A Holistic View of Business Risks and Opportunities in Mining

With an increasingly environment-conscious consumer base and ‘green’ activists that closely monitor greenhouse gas emissions, mining and metal companies have identified environmental, social, and corporate governance (ESG) factors as the number one business risk to their survivability for the very first time. 

Previously, high business risks included decarbonization and license to operate (LTO). However, studies indicate that nearly 72% of mining and metal companies now agree or strongly agree that ESG will be a cause of major disruption in the mining industry over the coming three years. 

With this change, stakeholders are increasingly putting pressure on metal and mining companies to take greater responsibility in terms of their impact on local communities thereby laying the foundation for a sustainable future!

With ESG’s widespread impact on every aspect of mining operations, miners often need to adhere to more transparent business models and have robust community engagement as part of the LTO. For instance, the European Central Bank has recently reminded lenders that they have to produce a plan that shows that they will change their business strategies to account for the climate crisis. 

Changes of this scale can be viewed as a major paradigm shift in the mining and metals sector from traditional mining practices to ESG and climate change-based practices. The compound risk effect of ESG, decarbonization, LTO, market volatility, and community issues is giving rise to another major crisis for mining and metals companies – access to capital. This is precisely why investors are increasingly looking to only partner with organisations in the mining sector with best in-class ESG scores.

Investors, along with other direct stakeholders of mining businesses, are conscious of their public image and want to be associated with the values of sustainability, community engagement, and transparency. An inability to tackle the aforementioned business risks can result in a decrease in confidence for investors which can detrimentally affect the survivability of mining and metals companies worldwide. 

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Aligning with values and managing subsequent stakeholder expectations can strategically assist metals and mining companies to battle competitors more fiercely. This will likely prove to be a key factor in different dimensions of business growth – from accessing capital to securing social licenses across operations and attracting talent. According to EY, “miners that can demonstrate their contribution to a sustainable future will have a competitive advantage”.

Decarbonization (low carbon economy) can be viewed as a simultaneous business risk and opportunity for mining and metals companies. For instance, carbon reduction objectives for miners can result in a significant decrease in the demand of thermal coal which was a traditionally lucrative market for miners. The sector was valued at $618.67 billion in 2022 with a compound annual growth rate (CAGR) of 3.9%.

However, the use of technology to innovate processes in the supply chain (from exploration and mining to processing, smelting, and refining) can reduce carbon emissions. This offers a significant long term business opportunity for mining and metals companies in terms of economies of scale – such as decreasing expenditures, increasing grades, stockpiling strategic minerals and metals, and investing in exploration.

The necessity of optimizing economies of scale is directly linked to the substantial costs that mining and metals companies are exposed to as a result of digital innovation – such as the use of drones, remote operating centers, autonomous trucks etc. This issue can be tackled by efficiently managing expenditures throughout the supply chain, increasing worker productivity, and a gradual increase in the Return on Investment (ROI) of projects across different departments. 

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Market volatility, a business risk identified earlier, can also be viewed through the optics of a business opportunity. Using technology and innovation to better business processes and to lower costs, mining and metals companies must invest in different sectors to diversify their product portfolio (for example, by investing in “future-facing” commodities like copper and lithium).

This strategic move can not only lead to the discovery and development of new resources, but also reduce the dependency of miners on extremely fluctuant and unpredictable market forces such as commodities, currencies, interest rates, and energy. Trevor Hart of KPMG opines, “From what we’ve observed, commodity prices are sky high – if volatile – and this is generally underpinning industry confidence”. 

The mining and metals sector has traditionally been negatively viewed because of the occupational hazards linked with the same which are seen as a business risk. However, it is important to note that the fatality rate (per 100,000 full time equivalent employees) has decreased significantly from 39.78 in 1983 to 16.15 in 2021 as per the data from Centers for Disease Control and Prevention (CDC).

Greater safety, mining workers’ health, basic rights, managing re-skilling, and extracting new talent is an opportunity for mining businesses around the world. This is especially true in today’s day and age as mining and metals companies face their greatest ever talent shortage following a massive wave of retirements and resignations. 

Resourcing metals and minerals for a sustainable future will also require miners to be proactive in the face of current complex geopolitical crises such as resource nationalism, US-China tensions, and the war in Ukraine amongst others. 

According to The Economist’s recent Democracy Index findings, mining executives in Europe, the Middle East and Africa were “least worried about political instability”, whereas mining executives in Latin America were amongst the “most worried”. 

Conforming to stakeholder expectations, strengthening ties with domestic and foreign governments and trade groups, and exploring the potential of government incentives and co-investments are some of the strategies that mining and metals companies can deploy for tackling some of these issues.