Top 10 business risks facing mining and metals in 2019-20 - EY
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Top 10 business risks facing mining and metals in 2019-20
Does operating in a time of disruption
take more than a license?
We believe our sector is facing an era transformation, and unique challenges to portfolio and
of disruption like nothing it has ever capital investment decisions.
experienced before — both from within What can organizations do to protect themselves
and outside. against the challenges of keeping their license to
The themes of license to operate and disruption run operate, improving productivity and nationalism? They
through this year’s risks as mining and metals have to use capital and collaboration to their advantage
companies have to deal with many new and variable as they transform and protect themselves from
factors, including societal expectations, digital disruption.
Top 10 business risks
ld commodities
New Wor
Fraud
Disruption
10 of workforce 4
Future
9
Energy mix
8
7 Rising costs
6 Cyber 9
5
zing portfolio ret
4
ximi urn 3
Ma s
3 effe c tivene 2
ig ital ss
D
2 Liceenrsae to 1
op te
1 7
in 2 0 18
2019
ng
0
–2
n
ki
Ra
Up from 2018 Down from 2018 Same as 2018 New to the radar
2 Top 10 business risks facing mining and metals in 2019–20
1 License to operate
Surveying over 250 sector participants from around the right things, their actions do not follow their words,
the world, we have seen “License to operate” rocket to and the many stakeholders are not fooled.
first position, with over half of our respondents
License to operate has evolved beyond the narrow
nominating it as the No. 1 risk. There are a number of
focus on social and environmental issues. There are
reasons why it has taken poll position:
now increasing expectations of true shared value
• It is the key risk that CEOs and boards are discussing outcomes from mining projects. Any misstep can
because the current approach is not broad enough, impact the ability to access capital or even result in a
the stakeholder landscape is changing and miners total loss of license.
need to adapt.
Mining and metals companies need to transform their
• We have seen the advance of nationalism globally. business models to remain more competitive and bring
• The necessity of digital transformation highlights the all their stakeholders along on the journey. A new
need for a stronger license to operate. approach is required, and license to operate needs to
quickly become part of a mining company’s DNA in the
The sector is working to redefine its image as a same way as safety is.
sustainable and responsible source of the world’s
minerals. But while many in the industry are saying all
2 Digital effectiveness
“Digital effectiveness” is key to gaining a competitive value chain to create a digital mine that they can truly
advantage. However, in a recent poll of over 600 mining transform and emerge as the dominant players in the
and metals executives, it was revealed that a significant market.
37% of management have little or no knowledge of the
To achieve this kind of transformation, CEOs need to
digital landscape. The stark reality is that digital is the
take ownership of the digital agenda, combined with a
key to achieving productivity and margin improvements.
sound strategy that is supported by a clear vision and a
It is no time to stand still in an age of business
strong focus on people, as well as, the effective
transformation that is largely driven by digital.
management of the cultural change required.
Miners are making significant strides in applying digital
solutions to single issues or bottlenecks. But it is only
when miners apply these solutions across the entire
3 Top 10 business risks facing mining and metals in 2019–203 Maximizing portfolio returns
In the wake of higher commodity prices and rising cash Fraud and corruption was identified as a significant
flow, mining and metals companies are assessing where risk by the survey respondents. There are lessons
they should allocate capital to ensure higher future to be learnt from the super cycle, particularly the
capital returns. A balanced approach to the portfolio is implementation of stronger controls to deal with
key. In addition to building or acquiring new mines, third parties such as contractors and suppliers.
companies also need to consider how much capital Overall, the ability to identify fraud has become
they should be investing into innovation and more sophisticated, particularly with the growing
transformative technologies. Over 70% of survey interconnectedness of regulators, but social media
respondents are investing 5% or less of their budgets in also makes any allegations of impropriety visible with
digital. By increasing this to around 20%, they could be unprecedented speed. This places risk of fraud hand-
transforming their operations substantially and gain in-hand with the risk to reputation and license to
real competitive advantage. operate.
Improved commodity prices breathe new life into A time of disruption
old risks Societal change, new technologies and the race to
Given stronger commodity prices and a positive outlook transform business models are driving a whole range
on the sector, we have seen a return of risks like rising of disruption for mining and metals companies.
costs, and fraud and labor constraints. Mining and Pressure on technology and automotive companies to
metals companies are flagging that higher input costs secure the supply of New World commodities is
are impacting their bottom lines. In addition, there are opening another avenue of potential disruption to
also increased costs associated with the need to deal current business models. Over 31% of our survey
with the increasing complexity of operations or changes respondents thought that technology companies have
to the way mines operate — be it through investment in the potential to disrupt the sector. We agree. They
license to operate, the rising use of technology or have good access to capital and are already investing
changing skill sets. in the innovation and technology that mining
operations need to be more effective.
