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Strategic planning for mining companies

Use strategic flexibility to navigate market volatility

In recent years, mining companies have experienced breathtaking changes. Metals prices rose to record highs in March 2008, fell 41% by mid-2009, and then once again rebounded. In response, some companies shed assets, halted production and trimmed workforces. But just as the flow of new projects slowed, demand from markets like China and India surged – prompting some companies to consider more aggressive expansion.

“Faced with this exceptional volatility, mining executives can be forgiven for demonstrating some uncertainty,” says Glenn Ives, leader of Deloitte’s North American Mining practice. “After all, plotting a course of action is fraught with risk if your strategic plan does not articulate a response for current market realities.”

The good news is that you can mitigate this risk by building strategic flexibility into your business planning. As we highlight in Tracking the trends 2010: The top 10 issues mining companies face in the coming year, a five-year plan that hinges on the occurrence of a specific set of events derives its value from the clarity of your crystal ball. If your predictions don’t come to pass, you need alternatives. This is true of virtually every strategic decision your company will face in the coming years.

With sustainability, for instance, you must articulate alternative responses to issues such as biodiversity loss, water shortages, climate change, demand for energy, resource scarcity and population growth.
When it comes to demand management, on the other hand, you must assess how to ramp up production in response to rising demand fundamentals while maintaining the flexibility to ramp back down if current stockpiling by nations like China proves unsustainable.

More sophisticated scenario planning is also necessary to guide decision-making around issues like mining in harsh climates, mitigating government intervention in the countries where you operate and investing in new infrastructure development.

“By mapping out potential outcomes to a range of scenarios,” says Ives, “you can do more than articulate clear responses to challenges you face. You can also put processes in place that position you to survive ongoing volatility – no matter how the market evolves.”