30 November 2012
Challenges like rising costs and increased demand uncertainty should not deter miners from making investments today to fulfil future global commodity requirements, according to a new report from Deloitte, the business advisory firm.
Tracking the Trends 2013 looks at the top 10 issues most likely to impact the mining sector in 2013 and provides a range of responses that companies can adopt to prepare for shifting industry dynamics.
Now in its fifth year, Deloitte’s report notes that companies are facing an ever-increasing wave of volatility, from declining commodity prices to the Eurozone debt crisis. This has led some companies to put projects on hold, while others have pursued richer deposits and higher yields through projects in some of the world’s toughest geopolitical and operational environments.
Debbie Thomas, Deloitte UK’s head of metals and mining, added: “For the second year in a row, mounting costs tops the list of the key issues affecting the mining industry. This is expected to worsen in the short term as commodity prices continue to dip, workers demand higher wages and regulatory costs rise. But rather than halting production in the face of shareholder demands for more immediate returns, miners should be making investments today to meet the expected long-term demand for commodities.
“Leadership change is going to make or break who stands out this coming year - and that's on top of the day job. It will take a strong team to maintain momentum, stay focused and continue on an upward trajectory.”
Philip Hopwood, Deloitte’s global mining leader, said: “The endemic factors impacting the global mining industry pose serious implications for meeting future demand and profitability. In the face of shifting industry dynamics, mining companies must determine where to focus during volatile times. An often overlooked way to improve their operations and reduce costs is to ensure they get the most out of existing and emerging information technologies.”
Here are the top 10 issues the mining sector is expected to face in 2013, as well as some responses companies can adopt to deal with them:
- Getting the most out of emerging - and existing - technologies: Despite demonstrated willingness to innovate, many mining companies fail to make best use of back-end technology such as data analytics or properly integrating disparate technology platforms following an M&A. To improve operations while reducing costs, they should revisit their IT strategies and consider investing in programmable logic controllers (PLCs), supervisory control and data acquisition (SCADA) systems, manufacturing execution systems (MES), business intelligence systems, data analytics and advanced manufacturing systems.
- Higher costs: This remains the number one trend for the second year in a row. Currency volatility, high operating costs, and lower grades are affecting decisions around continued production, expansions and the delinking of corporate equity from commodity prices. To get costs under control, mining companies must pinpoint their cost drivers, automate, improve asset efficiency with analytics, improve their operating model and streamline the supply chain initiatives.
- Demand uncertainty: China’s deceleration of growth, combined with the widening gap between its official global demand data and observable reality, has adversely affected commodity prices and investment decisions. Rather than halting production and risking an inability to meet future demand, mining companies should consider applying game theory to enhance their scenario planning to guide their capital project decisions.
- Capital project deceleration: Although mining executives are hesitant to authorise new capital expenditures at a time of tightened margins and ongoing pressure to pay shareholder dividends, the report suggests the correct response may be less about freezing projects or waiting until commodity prices and government intentions settle and more about making disciplined investment decisions through such measures as project rationalisation, improved capital efficiency, data analytics and project delivery quality assurance.
- Increased M&A volumes: As a result of limited debt financing, some mining companies are seeking to enter deals pre-emptively with partners of their choice through ‘proactive and rescue M&As’, with transaction volumes likely to rise into 2013 and Asian investors remaining frequent providers of development capital. To improve the odds of transactional success, the report suggests engaging in more comprehensive due diligence to assess potential partners and planning in advance for the integration.
- Resource nationalism: Governments around the world are exercising several forms of resource nationalism, from mining industry privatisation and expropriation to windfall taxes, resource taxes and export controls, making it harder for mining companies to accurately forecast production schedules, understand long-term risk profiles or develop models to guide decision making over time. Miners need to work to strengthen their relationships with national governments, diversify their commodity mix and geographic area of focus, and demonstrate the industry’s value to local governments and citizens.
- Combating corruption: Mining companies are already adopting global transparency standards to counter the risks posed by corruption, but they will need even more responsible practices in the face of heightened regulatory scrutiny, both of themselves and their partners, suppliers, service providers, vendors, agents and intermediaries. Combating corruption will require the adoption of strong corporate practices and procedures, including third-party relationship management, internal compliance programs, and investigation readiness.
- A new level of responsible behaviour: Corporate social responsibility extends beyond impact assessments and now requires meeting the expectations and demands from Non- Government Organisations (NGOs) and other relevant stakeholders, and operating with higher levels of transparency and sustainability. Mining companies will need to commit to a higher level of responsible behaviour by embedding sustainability into their internal metrics, their capital project methodologies and their negotiations with local communities, governments, NGOs and regulators.
- Skills shortages: While the immediate pressure on the labour force has temporarily eased in some jurisdictions as mining companies postpone projects or reduce production, the looming skills shortage in the long run remains chronic. Mining companies should tackle the skills shortage by strengthening their teams’ skill sets, re-training existing workers to fulfil different functions, recruiting from non-traditional labour pools, sponsoring university programs and engaging in workforce planning.
- Analytics to improve safety outcomes: The dangers associated with mining are on the rise, particularly as companies move to more remote and less hospitable regions. To better understand the factors that cause safety incidents, mining companies should implement predictive modelling and apply new analytical tools and technologies to existing processes to improve preventative maintenance, identify at-risk segments and improve safety outcomes.
Deloitte’s report concludes that mining companies that proactively resolve these endemic issues will be better able to meet future commodity requirements despite today’s volatile conditions. In addition, they are likely to increase their role in the advancement of local communities, support of undeveloped economies and growth of jobs and skilled talent around the world.
To view the report, please visit www.deloitte.com/ca/mining-trends
Notes to Editors:
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.
Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.
The information contained in this press release is correct at the time of going to press.
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