How can the mining sector prepare itself for the coming years?
Faced with the industry's scenario in recent years, changes will be necessary for companies to stay relevant.
The recent reform in the mining industry – with the change in the Financial Compensation regime for Mineral Resources Exploration (CFEM) and the replacement of the National Mineral Production Department (DNPM) by the National Mining Agency (ANM) – has generated hopeful speeches among industry players. The more the industry’s value proposition is questioned, the more companies realize that they can only succeed in the future if they change the way they operate.
After record highs and lows in commodity prices, mining companies made significant acquisitions and consolidations, with operational changes and focus on the 4th industrial revolution that hit all sectors around the world. For this industry, considered to be serious and conservative, the transformations were surprising and promise to reestablish the trust of stakeholders, guaranteeing good results in the not so distant future.
In recent years, we have followed companies adopting transformative practices. For the next decade, we will see a continued rapid change in the industry in a scenario of declining supply of iron ore, thus decreasing the availability of tier 1 assets, as well as continued focus on returns to shareholders.
In opening new paths to the future, the goal now is to change in order to drive continued investments in innovation and digitization, geared to the future workforce, expressing corporate commitment to strengthen relations with government and the community and guiding corporate efforts to improve the corporate reputation. In a careful analysis on the subject, Deloitte, which has global mining specialists, has compiled the “Tracking The Trends 2018 report”, in which we share experiences with the goal of identifying the strategies that organizations intend to adopt to stay competitive.
Based on the study, I comment on the top 10 trends for the mining industry.
1. Bring digital to everyday use – Use data-driven insights that, in addition to generating value, stimulate new business models, enable the creation of strategies and practices to transform key mining processes, increase the information flow and facilitate support to back office methods.
2. Overcoming innovation barriers – Defining a path to mature innovation is needed for the industry to transform. Technological innovations, adoption of more innovative approaches involving stakeholders and identification of future market demands are some of the factors that can be achieved.
3. Future of work – With automation transforming the labor market and the digitization of mines and processes, people management in the mining sector changes drastically. New corporate processes will emerge with the use of robots that will also provide support to the workforce. Another interesting factor will be the ease of working from off-site locations, in addition to hiring part-time employees and people with physical disabilities.
4. The sector’s image – Changing image perceptions by the public in general, employees and customers does not seem to be an easy task, given the occurred damages to the environment and impacts on the society, nevertheless the mining sector has made significant contributions to the world economy, which should make this task less complicated in the face of a negative historical scenario.
5. Transforming the relationship with stakeholders – To expand local employment opportunities, improve revenue collection and respond to requests for better infrastructure and less impact on the environment, governments in resource-rich countries have increasingly pressured the mining industry. To achieve measurable social results, it is necessary to work on new approaches and relationships with stakeholders and all other interested parties.
6. Water management – Finding sustainable solutions to this issue is one of the most pressing challenges. Water has become one of the most critical resources for the mining industry. It is every time more important for obtaining ores of good quality. As such, this demand has become an issue, since water scarcity, according to the UN, already affects a large part of the global population.
7. Meeting shareholders’ new expectations – Investors call for higher accountability and value return from the industry. For decades, these factors depended more on the market realities. Nowadays, this expectation is higher and more demanding, with requests for corporate wealth growth in the form of dividend increases, share buy-backs and higher total returns to shareholders.
8. Finding a balance between caution and courage – Thanks to an intense cost reduction, focus on fundamentals and commitment to portfolio simplification, the wealth of many mining companies is recovering. However, this attempted turnaround cannot remedy the supply constraints that currently plague the industry. In the 10 years before 2016, the amount of gold discovered fell by 85%, so a balance needs to be struck between measures to reduce spending and investment in the search for new ore reserves.
9. Realigning Governance – New skills are needed to help drive the change. With that in mind, companies will need to ensure that their governance has the diversity of skills needed to embrace change, obtain approval from the authorities and the society, investors and other stakeholders, as well as eliminate negative perceptions.
10. Predicting commodities of the Future – To conclude on which commodities to invest in and/or divest, companies need to stay focused on the global consumer’s varying demands, demographic and economic changes, the effects of climate changes, and the adoption of new technologies by the market.
In the last decade, the mining industry has gone through a radical transformation. Because of the global crisis and local changes, many companies felt the need to cut down on costs, review strategy and manage risks. From now on, I believe the goal is to create more robust organizational cultures, improve efficiency and remain steadfast in implementing these measures to improve the industry’s image and practices, thereby ensuring good results for organizations, government and the society.