According to a new report by Deloitte, the mining sector has made large strides over the past few years to steer through disruption and volatility.
Many companies are embracing intelligent mining through investments in automation and technology modernisation, while some are addressing climate change and investor concerns through decarbonisation and uncovering of new opportunities through joint ventures.
Others are revisiting their talent and diversity strategies, working to strengthen relationships with local communities, and seeking ways to create value beyond compliance: deliver socio-economic impact while simultaneously fostering operational efficiency and business competitiveness.
Thanks to these efforts, Deloitte states that many resources companies have been able to streamline their portfolios and create more robust balance sheets – putting them in a stronger position than in the last cycle to weather a potential downturn.
However, there’s still much work to be done as miners grapple with a number of external challenges, from an uncertain geopolitical landscape and technological disruption to increased demands from both communities and investors.
Deloitte Australia Mining and Metals leader, Ian Sanders, said that to navigate these complex issues requires strong, forward-thinking leadership.
“Mining executives must go beyond just good managerial skills,” he said.
“They need to create differentiated strategies and create flexibility in their operating models, as well as inspire their teams to accept change and commit to a path.”
Deloitte’s Tracking the Trends 2020 report explores some of the key trends for mining companies this year in their ongoing pursuit of productivity, financial discipline, operational excellence and sustainable growth. A summary of the trends can be found below:
Trend 1: The social investor
Embedding value beyond compliance into corporate DNA
The drive towards socially conscious profit is no longer limited to environmental activists. Civil society and investors are demanding greater transparency about the true social, economic and environmental impact of sectors such as mining.
To regain investor trust, Deloitte recommends that miners embrace a commitment to value beyond compliance, which is about the fundamental synergy between economic performance and social progress.
Value beyond compliance leverages shared value principles, innovation, analytics, digitisation, and strategic and evidence-based solutions to deliver socio-economic impact.
And while initially conceived as a way for mining companies to build greater social capital, its principles can be used to address rising investor expectations as well.
Trend 2: Getting partnerships and joint ventures right
Looking beyond structure to governance
With junior miners constrained by a lack of capital and market capitalisations not reflecting full corporate value, many industry players are consolidating to gain scale.
Joint ventures seem a natural solution, but Deloitte notes that they often fail due to unclear decision-making processes, ineffective governance, and poor transparency and alignment.
Some mining companies are considering other ways to distribute the risks associated with major capital projects.
One emerging model is to allocate project assets and liabilities across a full ecosystem of partners – from mining companies, original equipment manufacturers, and service providers to local communities and governments.
Trend 3: Seize opportunity amid uncertainty
Why miners should prepare for the next downturn now
Commodity prices rise and fall with economic trends, which are currently foreshadowing a potential global downturn.
To avoid being blindsided, Deloitte outlines that there are many ways in which mining companies should prepare.
For example, they should plan for a range of plausible scenarios rather than one generic downturn, stress-test company strategies, build strong leadership teams, continue to innovate, take the time to redesign workflows, retain key talent, re-examine relationships with other companies, and acquire fresh resources.
A downturn can also be the best time to make acquisitions and hire talent.
Trend 4: Dynamically managing risk
From risk registers to strategic risk management
As global volatility rises, mining companies can no longer rely on their risk registers to identify critical risks.
Systemic issues – such as insufficient risk sensing, a ‘tick the box’ mentality, and complex operating models – are forcing them to predict the impact of emerging events and prioritise key risks.
Strategic risk management has five elements: First, integrate risk, control and assurance. Second, go back to basics by redefining the company’s risk appetite. Third, explore alternative futures and plan for worst-case scenarios. Fourth, leverage better data. Fifth, learn from past mistakes and empower employees to report risks.
Trend 5: The path to decarbonisation
Miners’ role in reducing emissions
Driven by pressure from stakeholders and the strengthening business case for decarbonisation, most mining companies are taking steps to reduce their greenhouse gas emissions.
While the path to decarbonisation won’t be easy, Deloitte states that the commitment is necessary if miners are to contribute to the mitigation of risks associated with climate change and at the same time create value for customers, investors, governments, communities, and employees.
Trend 6: On the road towards intelligent mining
Reviewing lessons learned
In recent years, many mining companies have begun their digital journeys.
Some firms have advanced considerably. A review of what has been learned can help companies optimise their digital journeys and unlock sustainable value.
Deloitte has found that many companies have underestimated the amount of effort required to clean up their data and upgrade their technology infrastructure.
As mining companies move towards integrated operations centres that help guide decision-making across the value chain, it is recommended that they consider the right staffing and whether they should build capacity in-house or outsource.
To unlock the value of intelligent mining, leading companies are moving towards a more centralised governance approach.
Trend 7: Modernising core technologies
Considerations around cloud, cyber, and revitalising the core
Mining companies need to modernise many of their legacy systems and migrate to a digital core – raising a range of considerations around moving to the cloud, adopting sound cybersecurity strategies, managing data and choosing the best approach for revitalising their core systems.
Deloitte highlights that the convergence of information technology (IT) and operational technology (OT) layers of the organisation is unlocking new opportunities.
Miners are advised to update their enterprise resource planning (ERP) systems and make choices on whether to host their data in premises or on the cloud.
As operational processes are digitised, a new challenge is to ensure that facilities such as mine sites, mineral processing plants, and remote operations centres are not vulnerable to cyberattacks.
Trend 8: The intersection of talent and community
Proactively planning for the social impact of digital
As digital sweeps through the mining sector, a wide variety of benefits are being realised across the value chain.
These range from cost reduction, improved production, and enhanced safety performance to plant optimisation, greater inventory control, and the ability to predict and mitigate crises.
To capitalise on the digital revolution, Deloitte outlines that most mining companies need to drive radical change both internally and within the communities in which they operate.
Underestimating internal organisational barriers, bureaucracy and the impacts on local communities could hinder companies’ ability to realise the full benefit of their investments.
Trend 9: Leadership in an Industry 4.0 world
Preparing to manage the mining workforce of the future
Four trends are reshaping the leadership landscape in an Industry 4.0 world: the emergence of non-traditional teams, the creation of exponential roles, the proliferation of data, and the imperative to embrace greater diversity and inclusion.
Deloitte recommends mining companies that want to strengthen their competitive advantage, and create an adaptive and responsive culture, commit to upskilling their leaders now.
Trend 10: Tax tribulations
Concerns over ‘transfer mispricing’ put miners in the spotlight
Although the mining industry has been exempted from the Organisation for Economic Co-operation and Development’s (OECD) new tax rules relating to the digital economy, Deloitte notes that several other global tax measures potentially could create serious constraints on mining economics.
To mitigate any unexpected tax obligations, mining companies should be aware of the changes and understand how they could impact their tax affairs.
The full ‘Tracking the Trends 2020’ report can be found online here.