There’s no better way to sum up 2018 than with everyone’s favourite buzzword: disruption. But the truth is, it was really a year of transformation. Societal change, new technologies and the pressure to secure supply of new world commodities are irreparably changing the way mining and metals companies operate.
Business transformation was, and remains the focus for the future. The full force of change is also influencing the risk agenda for many miners.
Looking to the year ahead, licence to operate is now the number one risk facing miners, according to the EY report Top 10 business risks facing mining and metals in 2019-2020.
That’s up from seventh place in 2018. Rounding out the top three risks are digital effectiveness and maximizing portfolio returns – both reoccurring top themes from last year.
Here’s what we’re hearing from Canadian miners as we welcome the new year.
Holistically addressing licence to operate
If last year taught us anything it’s that the stakeholder landscape is changing. Access to information and bigger platforms means stakeholders know – and ask – for more. Nationalism is also a growing concern globally. Leading miners know the traditional approach to social licence to operate isn’t enough.
It’s time to redefine the sector’s image as a sustainable and responsible source of the world’s minerals.
Social and environmental issues – although still relevant – cannot be the core focus anymore. It’s about increasing shared value out of each project, and proactively and strategically managing stakeholders’ changing expectations. The Embankment Project for Inclusive Capitalism, launched recently by the Coalition for Inclusive Capitalism and EY, confirmed that a company’s value is increasingly reflected in intangible assets – including impact on society. For miners, achieving that means redefining partnerships with the community, government and employees so that business purpose exists beyond the life of the mine. It’s not an easy balance, with each member having a different agenda and issues they want met, but failing to create value for all stakeholders can impact the ability to access capital or even result in loss of licence.
Enhancing digital effectiveness
Digital effectiveness topped the risks last year as companies sought to address productivity and margin challenges inherited at the end of the super cycle.
Embracing digital wasn’t a new concept for the sector, but a disconnect between the potential of complete digital transformation and how technologies are being implemented soon emerged. That’s not to say implementation has been unsuccessful. Miners have made great headway in the automation of haulage, rail, trucks and drilling. The use of predictive analytics has also helped to reduce maintenance costs and improve equipment availability.
The challenge now is that mining and metals companies must move away from narrowing in on solving single issues or bottlenecks, and look more holistically at how they deliver on a complete transformation. Vale’s Global Integrated Operations Centre is a great example of this. EY partnered with the company back in 2017 to integrate and synchronize different stages of operations in Brazil and abroad – including planning, scheduling and control – to bring visibility of the whole iron ore chain, allowing it to act in a more agile way.
Maximizing portfolio returns
Part of the challenge to embracing digital is that budgets are not where they need to be. Investments in digital are currently sitting at around 5% of total budget spend, when they should be close to or upwards of 20%. Some of the holdup, in part, is finding the right portfolio mix between investing in building or acquiring new mines and considering how much capital to allocate to innovation and transformative technologies. In the wake of higher commodity prices and rising cash flow, mining and metals companies must be critical of capital allocation decisions to ensure the highest future returns.
It’s no surprise that digital is a key theme driving top risks facing mining and metals companies, as well as spurring the entrance of new risks this year like fraud, disruption, rising costs and future of work. Disruption won’t soon be a word we retire.
It’s here to stay, impacting every element of mining and metals’ operations. To get ahead, players will need to use capital and collaboration to their advantage as they transform and protect themselves from steady and upcoming business risks.
IAIN THOMPSON is the EY Canada Mining & Metals Advisory leader. He is based in Vancouver. For more information, visit www.ey.com/miningrisks.