The mining and metals (M&M) sector is returning to growth, but companies face a transformed competitive and operating landscape. The need to improve shareholder returns will drive bold strategies to accelerate productivity, improve margins and better allocate capital to achieve long-term growth.
Mining is a notoriously conservative industry where change comes slowly. For a company trying to promote their brand and attract investors, both the large and small nature of mining has its challenges.
According to EY’s 2019-2020 report, Digital innovation will be a key tool, but the industry must overcome a poor track record of technology implementations. If M&M companies are to survive and thrive in a new energy world, they must embrace digital to optimise productivity from market to mine.
Here are the top 3 business risks facing the mining and metals industry:
1. License to operate
EY surveyed over 250 sector participants from around the world, and found ‘License to operate’ rocket to first position, with over half of respondents nominating it as the number one risk. There are a number of reasons why it has taken poll position:
- It is the key risk that CEOs and boards are discussing because the current approach is not broad enough, the stakeholder landscape is changing and miners need to adapt.
- We have seen the advance of nationalism globally.
- The necessity of digital transformation highlights the need for a stronger license to operate.
The sector is working to redefine its image as a sustainable and responsible source of the world’s minerals. But while many in the industry are saying all the right things, their actions do not follow their words, and the many stakeholders are not fooled.
License to operate has evolved beyond the narrow focus on social and environmental issues. There are now increasing expectations of true shared value outcomes from mining projects. Any misstep can impact the ability to access capital or even result in a total loss of license.
Mining and metals companies need to transform their business models to remain more competitive and bring all their stakeholders along on the journey. A new approach is required, and license to operate needs to quickly become part of a mining company’s DNA in the same way as safety is.
2. Digital effectiveness
‘Digital effectiveness’ is key to gaining a competitive advantage. However, in a recent poll of over 600 mining and metals executives, it was revealed that a significant 37% of management have little or no knowledge of the digital landscape. The stark reality is that digital is the key to achieving productivity and margin improvements. It is no time to stand still in an age of business transformation that is largely driven by digital.
Miners are making significant strides in applying digital solutions to single issues or bottlenecks. But it is only when miners apply these solutions across the entire value chain to create a digital mine that they can truly transform and emerge as the dominant players in the market.
To achieve this kind of transformation, CEOs need to take ownership of the digital agenda, combined with a sound strategy that is supported by a clear vision and a strong focus on people, as well as, the effective management of the cultural change required.
3. Maximising portfolio returns
In the wake of higher commodity prices and rising cash flow, mining and metals companies are assessing where they should allocate capital to ensure higher future capital returns. A balanced approach to the portfolio is key. In addition to building or acquiring new mines, companies also need to consider how much capital they should be investing into innovation and transformative technologies. Over 70% of survey respondents are investing 5% or less of their budgets in digital. By increasing this to around 20%, they could be transforming their operations substantially and gain real competitive advantage.
Fraud and corruption was identified as a significant risk by the survey respondents. There are lessons to be learnt from the super cycle, particularly the implementation of stronger controls to deal with third parties such as contractors and suppliers. Overall, the ability to identify fraud has become more sophisticated, particularly with the growing interconnectedness of regulators, but social media also makes any allegations of impropriety visible with unprecedented speed. This places risk of fraud hand-in-hand with the risk to reputation and license to operate.