Capital allocation to finance digital initiatives (% of respondents)
% capital allocated to finance digital and new technologies
30%
22% 20%
14%
7% 7%
0–1% 2–4% 5% 6–9% 10–12% >15%
Source: EY survey of over 250 global mining and metals participants
4 Top 10 business risks facing mining and metals in 2019–20Our industry needs to
New World commodities
re-define the way we
Fraud
partner with communities,
customers, suppliers and
Disruption
governments. The best way
10
Future of workforce
9
forward is to accept mining is
8
Energy mix
an absolutely necessary and
7 Rising costs
valuable activity but hold all
01
6 Cyber of the industry to account for
5
4 xim
izing portfolio ret
urn
making sure we operate in a
Ma
3
ig
fec
ital ef tiveness
s
responsible way with care for
D
2 License to the environment, our people
operate
1
and society, while remaining
(up from 7) economically viable.
Jean-Sebastien Jacques
License to operate Chief Executive, Rio Tinto1
Is license to operate the disruptor you have missed?
A narrow, legacy focus on license but has also allowed for the amplification Provisioning will become a key issue for
to operate may be the strategy that of these voices through the combination companies and regulators.
puts you out of business. Applying of smaller groups.
How do you manage license to
just the social and environmental • The advancement in technology: With
operate?
lenses, seeing it as a soft issue or the fast pace of progress in technology
and digital capabilities, initiatives, such as The time to more holistically address license
allocating it to one section of the to operate is here. A whole of business
the automation of jobs, will have an
business will directly threaten your impact on stakeholders and the broader approach to license to operate is required,
ability to operate. The stakeholder community. driven from the top down. In the same way
landscape is shifting. There is more • A shift of ownership: New business
as safety, license to operate needs to
information, bigger platforms and models will be sought whereby national or
become part of a mining company’s DNA;
more at stake than ever before. the commitment and contribution to
even community-owned operations could
community, government, employees and
Underestimating the power of each be favored over traditional models.
the environment needs to span beyond
and every single stakeholder would • An increase in the expectation of shared life of mine.
be a mistake. value outcomes: The increase in
nationalization may lead to an We offer seven key takeaways that
The issue of license to operate is now an
expectation that there are true shared organizations should consider to preempt
issue that is broad with far-reaching
value outcomes from mining — society and avoid license to operate risks in
implications, and should be at the top of
sees its role as granting access to the future:
the agenda of CEOs, their executive teams
and boards. resources, and expects more than just tax 1. Think global and act global
and employment opportunities in return.
2. Identify the leading indicators of license
The evolution of license to operate • The mushrooming of disclosure regimes: to operate to pre-empt and avoid an
License to operate will continue to evolve as The disclosure of the impact of any issue — provide a single source of truth —
a number of critical changes are redefining project (positive or negative) is required. what we promised, what we delivered
stakeholders’ expectations, and miners Also, organizations will need to start and how we measured it
need to ensure they are proactively and thinking about how they disclose the
3. Make an objective, detailed assessment
strategically managing this. These include: value being created for local, regional,
of your activities — be purpose-led
national and global communities,
• An increase in societal participation including tax contributions. Investors will 4. Don’t just listen to the loudest voices,
(beyond local communities): The also be relying heavily on such listen to the important voices
expectations of society have increased, disclosures. 5. Empower the business to make decisions
and social media and the internet are now that consider more than just financial
• The founding of governance on an
able to move information quickly, which returns and give them the tools to better
accountability framework: Frameworks
rallies issues-based stakeholder value the broader returns
will measure the financial, environmental
participation en masse.
and social impacts of a project. The 6. Make social development decisions that
• The rise of minority voices: The increase quality and extent of stakeholder deliver lasting outcomes
in societal participation in the sector has engagement will also be measured. 7. Improve the collaboration and branding
not only brought into focus the rights of
• A rise in litigation: There will be more of the sector
groups, such as indigenous communities,
litigation, especially for past damages.
1 “We won’t wake up tomorrow as Microsoft, but how will we pioneer the mining industry into the 21st Century?” Rio Tinto documents, 30 October 2018.
5 Top 10 business risks facing mining and metals in 2019–20 ccelerating automation
A
New World commodities implementation and
Fraud
digital transformation
Disruption
will have a positive
10
Future of workforce
9
Energy mix
impact on costs and
8
7 Rising costs
productivity and on
shareholder support.
02
6 Cyber
5
izing portfolio ret
4 xim urn
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s Director of Innovation,
3 ital ef tiveness
Dig Global mining company
2 Lic en se to
operate
1
(down from 1)
Digital effectiveness
Is riding the digital wave key to wiping out our competition?
