Top 10 Mining Trends
We’re already past the halfway mark of 2015 and the mining industry has already seen its share of hurdles. From rising operational costs and declining ore grades to a general lack of financing, 2015 has been a challenge for mining companies to say the least. According to the annual “tracking the trends” report by Deloitte, the struggle is expected to continue.
We examine the top 10 trends for 2015 as identified by the consultancy firm, and reveal possible long-term solutions.
1. Back to basics
For mining executives, back to basics essentially means getting back to productivity. Because companies haven’t been able to rely on a commodity price rally, they’ve had to focus on achieving sustainable productivity improvement, whether through supply chain or asset management. The key theme here is operational excellence.
Solution: To achieve operational excellence, Deloitte recommends four things mining companies should do: Get serious about analytic; embrace innovation; be transparent; revisit company culture.
According to Deloitte, innovation is the new key to survival for mining companies.
“At its most basic, innovation presents an optimal strategy for controlling costs. Companies that have invested in technologies such as remote mining, autonomous equipment and driverless trucks and trains have reduced expenses by orders of magnitude, while simultaneously driving up productivity.”
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In 2015 and forward, miners will need to overcome traditional conservative habits and implement innovation into corporate DNA.
“Traditionally, companies approach strategy-setting by determining which trade-offs they must make to achieve their goals. True innovators think way beyond the trade-offs. Innovation is about creating breakout performance by changing the rules of the game. It’s not about implementing best practices; it’s about devising new practices,” according to the report.
Solution: Embed innovation into corporate DNA; think big, test small, scale fast; leverage emerging technologies; become part of an innovation; prepare for new operational realities.
3. Reducing project power costs
The mining sector’s dependence on traditional sources of energy needs to come to an end. According to Deloitte, companies need to consider switching to renewable sources of energy as capital costs for renewable energy, which was once very expensive, have dropped considerably in recent years.
‘With each passing year, energy costs in the mining sector become more prohibitive. These include rising costs for diesel fuel due to falling grades and longer haulage distances, building long-distance transmission lines to connect to local grids, transporting fuel to high-altitude sites and installing appropriate ventilation systems. Renewable energy alternatives can help resolve these issues and wrestle runaway costs back under control,” said Adriaan Davidse, mining innovation leader, Deloitte Canada.
Mining companies need to consider a new approach to energy in order to reduce costs and improve environmental performance.
Solution: Manage energy as a portfolio; consider a broad range of renewable alternatives; don’t forget unconventional fossil fuels; engage early; explore all available financing options.
4. Managing supply/demand
The one thing companies understand about the mining industry is they can’t control demand; they can only control supply. Given the financial uncertainty of the industry, along with rising operating costs and an array of environmental and local community challenges, it’s no wonder many companies today are choosing to buy development-stage projects rather than build from the ground up.
“I suspect some areas of the mining industry may be heading toward a cliff,” said Andrew Swart, consulting mining leader, Deloitte Canada. “Several organizations have shut down their development teams and cut back on development projects, putting a strain on the project pipeline, particularly in sustained lower commodity price regimes. Over time, this could see us deplete current reserves, resulting in a reversal of the current supply/demand imbalance.”
• Related content: [AUDIO] Deloitte's Andrew Lane discusses the 2015 Tracking the Trends report
Given these problems, this exploration slowdown could potentially generate a supply/imbalance in the next decade or two. To prevent the risk of future supply constrictions, mining companies need to improve balance between meeting short-term investor and analyst expectations, while maintaining project pipelines.
Solution: Balance short-term expectations with long-term needs; find opportunities to partner; think local; and keep a finger in greenfield exploration.
5. Lack of capital
Are we at the bottom of the market? With global mining stocks down 43 percent since 2010, the struggle for companies to raise capital is indeed real. And while it’s beginning to show signs on larger mining companies, it’s proving fatal for a huge collection of junior miners and mining services.
“The lack of capital available to juniors may force a dramatic industry consolidation,” said Nikolay Demidov, CIS mining leader, Deloitte CIS (Russia). “Some projects will need to be shelved. Most development-stage projects will be put on hold. And many distressed companies should consider ways to strike a merger of equals. The industry should also prepare for a shakeout. Too many companies are already running on borrowed time.”
While solutions are limited, juniors may be able to avert disaster by wooing foreign investors, pooling their resources, exploring alternative financing options and positioning for private equity.
Solution: For mining companies to stay afloat, they need to woo foreign investors; pool resources; explore alternative financing options; and position for private equity.
6. Trouble for junior miners
The current economic environment of the mining industry has pushed junior miners into survival mode; it’s become a kill or be killed setting. Mounting pressure to boost short-term profits is forcing many companies to ignore current investments that may potentially lead to longer-term upside.
“Juniors are still mired in cost containment and productivity improvement initiatives. Given how close some companies are to the wall, they’re actively seeking strategies to lower their cost profile. Companies are still struggling to raise money and we’re sure to see more retrenchments in this area before these issues are resolved,” said Christopher Lyon, mining leader, Deloitte Chile.
According to Deloitte, to capitalize on shifting ownership patterns, juniors should be taking steps to get their assets in order and consider options from partnership and joint ventures to sale and consolidation.
Solution: To mitigate associated risks and leverage emerging opportunities, junior miners should get assets in order; consider all options; and prepare for the upside.
7. New skill sets
The mining industry needs talented employees with a wide range of skill sets. The specialized skill sets needed, however, are in short supply.
The industry is facing talent shortage in all stages of business. Beyond demand for mining engineers and geo-metallurgists, mining companies looking to improve innovation and technology are now competing for scarce technological talent against sectors that traditionally have more appeal than mining.
