Despite considerable economic shocks flowing from the pandemic, and interruption to export and supply chains the mining sector continues to underpin West Australia’s budget surplus. A safety first, innovative approach to managing health, testing, distancing, rostering and logistics adopted across the industry, as well as securing designation as an essential service kept miners operating successfully.
But, COVID-19 has only continued the theme of disruption in the industry, impacting commodity demand and prices, and requiring reprioritising different business risks for those in the sector, according to the EY Global Mining and Metals Top 10 Business Risks and Opportunities - 2021.
License to operate and geopolitical risks are becoming more prominent as social responsibility and broader stakeholder demands intensify during the pandemic.
Our Business Risks and Opportunities Report highlights the way in which the pandemic has heightened stakeholder expectations around safety, environmental management and corporate responsibility. This is driving the urgency to address external perceptions of the industry, as investors look to understand value and contribution beyond the financials. More still needs to be done to ensure we can continue to develop the people and roles that exist in the industry today and attract the additional capital and people needed to take full advantage of our world leading mineral endowment.
There are two key challenges that miners need to reframe to unlock their growth opportunity.
License to operate remains the top risk for miners
Firstly, better managing Licence to Operate will be critical to future growth opportunities. Starting with fundamental matters like access to investment capital and a skilled workforce, and acknowledging that miners have such a broad range of stakeholders, from local and indigenous communities where they work, to citizens and Governments who own and govern the minerals - this licence is critical to allow miners to operate and grow.
The dynamic demands of these stakeholders have made this even more difficult. Licence to operate has been the sector’s number 1 business risk and opportunity for 3 years running, with 63% of miners calling it out in their top 3 risks this year. This impacts directly on access to capital and attracting the people needed to grow the industry.
In work commissioned for the Minerals Council of Australia, EY estimated that an investment in the order of $20-30 billion was required to roll out existing proven technology across the value chain of existing mines. We also called out the need for a similar level of investment in skills development – where more jobs and more interesting jobs would be required in the future. Investment capital and advancements in digital technologies are also needed to expand existing mines and make new mines economic.
Licence to operate covers a broad range of matters and the connection to capital is strengthening. 98% of institutional investors in a recent EY survey said they have regard to ESG issues when making capital allocation decisions, 67% have specific regard to climate change disclosures and 23% said miners lag behind other sectors - so more needs to be done on the ESG agenda.
Whether engaging with investors, potential employees, local communities or governments, leading in decarbonisation through electrification, investing in renewables, or continuing to raise the bar on best practices in safety and managing environmental outcomes, there are many areas to focus on when showcasing an effective licence to operate.
Heightened geopolitical risks as economic protectionism grows
Another major challenge is navigating geopolitical issues as the shifting balance of power between the world’s largest economies is changing industry dynamics. The Business Risks Report further highlights concern around how a rise in domestic protectionism in the wake of COVID-19 could affect miners’ ability to operate in key markets.
Mining is a global industry and it requires a global mindset to excel. We’ve already seen some governments move to impose tariffs or even export bans to protect domestic producers. Fifty six percent of the survey respondents expect to see royalties and taxes increase as governments seek to raise revenue in response to the pandemic.
When we look to leave the pandemic behind us, the mining industry will need to be well placed with a strong licence to operate to gain access to both the investment capital and human capital to capitalise on the growth opportunity that presents.
So ask yourself, are you reframing your future or is the future reframing you.