Focusing on productivity is a great Exploration Trading
place to start, but alone, it is not • Artificial Intelligence (AI) combined
with geo-mapping software to
• Gold-backed blockchain
• Predictive trend modelling
enough to generate competitive identify previously unknown ore bodies
advantage. Mining operations
• End-to-end analysis of bottlenecks
Maintenance
• Predictive asset health system to detect
and downstream trade impacts asset conditions
Miners have begun to make headway in • Intelligent automation and • Automated planning and scheduling
using digital to improve productivity. There advanced optimization
Mining value chain processing
has been a great deal of success in the • Digital “twin” simulation models
to rapidly identify and rectify
automation of haulage, rail, trucks and process variances
drilling; and also in the use of predictive
analytics to reduce maintenance costs and in doing so begins to approach the levels of Laying the foundations for success
improve equipment availability. Typically, overall equipment effectiveness to what is We recommend an end-to-end program of
these initiatives have been focused on achieved in the manufacturing industry, the overlapping waves of increasing complexity
solving single issues or bottlenecks, and miner can be truly disruptive and emerge as and value. This structured “wave” approach
while they have delivered some value, they the dominant player in the market. can start to integrate different digital
have not been transformative. The stark reality is that digital is the key to initiatives into a more cohesive whole, as
achieving sustainable productivity and margin discussed in our paper on EY’s wave
We believe that real sustainable productivity
improvement, and staying ahead of your approach to digital transformation. Wave 3
gains will be realized only when digital
competition. It is, therefore, not the time to disruption is a key risk to be managed (we
initiatives span the value chain and are truly
stand still in an age of business transformation will discuss how you can protect yourself
transformative. Market leaders have started
that is largely driven by digital. from this risk later in this paper).
to focus on broader initiatives that deliver
margin in a number of ways through
innovative marketing or supply arrangements.
But we are yet to see many truly end-to-end Start with a vision Wave 3
transformative approach being adopted. and develop a road Future
el
map that leverages od
m Wave 2
organizational
s
Start now Pe
Invest to win
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Digital effectiveness is still challenging the readiness
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sector. Miners are challenged with deciding eady started
ea
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Alte
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where to start and securing budget. Also, in
em
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Technolo
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many cases, their organizations’ IT-related
haul
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function owns the digital strategy. Without
Data
+ Value Pre-start Value +
CEO ownership, any transformation will be
y
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purely technological. It will fail to have clear
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associated budget, or proper resourcing. Navigation/progress
would follow
Sh
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Investment in digital solutions could drive a ing
Sup
ply
new wave of productivity and margin
rather than
improvement across the value chain. If a
miner manages to create a digital mine, and
6 Top 10 business risks facing mining and metals in 2019–20It’s key to deliver a
New World commodities
Fraud
balanced approach
Disruption
across shareholder
10
Future of workforce
returns, strong capital
9
8
Energy mix and balance sheet
7 Rising costs management, and
03
sensible allocation to
6 Cyber
5
4
Ma
xim
izing portfolio ret
urn
s value creating growth.
fec
3 ital ef tiveness
Dig
n s
2 Lic e
operate
e to
Finance Director,
1
Global mining company
(down from 2)
Maximizing portfolio returns
Is your strategy planning for the future or creating it?
At the core of corporate strategy is Buy: Acquisitive growth preferred but We expect the level of capital through share
capital allocation. Future returns good buys remain scarce buybacks to reduce as the majority of
will only be competitive in the long Given the risk-reward appetite in the sector divestment processes have now concluded.
However, the overall quantum is likely to
term if the right decisions over right now, there is a preference for capital
to first be invested in brownfield projects fall as a result, and a preference to return
capital are made now. In order to capital, rather than invest, will remain
truly transform portfolios, and that provide scale and optionality to existing
operations. Only once these portfolio a focus.
provide market-leading
opportunities have been funded, are we
shareholder returns, the mining typically seeing an appetite for greenfield Transform (invest): Innovation is the
and metals sector must look across investments or acquisitions. new disruptor
all strands of capital allocation, Historically, capital allocation strategies
With relatively few greenfield projects
which increasingly involves the have focused just on “buy,” “build” and
providing low-risk investment opportunities,
need to invest in transformative there is an increasing desire to consider
“return.” However, given the ongoing
technologies. innovation and transformative technologies
acquisitions. However, finding valuations
available now, should organizations be
that meet seller expectations is proving
investing capital into transforming existing
difficult at this early stage of the investment
operations with technology?
cycle, which is creating some deal inertia for
“the pack” and will require a bold move Those who invest in technology, data
from one or two first movers to kick start analytical capabilities and operational
M&A in earnest. transformation will have an edge over their
competitors. According to our survey
Build: Brownfield projects take most respondents, the majority are investing 5%
of the capital or less of their budgets in digital. How much
While the market is relatively balanced, more could they be transforming their
supply challenges across a few commodities operations if they invested up to 20% of
are just over the horizon as project pipelines their budgets in digital and put capital at
have shrunk significantly, and the projects risk? This could be disruptive to the way
that remain are often underinvested. This is mining and metals organizations operate.
creating a delay in approving new capital Also, it could provide economic return on
investments into early-stage developments, existing reserves that otherwise wouldn’t be
which is putting further pressure on accessible, and ultimately form future
new supply. portfolio growth in a way that historically
could only be achieved through buy or build
Return: New avenues sought strategies.