“Many mining companies are struggling to attract specialized skills, not only at the operational and management levels, but also in the boardroom,” said Nicki Ivory, mining leader, Deloitte Australia. “Failure to bolster these missing skillsets could lead to excessive reliance on a dwindling pool of qualified talent—weakening operational performance, compromising effective board constitution and complicating corporate efforts to achieve greater diversity.”
To attract and retain new skills to the sector, companies need to explore new talent management systems, get better at recruiting talent in high demand, invest in more targeted training and diversify.
Solution: Commit to diversity; explore new systems; get competitive; and invest in training.
8. Planning and embracing uncertainty
Whether they want to admit it or not, mining companies don’t have a crystal ball. They can’t predict the future in commodity prices nor can they predict geopolitical movements. They must, however, learn to embrace uncertainty.
“Given mounting levels of volatility and change, miners need to take a broader view of risk management and scenario analysis. This includes taking a much greater range of variables into account to inform their decision making,” said John Woods, mining leader, Deloitte Southern Africa (Zambia).
While mining companies can’t control political issues, they can develop response strategies including lobbying for greater policy clarity, leveraging mining associations to influence government policy, becoming more risk intelligent and planning for myriad scenarios.
Solution: Lobby for policy clarity; work together; become risk intelligent; and plan for a myriad of scenarios.
9. Stakeholder engagement
One of the big problems mining companies face today is effective stakeholder engagement.
“The mining industry does not fully understand the complexities associated with stakeholder engagement,” said Andrew Lane, mining leader, Deloitte Southern Africa. “Too often, relationships with stakeholders are adversarial instead of collaborative. Miners need to turn this equation around by building relationships with stakeholders long before requesting any concessions from them.”
For mining companies to be successful, they need to work to build win-win platforms. They need to communicate in new ways and leverage the power of social media to work in their favor. Miners need to work with mining associations to negotiate with local communities, improve their corporate giving practices and consult with affected community stakeholders to plan effective mine closure plans.
Solution: Build win-win platforms; communicate in new ways; mine the social networks; leverage available resources; get strategic about giving; and think long-term.
10. Engaging with governments
Last but not least, the biggest trend for 2015 will be finding new ways to communicate and collaborate. This includes making accommodations with governments at all levels in numerous nations to balance their needs, as well as the needs of the community. For governments and miners to succeed, they need to devise new ways to communicate and collaborate, across all levels of government.
“While some governments are working to accommodate the industry, others are backing miners into a corner. Unfortunately, these governments may be in danger of killing the goose that laid the golden egg if their policies force companies to defer their investments or exit a country entirely,” said Tim Biggs, mining leader, Deloitte UK.
According to Deloitte, strategies to counter regulatory uncertainty include working to build better government relationships, becoming more vocal in both industry association and through social media, measuring social impact, helping to set the policy agenda, and better leveraging mobile technologies.
Solution: Build better government relationships; locate in regions where you’re wanted; speak out; measure social impact; help set policy agenda; and get serious about social media.
Deloitte predicts industry transformation - Tracking the Trends 2019 report
Deloitte has published the eleventh edition of its annual report on the mining industry. Tracking the Trends identifies the top ten trends transforming the future of mining in 2019
The Deloitte report endeavours to provide the mining industry with insights it can leverage to support its continued quest for productivity, capital discipline, strategic development and sustainable growth.
Philip Hopwood, Deloitte’s Global Leader - Mining & Metals, commented: “It appears that the mining industry is poised for greater growth than it’s seen in a decade, but today’s market realities are very different than those of the past. We’re now dealing with geopolitical tensions in the form of trade wars and tariff concerns, as well as looming asset shortages. Rising commodity prices should fuel expansion, but could also result in a return of inflation and the costs that go with it, eventually eating into margins.
Disruption and volatility has become the new normal and the pace of change is outpacing our ability to adapt. This makes it imperative for mining companies to clarify how they plan to drive value into the future and how they intend to respond when prices inevitably drop again.”
Here are the key messages provided by the 2019 report:
- Disruption and volatilitymake it imperative for mining companies to clarify how they plan to drive value into the future and how they intend to respond when prices inevitably drop again. To thrive into the future, mining companies will need to challenge the status quo by soliciting a diversity of opinions and taking the risk to do things differently.
- Technology and artificial intelligence (AI) will play a key role, not only in helping companies envision future scenarios, but in identifying risks at an enterprise level and transforming the supply chain. Moreover, advances in finance platforms, sensor technology, autonomous vehicles, cloud- based solutions, and analytics are paving the way for the design of a digital mine.
- Understanding the needs and perceptions of people both inside and outside the organization will be critical. Companies must build a more diverse workplace and address succession planning, while fostering loyalty and retention among existing employees. At the same time companies must do more outreach to local communities, governments, and consumers so they can be more transparent and receptive.
Top Ten Trends Transforming the Future of Mining:
- Rethinking mining strategy - Embedding the discipline to deliver measurable value across the cycle
- The frontier of analytics and artifcial intelligence- Moving up the maturity curve
- Managing risk in the digital era - Exploring a new approach to controls and risk management
- Digitizing the supply chain - Why innovation requires integration
- Driving sustainable shared social outcomes - Finding value beyond compliance
- Exploring the water-energy nexus - Making the case for a systematic approach
- Decoding capital projects - Learning from past mistakes
- Reimagining work, workers, and the workplace - A blueprint for the future
- Operationalising diversity and inclusion programs - From theory to practice
- Demanding provenance- EVs and battery minerals provoke the desire for provenance