The resources industry must make better investment decisions to win back trust from shareholders and the broader public, says the chief of billion-dollar Australian-Chinese resources investor MMG.

Speaking at the Melbourne Mining Club last week, MMG chief Jerry Jiao said poor mining investments had left shareholders out of pocket and promoted boom and bust conditions.

“Our industry has for many years been guided by a growth model that encourages investment when earnings are expanding,” Mr Jiao said.

“Our industry typically commits capital and project resources at the top of the cycle, where they are most expensive and most constrained.

“Budgets and schedules run over and shareholder capital is wasted.

“When the cycle turns, the opposite is true. Exploration is cut, project expenditures cease and capital is written off — at just the time when spare capacity is available.”

Poor investment decisions were impacting significantly on the resource sector’s reputation, employees, communities and major customers.

“This cyclical capital inefficiency is a fundamental question of sustainability for our industry,” he said.

“There is a need for disciplined cost management and capital allocation through the cycle. On behalf of our shareholders, and to maintain a strong and robust customer base, this is something we must improve.”

Mining industry must win community support

The broader resources sector had to win back legitimacy as an industry, he said.

“We are deeply proud as miners of our contribution to economic growth and human development.

“In my role and career, I clearly see what metals and mining mean to local, regional and national development.

“We need to stand up better for the benefits of metals and I support the efforts of national mining bodies to take this story to the community.”

Mr Jiao acknowledged recent optimism in the sector on increased demand for commodities, particularly mid-cycle metals such as copper and zinc, and a resulting uptick in prices.

But there were concerns over the supply of these metals in the future.

“There continue to be a number of structural changes that are limiting our ability as an industry to meet growing demand,” he said.

“The ability to access new resource development – in particular the challenges of political and social risk – is generating a fundamental shift in the economics.

“New projects have never been harder to fund and develop and mine disruptions are now – unfortunately – a bigger part of our industry challenge.”

Mr Jiao noted Australia had a unique advantage given its democratic stability and well-understood geology.

In Australia, Hong Kong-listed MMG owns the Rosebery underground polymetallic base metal mine in Tasmania and Dugald River zinc project in north-west Queensland.

Read the full speech here.