Each year, the mining industry begins to turn its attentions to the future and in particular, the specific business risks that are on the horizon.
Our number one risk this year is digital effectiveness . While the concept of digital mining is not new, there is disconnect between the potential from digital transformation and the successful implementation of new technologies. We believe that digital transformation will be a critical enabler to address the sector’s productivity and margin challenges. Companies risk being left behind by their competition if they are not at the forefront of this.
Competitive shareholder returns is a new risk at number two as it has exponentially increased in relevance over the last six months. With cash being generated at significant levels again, the level of shareholder activism in the sector is increasing on the back of the fear that it won’t be sustained. Mining and metals companies need to differentiate themselves — by investing capital properly and getting a good return compared with the rest of the market. Ultimately, they need to be a leader in the market to attract capital.
Cyber risk has moved up to the number three position as a result of increased digital transformation and the convergence of information technology (IT) and operational technology (OT), which makes companies more vulnerable to the continued rogue activity in the sector.
New in at number four is new world commodities as disruption in other sectors, particularly with increased focus on sustainability, is having a major impact on commodities. The end of petroleum cars will impact a significant part of platinum demand: almost half of global platinum production is used in catalytic converters to remove diesel pollution. Other commodities, such as cobalt, lithium and nickel, will benefit from the increased demand for battery storage.
Regulatory risk is new and comes in at number five, although it includes elements of transparency risk. While transparency is still important, there has been a sharp upturn in regime risk in developing countries as commodity prices improve and countries seek their fair share of improved returns. Licensing requirements have also increased as a result of environmental accidents.
Risk six: resource replacement that needs to be addressed now to future-proof your organization. With leverage across the sector significantly reduced, and cash flow improved as a result of better capital allocation and higher commodity prices, shareholders expect higher returns than the sub-5% on average over the last five years. Until these returns are met, investing for growth will remain a marginal activity rather than the central strategy that defined the first decade of this millennium.
The sector is returning to growth but mining and metals 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. Digital innovation will be a key enabler but the industry must overcome a poor track record of technology implementations. If mining and metals companies are to survive and thrive in a new energy world, they must embrace digital to optimize productivity from market to mine.