Coming up through the mining industry, a mentor once shared these words of wisdom with Jim Gallagher: “Hope is not a management tool.”
That resonated with Gallagher, now the president and CEO of North American Palladium (NAP), who spoke during the kickoff to Sudbury’s annual Modern Mining and Technology week on April 22.
To a large extent, he said, the mining industry has no one to blame but itself for failed projects because of the poor management, poor engineering, and poor decisions that have been made when trying to advance mines.
“I want to be proud of this industry, and you’ve got to stand up when we screw up and say, ‘We didn’t do enough engineering, we didn’t do enough drilling, and it wasn’t unexpected,’” he said. “It was unexpected because we went in there with hope.”
Some of the most promising mines flounder, Gallagher said, because companies haven’t done sufficient legwork to prove up their projects, instead blaming their failures on things like “unexpected geological complexity,” a term he dislikes.
Rubicon Metals, for example, halted development at its Phoenix Gold underground mine in Red Lake after it moved too quickly on development, which it had approved based solely on a preliminary economic assessment (PEA) and without pre-feasibility and feasibility work.
Yet even investors bought into the hype, banking on a quick, easy return, including the Canadian Pension Plan, which put in more than $50 million.
“If you want to gamble, go to Vegas,” Gallagher said. “You know you’re going to lose your money in Vegas, but you’re going to have a hell of a lot more fun.”
Gallagher was clear that North American Palladium isn’t free of blame. One of two main palladium producers in the world, the Lac des Iles Mine north of Thunder Bay was operating smoothly until 2008, when “they started making some bad decisions, quite frankly,” said Gallagher, who joined the company in mid-2013.
A bulging treasury couldn’t protect the project from a failed shaft expansion, and by 2013 NAP’s gold division went bust and was sold off for a fraction of its purchase price.
That same year, Brookfield Asset Management stepped in to loan NAP $136 million. It now owns 92 per cent of the company.
“That’s been a blessing,” Gallagher said. “If that didn’t happen, the company would not be open and 450 direct jobs wouldn’t exist in Northern Ontario.”
But other problems have plagued the company. In 2014, an employee was killed while operating a loader underground, putting the company’s safety culture under the microscope, and last year, a heavy spring melt triggered leakage from one of its retention ponds, discharging water into the environment.
NAP is working to fix these issues. Safety has been improved, with NAP reducing its total reportable injuries to two incidents, down from six two years ago.
It’s also in the midst of a $27-million, phase-one upgrade of its tailings management facility, and Gallagher expects the company will spend another $20 million on it next year.
“Obviously we want to avoid the issues we got into last year,” he said.
If Lac des Iles can get back on track, Gallagher believes it’s still a feasible project, but other issues face the industry as whole.
Innovation has stagnated, but with mining companies just struggling to survive, it takes both corporate commitment and money to find new solutions to mining conundrums, he said.
Yet Sudbury was once a hotbed of innovation, with initiatives like HDRK — an active committee of representatives of Falconbridge (now Glencore), INCO (now Vale), and other companies — INCO’s in-house development program, and Noranda’s technology centre all once dedicated to developing and testing new technology.
The 1993 downturn in the market rang the death knell for these innovation programs, and “none of that stuff exists anymore,” Gallagher said.
“People are forgetting the vast amount of work that was done, a lot of it right here in Sudbury, on innovative projects, and my concern is that that memory and all the learnings from it are being lost,” he said.
A lack of innovation is being exacerbated by a lack of talent, he added, and there’s a distinct shortage of mid-level workers to fill integral roles.
Gallagher advocates hiring workers not just for their skills in mining, but for their leadership traits, so the industry will have a new crop of strong leaders to carry the industry through tough times and introduce new ideas to the industry.
“They’re the ones who are really going to drive the next wave of innovation,” he said.
