
The mining industry is fraught with risks. A company as big as Teck spends a vast fortune on exploration alone. This year, the mining industry set a record for itself by spending $56-billion in exploration. “And really, not a lot to show for it,” adds Lindsay.
Capital costs are increasing, especially the cost of finding and employing skilled engineers. “They are a scarce commodity,” says Lindsay. “There’s a scarcity of labour because for 20 years nobody went into the mining business because it was miserable times economically, for a long time.”
And then there is the risk of dealing with governments that want to reach deep into the pockets of companies by way of special taxes, when they see profits being made, which is often understandable but short sighted.
The answer to reducing this risk – resource nationalism – is to establish an open willingness to listen and understand, and a clear understanding that those kind of measures ultimately discourage the investment and job creation that supports communities.
“The most important thing to do is to have a good working relationship with [government officials] and show the effect of what they are doing. And be understanding. And listen – it goes back to listening again. And hopefully they listen too.”