Strong cash flows and large cash injections Disruption is inevitable and those with
from asset divestments have enabled many thoughtful capital allocation to digital and
companies to initiate share buyback innovation will become the innovative,
programs. This is to take advantage of predictive as well as higher margin-
equity prices that management believes generating mines and metals operations.
to be undervalued and drive down the cost
of capital.
7 Top 10 business risks facing mining and metals in 2019–2054%
New World commodities
Fraud
Disruption
of mining and metals
10
Future of workforce
9
Energy mix
8
Rising costs
companies have had a
7
significant cybersecurity
04
6 Cyber
5
izing portfolio ret
incident in the last year.
4 xim urn
Ma s
fec
3 ital ef tiveness
2
Dig
en se
Source: EY Global Information Security
Lic to
1
operate Survey 2018–19
(down from 3)
Cyber
Is cybersecurity about more than just protection?
Due to the increasing size of the perimeter.” Attacks can be malicious or scenarios. It is then essential to apply a
threat, organizations are spending unintentional; however, the resulting cybersecurity framework to identify the
more on cybersecurity, devoting impacts can be similar, regardless of intent. critical cyber control gaps that need to
These impacts include prolonged and be closed.
additional resources to improving
widespread outages, safety incidents,
their defenses and working harder liability claims and associated legal costs,
Every cybersecurity transformation should
to embed security-by-design. As data clean-up costs, reputational damage,
promote three key principles across culture,
the digital transformation agenda governance and capabilities:
management distraction, and physical
forces organizations to embrace damage to assets. 1. Expect excellence in security
emerging technologies and new fundamentals: Be highly mature at
An innovative cybersecurity strategy
business models — often at pace — based on good risk management
“security basics,” practice good security
cybersecurity needs to be a key hygiene and optimize your current
principles needs to be applied
enabler of growth. information security solution capabilities.
The focus should be on how cybersecurity
2. Establish a strong governance program
All mining and metals organizations are will support and enable enterprise growth.
and a culture of accountability: This
digital by default — in an increasingly The aim should be to integrate and embed
should include adequate progress and
connected world, the digital landscape is security within business processes and build
performance metrics, the development
vast, with every asset owned or used by an a more secure working environment for all.
of a security-savvy culture and a shift in
organization representing another possible To achieve these goals, organizations will
culture to ensure security practices as a
entry point. At the same time, it has never need an innovative cybersecurity strategy
part of people’s everyday responsibilities.
been more difficult for organizations to based on good risk management principles.
understand and secure the digital 3. Build a commitment to continuous
Mining and metals companies need to improvement: Adapt to new
environment in which they operate, or their
understand the business risks, critical requirements based on evolving threats
interactions with it.
assets and scenarios that pose a cyber and trends, regularly assess security
As a result, the attack surface is only risk event. posture to remediate gaps, and
getting larger across physical assets, digital remember that cyber strategy roles and
Effective cybersecurity firstly requires the
infrastructure and business processes; and responsibilities are for everyone in the
organization to conduct a baseline cyber
can even extend to a company’s organization no matter what their roles.
controls maturity assessment. This is
connections with suppliers and customers.
supported by a risk-based approach to
For example, the embedding of internet of
prioritize strategic, long-term cyber
things into equipment by engineering
investment for the top cyber threat
vendors extends and blurs the “network
8 Top 10 business risks facing mining and metals in 2019–20A focus on cash flow
New World commodities
Fraud
and costs will ensure
Disruption
better shareholder
10
Future of workforce
returns.
9
Energy mix
8
Rising costs
VP of Global tax,
7
Global gold company
05
6 Cyber
5
izing portfolio ret
4 xim urn
Ma s
fec
3 ital ef tiveness
Dig
2 Lic en se to
operate
1
(new)
Rising costs
How can you cut costs and still remain competitive?
