Responsible business strategies
Environmental, social and governance are key issues in the mining, oil and gas industries, so how important is responsible business strategy in the current climate? Former Shell and Rio Tinto leaders recently discussed the approach to responsible business strategies in a LinkedIn chat. Here, Mining Global sums up the key messages.
A long-term approach
Tom Albanese, former CEO of Rio Tinto and current Chief Executive of Vedanta Resources, believes the industry needs to stop focussing on the short term. "Projects that would have taken 3-5 years to develop in the 1980s are now taking 8-12 years and they need to be developed in this type of cycle." He says.
This need for a more long term approach is a result of increased budgetary pressures placed on companies to complete projects, a by-product of "the incredible expansion of the Chinese economy punctuated by an extraordinary recession".
A larger focus on projects taking longer is born out of a demand induced recovery in what Albanese believes is an “equally extraordinary” response from the world’s central banks.
But of course there are other key factors which affect the time scale of projects. Namely, the finances and infrastructure of local economies.
"There are some very large projects where the budget can start at $5 billion but then you put it in a remote community where those communities don't have electricity. They don't have the amenities that you would normally expect when working on a larger project. These communities simply don't have the infrastructure." Says Albenese.
The former chairman also discussed the impact of these projects on the local rural communities. Extensive extractive programmes can produce a significant change in the country's economy, sometimes contributing up to 30percent of its Gross domestic product (GDP). When a project of this magnitude receives what can be anything up to a 75percent budget cut, mining companies must adopt a long-term approach.
Sir Mark Moody-Stewart, former chair of Royal Dutch Shell emphasises this need for a long-term approach, also warning of the dangers of recruiting employees, investing money in training and then being forced to let them go in more difficult financial situations.
When companies make employees redundant in this difficult financial climate, they lose out on workers with valuable skill sets. Moody-Stewart believes that one way to look at this situation is "to seize it as an opportunity".
"Try to make sure that the sustainability and social aspect of the work are spread into everybody's job,” He says.
“When people are made redundant you are going to lose specialists, so we better make everybody into something of a specialist."
Acknowledging the difficulties of approaching the industry with this outlook, resulting in a more constrained workload as they have a lot of work to do in other areas, Moody-Stewart adds "If you want to be robust over cycles, you better embed it everywhere."
Use minimal expats
Both men agree that in some areas expats must be used at the start-up as local talent is not available.
"As we develop these programmes, they can't be staffed by expat specialists. There has got to be a few, but staffed by local residents and people from these countries" says Albanese. He points out that major projects can handle the strain of resource reductions when a project moves into that phase.
When a project winds down or reduces its capacity, expat workers are the first to be pulled out, but as Albanese points out, "the local residents have developed those skills so if they are given a sufficient level of resources then they can continue at least in some capacity."
Learn from China
Over the last few years, China has fast become a dominant force in the global resources industry and has seen a huge boom in the economy as a result. Sir Mark Moody-Stewart believes that despite centuries of mining resource experience, businesses in more developed countries have a lot to learn from China.
"We shouldn't think it's all about us explaining to them how to do it,” he says.
Tom Albanese is the Chief Executive Officer of Vedanta Resources. Previously he was the CEO of Rio Tinto. He has also held positions in other mining companies including Ivanhoe Mines and Palabora Mining Company.
Sir Mark Moody-Stewart
Sir Mark Moody-Stewart is the former Chair of Royal Dutch Shell. He first worked for the company in 1966 as a geologist before leading exploration teams and eventually he moved into management. He retired in 2005 and received a Knighthood in 2000.
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Global iron ore production to recover by 5.1% in 2021
Global iron ore production fell by 3% to 2.2bnt in 2020. Global production is expected to grow at a compound annual growth rate (CAGR) of 3.7% to 2,663.4Mt between 2021 to 2025. The key contributors to this grow will be Brazil (6.2%), South Africa (4.1%), Australia (3.2%) and India (2.9%). Key upcoming projects expected to commence operations include South Flank in Australia (2021), Zulti in South Africa (H2 2021), Serrote Da Laje in Brazil (H2 2021) and Gudai-Darri (2022), according to GlobalData, a leading data and analytics company.
Vinneth Bajaj, Associate Project Manager at GlobalData, comments: “Declines from Brazil and India were major contributors to the reduced output in 2020. Combined production from these two countries fell from a collective 638.2Mt in 2019 to an estimated 591.1Mt in 2020. The reduced output from the iron ore giant, Vale, was the key factor behind Brazil’s reduced output, while delays in the auctioning of mines in Odisha affected India’s output in 2020.
“Miners in Australia were relatively unaffected by COVID-19 due to effective measures adopted by the Australian Government, while a speedy recovery in China led to a significant 10.4% increase in the country’s iron ore output.”
Looking ahead, the global iron ore production is expected to increase by 111.3Mt to 2,302.5Mt in 2021. Rio Tinto is expected to produce up to 340Mt of iron ore, while BHP has released production guidance of 245–255Mt, supported by the start of the Samarco project in December, which is expected to produce between 1–2Mt.The company has retained its guidance for Australian mines at 276–286Mt on a 100% basis, due to scheduled maintenance work at its ore handling plant and tie-in activity at the Area C mine and South-Flank mine.
Bajaj added: “The remaining companies are expected to produce more than 600Mt of iron ore, including FMG, whose production is expected to range between 175–180Mt supported by its Eliwana mine that commenced operations in late December 2020, and Anglo American, which is expecting to produce between 64–67Mt. Vale is expected to resume 40Mt of its production capacity, taking its overall production capacity to 350Mt in 2021, with production guidance of 315-335Mt.”