The global mining industry is facing intensifying social, economic and political challenges, which means companies must incorporate more complex scenarios into their strategic planning, says a new study from Deloitte Touche Tohmatsu Limited (DTTL).
The report, released this morning, is called Tracking the Trends 2012, and it warns of a “perfect storm” of converging global forces, such as unrelenting cost inflation, unprecedented commodity price volatility, ever-tightening regulation and mounting labour shortages affecting mining companies.
“Gone are the days when conversations about commodity prices were confined to industry analysts,” says Glenn Ives, Americas Mining Leader, DeloitteCanada. “As nations around the world industrialize and strive to improve their standards of living, mining has come to take a more central role on the world stage. And for mining companies, this greater visibility comes with greater responsibility.”
Deloitte provides an analysis of the top 10 trends expected to impact the mining sector at an accelerated rate in the year ahead.
At the top of the list, is the cost of doing business. “What goes up does not always come down. With commodity prices surging to all-time highs, accelerated production has become the mantra of most mining companies and costs are going up across the board,” says Deloitte. The report offers some strategies for getting costs under control: understand cost drivers, improve capital project management, enhance energy efficiency, lock in supply, and spend to save.
Chaotic commodity prices were second on the list, and Deloitte faults China, the leading contributor to the multi-year boom, for withholding information that could enable miners to better manage their production schedules.
"Have commodity prices been reset at a higher level or are we at the top of a bubble that's about to burst? Making informed decisions in this highly uncertain environment requires a level of forecasting many companies lack."
Third, Deloitte advises that companies be discriminating about the nations in which they choose to do business, noting that several resource-rich nations – including Australia, Chile and South Africa – are boosting mining taxes and other fees, and even threatening to renegotiate existing tax deals.
Fourth is the demand for heightened corporate social responsibility. Industry stakeholders are finding themselves subject to higher levels of activism than ever before. To meet the demands of a broad stakeholder base, mining companies will need to integrate risk-based corporate social responsibility strategies and develop and track key performance indicators with the same diligence they use to track production.
Fifth is the labour crunch. Deloitte warns that there simply are not enough people to power projected mining company growth and each year skill gaps extend to a wider range of functions. “Steps companies can take to find willing workers include applying science to workforce planning, introducing industry-level cross-training, and building a global culture.”
Sixth, the capital project quandaries. As commodity prices fluctuate and the gap between supply and demand widens, points out the report, the number of capital projects across the globe is mounting in the mining sector. Mining companies must now focus on managing risks that could interfere with their ability to meet steady-production objectives.
The seventh trend analyzed is the non-traditional financing. “New sources of funding require new levels of knowledge,” says Deloitte. Despite the cash companies have on hand, finding sufficient capital to fuel growth remains difficult. The key to success in these efforts hinges on the mining companies’ ability to build the relationships they require to gain access to foreign markets, while gaining better insight into those regions.
Dwindling access to deposits, deteriorating grades, spiking global demand and lofty commodity prices were eight on the list. Deloitte says those factors have heightened mining companies’ appetite for geographic and economic risk. Yet few companies possess the internal skills to grow their capital project portfolios aggressively or to operate in unfamiliar regions.
Ninth is the high volatility of the markets that is forcing companies to plan for the unforeseeable. Although “black swan events” are by definition rare, high impact, and hard to predict, they are finding their way onto corporate agendas. Preparing for these unanticipated surprises is likely to require more of a creative license than mining companies are accustomed to exercising.
Finally, the report talks about the legislative competition among countries to become the world’s toughest regulators.
“Nations around the world have been ramping up their regulatory initiatives, and many are increasingly focusing on the mining industry, heightening the need for mining companies to review their regulatory compliance procedures,” concludes Deloitte.
Read the full report here