Cost inputs in the mining and Changing costs of diversified miners (% change)
metals sector are highly 7.51
susceptible to inflationary
pressures. While global inflation is
not expected to rise as rapidly as it
has in previous cycles, there will (1.70)
be a steady increase from around (4.97)
2.7% in 2016 to 3.5% in 2019.2 (9.69)
However, during periods of
higher commodity prices, mining
input costs, such as wages, (22.05)
consumables, diesel and energy,
FY2013 FY2014 FY2015 FY2016 FY2017
often increase at a higher rate
than general inflation. Average % change of BHP, Rio Tinto, Vale and Anglo American
Source: S&P Capital IQ and EY analysis
Upward pressure on wages is particularly
prevalent. In certain areas of Australia, quality ore and manage increased distances How organizations can respond to this:
advertised salaries were up 35% in the first to processing plants, water removal and
nine months of 2018, although this is off a • Focusing on sustainable cost-reduction
other physical constraints that come at an
low base.3 There is also increasing pressure programs
increased cost.
from unions in South Africa and Chile to • Carefully managing general expenses
increase the wages of mine workers. Mining Automation and increased maturity in the
• Sourcing from low-cost countries
and metals organizations have been use of data is proving to have significant
benefits to large mining operations. To be • Reviewing capital tied up in high levels of
flagging that these higher input costs are
able to stay competitive, all organizations pre-stripping, advance development and
already impacting their bottom line.
will need to invest in both automation and stockpiles
In addition to inflation, there have also been data analytics technologies. While these • Considering the use of contract mining
incremental changes to how mines operate may increase efficiency, there are also versus sale or leaseback
that are resulting in rising costs. These other associated costs that need to be • Implementing front- and back-office
changes include increasing complexity of factored in. In particular, the introduction of automation
mines, rising use of technology, a changing a more complex technology and greater
workforce and a rising investment in license • Reviewing supplier contracts
reliability on data will require a different
to operate. skill of your workforce. Recruiting and • Offshoring or outsourcing
The complexity of mining is increasing as retaining this workforce will increase the • Divesting noncore assets
many low-cost mines reach the end of their spend on salaries.
life. Miners need to go deeper for lower
2 Consumer Price index via Oxford Economics as at 9 November 2018.
3 Sam Jacobs, “Soaring wages growth in key mining regions is a bright spot for the Australian economy right now,” Business Insider, 4 September 2018.
9 Top 10 business risks facing mining and metals in 2019–20The pace of change we
New World commodities are witnessing across
Fraud
the energy sector is
Disruption
unprecedented. Choosing
10
9
Future of workforce
the right path toward our
Energy mix
8
Rising costs
energy future will require
7
strong leadership, and
06
6 Cyber
5
izing portfolio ret
above all, a clear vision.
4 xim urn
Ma s
fec
3 ital ef tiveness
Dig
2 Lic en s
operate
e to Benoit Laclau
1
EY Global Energy Leader
(up from 9)
Energy mix
What is the recipe for tomorrow’s energy mix?
Mining and minerals processing To minimize these risks, companies are In our recent blog, Dr. Ali G. Madiseh,
operations are very energy- opting for a mix of energy sources — fossil Canada Research Chair in Advanced Mine
intensive, estimated to be 6.2% of fuels, hydroelectricity and renewable Energy Systems, noted that the ultimate
energy. solution lies in the development of a range
total global energy consumption.4
of novel ultra-efficient energy systems for
In addition, as mines seek to reduce costs
The cost of energy represents up to a third of mining operations, which make them
and greenhouse gases, they will be
a company’s total cost base, making it a greener, less expensive and more
investigating ways to replace diesel-
keenly managed component of operations. sustainable by:
powered equipment with electric ones,
While cost is an important consideration
particularly as battery storage technology • Preventing energy wastes by using
when choosing an appropriate mix of energy
becomes more reliable and affordable. combined heat and power or waste heat
sources, it is only one aspect of a larger
There has been a trend in which new digital recovery systems
strategic decision. Other considerations
mines are seeking to eliminate diesel and • Taking advantage of the renewable
include:
increase the use of electrification on mines, energy sources available on-site such as
• Social and reputational implications of e.g., Borden mine in Canada. This does wind and solar for power and geothermal
choosing energy sources bring a number of benefits including the for heating
• Viability of energy sources, particularly in issues of diesel emissions underground and
remote locations a reduction in ventilation costs. Such solutions will enable the mining
industry to diversify its energy sources,
• Management of the availability of energy The integration of conventional and
reduce its consumption of fossil fuels and
over the entire mine life and the renewable sources is critical to ensure
carbon emissions, and cut costs. This will
counteracting of fuel price volatility reliable and safe power for the mine, with
ultimately create a new generation of mines
people often working underground relying
To date, mining operations have largely that will enhance the industry’s global
on power for lighting and ventilation. If the
relied on fossil fuels to run equipment and competitiveness and long-term
sun stops shining or the wind stops blowing,
electricity for processing. In remote sustainability. It will also allow companies
the conventional sources or energy storage
operations, there is an even greater reliance to build in optionality for future capital
has to cover the shortfall. It is this factor
on diesel power generation. For example, projects so that they can take advantage
that causes some renewable projects to be
the mining sector in Australia derives 41% of future developments and the reduction
put into the “too hard basket” and
of its energy from diesel. in the cost of renewables.
conventional solutions persist.
