Top 10 business risks and opportunities for Mining in 2021
EY's annual report examining the top 10 business risks and opportunities for metals and mining reflects the ongoing challenges of disruption caused by the Covid-19.
When last year’s top 10 risks in mining and metals report raised the prospect of high-impact risks - those that are rare but potentially catastrophic - who could have predicted what would follow in 2020? At that point, EY anticipated that disruption would soon hit the sector but didn’t expect it to come from a global pandemic that has now accelerated other disruptive factors.
Covid-19 was clearly the dominant issue of 2020 and will continue to impact all industries in 2021, including mining and metals. EY's 2021 report focuses on the effects of Covid-19 on the sector, highlighting how the pandemic has heightened many risks but also created new opportunities.
Conditions are ripe to expand and scale collaborative innovation.
Opportunities abound for miners to broaden the scope and increase the effectiveness of their innovation agendas, particularly after the sector’s rapid pivot in response to Covid-19. The pandemic has provided some valuable lessons on how to take a resource-to-market approach to innovation. We have seen increased innovation and more solutions implemented across the value chain to deal with the impacts of Covid-19, with many innovation projects fast-tracked into reality.
09: Digital & Data Automation...
Miners are realising the additional benefits of digital transformation throughout the global crisis.
EY believes many of the issues surrounding digital have become 'business as usual' for the larger miners. Many are in the second or third year of their digital road map journey, and as their digital transformation becomes more complex, its value to the organisAIation is clearer.
Covid-19’s impact has highlighted the benefits of various technologies, such as automation, AI and blockchain, to help ensure business continuity. Businesses that had already invested in advancing their digital journey are reaping the benefits now and will continue to have a competitive edge beyond the pandemic.
Economic uncertainty is challenging miners’ ability to make long-term decisions about demand.
A new entry to the top ten this year; it's a reflection of the impact of Covid-19 on the global commodities market. The pandemic has significantly disrupted supply chains in the near term and created ongoing uncertainty around demand.
China’s swift economic rebound has kept up demand for iron ore, and gold and silver retain their status as safe havens, but future disruption could see this change fast. Miners need to be able to make sustainable, long-term decisions as they deal with the return of severe commodity price volatility, the threat of substitution and changing customer demand.
The pandemic spurred a change in corporate culture, possibly accelerating workforce transformation.
Companies are recognising that the accelerating adoption of remote working and virtual teams has the potential to add value beyond the crisis by keeping teams safe, productive and engaged.
The pandemic has spurred a change in the corporate culture of mining and metals companies, creating a new opportunity for sustainable workforce transformation. Almost 80% of the mining and metals executives EY surveyed said that they expect their organisations to become more open to change due to the impact of Covid-19.
06: Capital Agenda...
Cautious spending strengthened balance sheets, but bolder investment decisions will yield greater returns.
Miners optimised liquidity by tightly managing cash, prioritising the operation of core assets, and reducing or cutting nonessential or non-core capital expenditures.
However, while strong capital discipline is helping miners weather volatility, bolder investment decisions and increasing risk will enable greater returns in the mid term and long term. Approaches to achieve this may be radically different from those deployed in the past. Mining companies will need to evaluate their appetite for risk and approach to capital allocation to ensure they do not miss out on new opportunities.
A shifting global power balance is changing the operating dynamics for miners.
A new entry to the top ten reflecting the growing impact of geopolitical uncertainty. A survey of global executives for the EY geostrategy report (see graph) found that the geopolitical issues that leaders expect will have the biggest impact on their company are the changing role of the US in the international system, EU stability and US-China relations.
A shifting geopolitical landscape is changing many dynamics for mining and metals companies. A trend toward economic protectionism to favor domestic producers and ensure host countries receive their fair share of resource wealth will emerge in many jurisdictions.
04: Decarbonisation and the Green Agenda...
Miners that seize the opportunity to focus on sustainability can win the fight for capital.
Decarbonisation and the green agenda has become a more prominent issue as social responsibility and broader stakeholder demands intensify in the wake of the pandemic.
The pressure to reduce greenhouse gas (GHG) emissions remains the biggest environmental issue for mining and metals companies, although the amount of GHG contributed does vary across commodities. Leading companies are setting out their approaches to decarbonise direct emissions; however, many current emission reduction targets do not align with the Paris Agreement and few miners comprehend the true environmental impact of their entire value chain.
03: Productivity & Rising Costs...
Ongoing economic uncertainty and Covid-19-related expenses are increasing cost pressures.
Rising costs and productivity remain on the radar as the complexity of mining increases and commodity prices come under pressure due to disrupted supply and the impact of ongoing economic uncertainty on demand.
The impact of Covid-19 has been mixed, with some restrictions imposing new, unforeseen costs and other measures removing silos that hindered productivity. Over the longer term, we believe that tackling this issue effectively requires a true end-to-end focus on costs and productivity across the value chain.
02: High Impact Risks...
Covid-19 has highlighted the importance of preparing for company-destroying risks.
In last year’s report, EY noted that company-destroying risks tend to be rare and, as a result, may not be examined but rather will stay on the risk register in much the same format year on year.
In 2020, the Covid-19 pandemic has clearly demonstrated the importance of understanding and reviewing these high-impact risks, particularly as there is a significant link between a company’s ability to manage them well and its LTO. The experience of the pandemic has heightened stakeholder expectations around how enterprises prepare for, manage and monitor all high-impact risk exposure.
01: License to Operate...
LTO remains the key issue for miners.
The disruption of 2020 has reshuffled rankings, but license to operate (LTO) remains the number one issue for miners, with 63% of EY's survey respondents flagging it as a top three risk. EY expect the issue to become even more important as stakeholders broaden and develop a stronger voice. As effective engagement becomes even more critical, EY believe miners should consider three tiers of community:
- Local communities will have greater expectations around how miners respect indigenous rights and native title.
- National communities may push for a return to resource nationalism, with increased debate around who miners sell to and for what purpose.
- Broader community commitment will come into focus as socioeconomic issues are highlighted post-Covid-19. We may see pressure build to provide ownership of assets to communities.
- Piedmont Lithium agrees Ghana Government BackingSupply Chain & Operations
- Auxico to acquire 85% of Minera el Benton in BoliviaSupply Chain & Operations
- Mesh tech keeps Copper Mountain Mine going during outageTechnology
- Zijin and Camyen to build a lithium plant in ArgentinaSupply Chain & Operations