Energy costs already represent a significant
part of mine operating costs, and as mines
are beginning to extend to depths beyond
current norms, their energy demand is
growing even larger.
4 KBR Consulting, “Fuelling the future of mining,” via https://www.raconteur.net/sponsored/fuelling-future-mining, accessed on 27 October 2018.
10 Top 10 business risks facing mining and metals in 2019–20With digital enablement,
New World commodities
Fraud
it attracts increased
Disruption
technological skill
10
Future of workforce
and specialization
9
8
Energy mix among employees and
7 Rising costs opportunity for business
07
disruption. A board
6 Cyber
5
4
Ma
xim
izing portfolio ret
urn
s member asked: ‘Are we
fec
ital ef tiveness
in mining or IT?’
3
Dig
2 Lic en se to
operate
1
Anonymous respondent of
(new)
EY Business risks survey
2019–20
Future of workforce
How will mining tap into its next great resource?
Within the mining and metals • Changing social and demographic forces changed in the future. It is also important to
sector, the talent management Attracting younger talent, particularly in maintain the critical skills that are typically
practices often still mirror the light of the changing skill sets required, is found in the older workforce.
commodity price cycle: miners hire a challenge. The sector is not in vogue What the sector needs is an agile, resilient
rapidly in upswing and shed excess with the more conscious younger people, and affordable workforce that is capable of
particularly in a contemporary social
resources in a downturn. As a thriving in an environment of ongoing
media-informed world. There are fewer commodity price volatility and digital
result, many of the workers laid off people moving into secondary education transformation of the sector. Companies
during the downturn in commodity in mining, and building the workforce of need to take a short-, medium- and
prices moved to other sectors and the future is challenging. long-term view of requirements, and
never came back, taking invaluable invest accordingly.
At the same time, retaining the older
knowledge and experience with
talent also poses an ongoing risk to Some considerations for creating a
them. Also, there are other leadership. Insufficient attention has workforce of the future:
inexorable trends that continue to been given to understanding how an
reshape talent and labor supply in ageing workforce will impact the sector, • Think about the future now — create a
the sector, some of which are and needs to be countered with strategic workforce strategy to guide
discussed below: innovative retention and succession through how you attract and grow
planning efforts. required capabilities, while re-skilling the
• Changing technology existing workforce with skill sets that will
Disruptive technology is changing the • Global talent markets not be required in the same way 5 to 10
skills mix required. However, there is a While the majority of a company’s years from now
limited pool of people with these skill sets workforce will be sourced locally, • Build a brand or purpose
such as data science, analytics, predictive globalization adds real complexity to how
• Seek alternative sourcing mechanisms
modeling and mechatronic skills. Mining companies attract leaders and technical
across short, medium and long terms
and metals companies are currently not talent. Globalization has meant access to
able to compete with other sectors for a wider global talent pool, and has also • Challenge conventional resourcing and
this talent. Some of this lack of resulted in increased competition for development strategies — for instance, it
competitiveness relates to the need for talent on a global stage. may be easier to source planning
companies to have a better narrative capabilities from outside the industry
around their purpose, which will build Building the workforce of the future including those from a manufacturing or
employer brand and attract a millennial analytics background
Mining and metals companies need to
workforce. ensure they have a strategic workforce • Utilize a flexible resourcing model that
strategy that enables them to attract the provides mechanisms to balance
Organizations need to take advantage of
required capabilities for new ways of workforce supply and demand, retain
the existing workforces’ desire to re-skill.
working, while at the same time re-skill ageing employees, and attract top talent
This will also enable some of the change
management required to make digital those skill sets that will be redundant or
transformation work.
11 Top 10 business risks facing mining and metals in 2019–20We are now in an era
New World commodities of constant disruption,
Fraud
and it is coming from
Disruption
unexpected places.
10
9
Future of workforce
Instead of seeing it as
Energy mix
8
Rising costs
a threat, you should
7
see it as a great
08
6 Cyber
5
4 xim
izing portfolio ret
urn
opportunity to innovate,
Ma
3
Dig
fec
ital ef tiveness
s
evolve and thrive.
2 Lic en se to
operate
1
Paul Mitchell
(new) EY Global Mining & Metals
Advisory Leader
Disruption
Unwelcome disruption or transformational opportunity?
Many consider disruption as being Major disruptors of the mining sector
sector-wide, but disruption has
31% 23% 23% 20%
already begun at the value chain
level within the sector:
Technology Miners Sovereign Traders
• Job disruption: Automation is in the
providers states
process of creating job disruption both
Source: An EY global survey of 336 mining and metals executives.
within the back office (through robotic
process automation) and in operations
(through autonomous vehicles), but the changes, and an environment is created Sovereign states have the capital to
next types of jobs to be disrupted will be that is attractive to new participants. become major stakeholders in the sector to
those that schedule and plan work. secure supply for national industries and
Breaking from tradition: The miners of protect jobs. We may also see major
• Customer disruption: This is already the future sovereign wealth funds investing in the
occurring in some commodities. For sector such as Saudi and Norway.
instance, Morgan Stanley predicts that In a recent webcast, we polled executives on
15% of gem quality diamonds will be their view of where disruption would come Traders are once again cashed up and
synthetic diamonds by 2020.5 from; and it is largely in line with our views: looking for opportunities. In the past, this
group has taken an interest (full or partial)
• Asset disruption: Automation and Technology companies may take the
in operations to shore up the supply of key
electrification will disrupt assets. decision to become direct or indirect
commodities (e.g., the JV investments in
Electrification of mines is starting to climb investors as a way of shoring up supply. For
Australia). We would anticipate that this
the agenda of CEOs and COOs as a driver example, with limited global cobalt and
group will emerge as a more prominent
of cost reduction, energy efficiency and lithium supply, we could see companies
player in the sector again.
license to operate stewardship. New mines adjusting their investment models to ensure
are being built as “digital mines,” which that they can continue to produce phones.
will create a new wave of assets as these
become commonly adopted. So how can mining and metals companies respond to this risk?
• Economic disruption: This will occur
through regulatory and macroeconomic Think differently about Should the traditional capital agenda of “Buy — Build —
changes such as mining code and capital Return” change
government changes.
Invest heavily in digital and Drive productivity and margin improvement through
Who could create sector-wide innovation digital and innovation
disruption?
Accelerate the disruption Look for new opportunities — ventures?
Broader sector disruption is inevitable. The
process Consider collaboration
question is, “from who?” While we don’t
think there will be an Uber-equivalent in the
Broaden license to operate Strengthen relationships with sovereign stakeholders
mining sector, market leadership could be
to influence and prepare for regulatory change
lost as dominant players respond slowly, or
ineffectively, to sector and external
5 Sue Lannin, “De Beers to launch synthetic diamond jewellery in United States to shake up gemstone market,” ABC News, 4 July 2018.
12 Top 10 business risks facing mining and metals in 2019–2038%
New World commodities
Fraud
Disruption
10
Future of workforce of respondents stated
9
8
Energy mix
bribery or corrupt
Rising costs
practices occur widely
7
09
6 Cyber
5
4 xim
izing portfolio ret
urn
in business in their
Ma
country and 13% would
s
fec
3 ital ef tiveness
Dig
2 en se
justify a cash payment
Lic to
operate
1
(new) to win a contract.
EY Global Fraud Survey 2018
Fraud
Does fraud only become an issue when it’s exposed?
Fraud and corruption have Increasing use of technology maturity in their compliance programs, with
re-emerged as a significant the majority of executives interviewed in the
Mining and metals companies are
risk for many mining and metals EY 15th Global Fraud Survey aware of
increasingly using digital technology to
anti-corruption policies, procedures and
companies. We don’t believe this change the way they do business, which is
intent from management. Advances in the
is a result of more fraud and heightening their exposure to fraud,
predictive capabilities of “big data” mean
corruption taking place, it is just corruption and other risks. Increased global
that analytics has advanced from a
that the capacity to identify it has connectivity means that anyone with access
detective tool and can now be used to make
become more sophisticated. In to company data, anywhere in the world,
real-time assessments, helping identify and
can exploit weaknesses in data security.
addition, social media has made prevent fraud, and providing management
Organizations’ critical digital and physical
globally visible any allegations of assets are therefore at greater risk of theft,
with more effective oversight. Leading
impropriety with unprecedented companies are using AI technology to
damage and manipulation than ever before.
speed, regardless of whether or not replace classroom and web-based training
with individualized risk-based
the allegations are founded. This Increasing fraud and corruption risks
communications in real time.
places risk of fraud hand-in-hand as activity increases
with the risk to reputation and Higher commodity prices and rising cash
Mining and metals companies face the
licence to operate. challenge of influencing the behavior of
flows have led to the restart of exploration
diverse, dispersed employees and third
programs and progressions with brownfield
parties amidst intense competitive
mining projects. A key gap identified during
pressures and increased regulation. With
the last boom was the lack of active
this pace of change, management and
management and monitoring of contracts.
compliance functions need to evolve how
Organizations spend billions per year on
they work to identify new fraud and
contracts to deliver capital projects and
compliance risks. The EY 15th Global Fraud
maintain operations. This expenditure often
Survey results suggest that the benefits of
involves multiple contractors, some of
demonstrating organizational integrity go
which may be managed by third parties. In
beyond the avoidance of penalties and can
our experience, between 1% and 2% of
actually improve business performance.
capital project expenditure is contractually
This makes sense: doing the wrong thing is
noncompliant or misallocated, with an
a lost opportunity to do the right thing.
average of 8% that can be identified across
recurrent operational expenditure.
How are companies responding?
The effects of fraud and corruption are
far-reaching, and can seriously impact a
company’s reputation and social license to
operate and, in turn, shareholder value.
Many businesses have reached a level of
13 Top 10 business risks facing mining and metals in 2019–20EVs will underpin the
New World commodities growth of alternative
Fraud
metals and demand for
Disruption
copper.
10
Future of workforce
9
Energy mix Executive Director of M&A,
8
7 Rising costs Global banking and financial
10
6 Cyber services company
5
izing portfolio ret
4 xim urn
Ma s
fec
3 ital ef tiveness
Dig
2 License to
operate
1
(down from 4)
New World commodities
Urbanization and rising demand for For example, the rise of electric vehicles has prosperity. Chinese state-owned enterprises
infrastructure, such as buildings, boosted demand for critical minerals such are also already taking a significant
roads and railways, have been key as cobalt, lithium and copper. On the other proportion of the lithium-ion battery supply
hand, an increasing focus on recycling, as chain by purchasing and funding lithium
drivers of demand for Old World
companies seek to become more and cobalt mines as well as downstream
commodities. More recently, sustainable, is likely to result in reduced processing. In addition, downstream
however, technological disruption demand for certain commodities. For sectors, such as technology and
and the ongoing transformation of example, it is estimated that 20% of cobalt automotive, are exploring how they
downstream sectors, within an demand may be met by battery recycling by might secure supply.
increasingly ”green” economy, 20256. In addition, this shift to recycling is
Planning and expanding your horizon
have resulted in a change in likely to impact iron ore demand as steel
commodity demand. companies, particularly in China, increase The mining and metals companies that will
their use of electric arc furnaces, resulting be the winners in the future will ultimately be
in higher demand for scrap steel. those who have collaborated with many
sectors and captured value across the chain.
Understanding the impact of these changes
Some miners are either using VC firms or
on miners’ portfolios, and keeping a balance
setting up specialist internal teams to
between New and Old World commodities
identify more specialized mining prospects
has become a complex task in such a rapidly
as they seek to capture value beyond their
changing environment.
core portfolios. Rio Tinto Ventures, for
example, is assessing new opportunities
Competing for the next wave of
based on key new technologies that will
demand
influence future metal demand.
Competition for New World commodities is
Portfolio optimization is critical. Miners need
only going to increase as they become
to understand the interaction among various
central to the production of an ever-growing
parts of their portfolio to enable decisions on
variety of high tech and green technologies,
investment, divestment and rationalization
from batteries, smart phones and laptops to
to enhance value of the entire portfolio.
advanced defense systems. And it’s not just
Decisions around where to invest and
mining and metals companies seeking to
allocate capital will need to be taken long in
secure new projects.
advance. Miners will, therefore, need to
Countries and regions, such as the EU, adopt a level of flexibility in their business
South Korea, Japan and the US, are models to be agile to change and regularly
deeming some minerals as ”critical” to review their portfolios, considering all future
ensure they are available for their future growth assets — new and old.
6 “Future of Mobility and Battery Service,” EY analysis, September 2018.
14 Top 10 business risks facing mining and metals in 2019–2015 Top 10 business risks facing mining and metals in 2019–20
How EY’s Global Mining & Metals Network can EY | Assurance | Tax | Transactions | Advisory
help your business About EY
EY is a global leader in assurance, tax, transaction and advisory
The mining and metals (M&M) sector is returning to growth, but
services. The insights and quality services we deliver help build trust
companies face a transformed competitive and operating landscape.
and confidence in the capital markets and in economies the world over.
The need to improve shareholder returns will drive bold strategies to We develop outstanding leaders who team to deliver on our promises
accelerate productivity, improve margins and better allocate capital to all of our stakeholders. In so doing, we play a critical role in building
to achieve long-term growth. Digital innovation will be a key tool, but a better working world for our people, for our clients and for our
the industry must overcome a poor track record of technology communities.
implementations. If M&M companies are to survive and thrive in a EY refers to the global organization, and may refer to one or more, of
new energy world, they must embrace digital to optimize productivity the member firms of Ernst & Young Global Limited, each of which is
from market to mine. a separate legal entity. Ernst & Young Global Limited, a UK company
limited by guarantee, does not provide services to clients. For more
EY teams take a whole-of-value-chain approach to help you to seize information about our organization, please visit ey.com.
the potential of digital to fast-track productivity, balance portfolios
and set a clear road map for the new energy future. The views of the third parties set out in this publication are not
necessarily the views of the global EY organization or its member firms.
Moreover, they should be seen in the context of the time they were made.
Area contacts
EY Global Mining & India © 2018 EYGM Limited.
All Rights Reserved.
Metals Leader Anjani Agrawal
Miguel Zweig +91 22 6192 0150 EYG no. 012357-18Gbl
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