• The pandemic brings dynamic shifts in risk rankings
• Increased geopolitical risks are likely to impact operations in key mining regions
• Growing stakeholder focus on environment and climate can create new opportunities
Global mining executives rank license to operate (LTO), high- impact risks, productivity and rising costs as the top three risks facing their business over the next 12 months, according to the Global mining and metals Top 10 Business Risks and Opportunities - 2021. The survey of more than 250 global mining executives’ shortlists the biggest risks shaping the industry, and the reshuffled rank reflect how the pressure COVID-19 pandemic has unexpectedly disrupted commodity demand and prices and prioritized different risks. License to operate, disruption, environment and geopolitical risks are all becoming more prominent as social responsibility and broader stakeholder demands intensify during the current COVID-19 pandemic.
The study 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 beyond the financials.
Wickus Botha, EY Africa Energy & Natural Resources Leader, says:
“The South African and African industry as a whole, has dealt with the impact of the COVID-19 pandemic relatively well, leading a prompt and effective response that allowed some mines to continue operating as they were classified as essential services, although with less people on-site. However, maintaining business continuity has come at a cost, with mines facing added expenses relating to new procedures and protocols, the introduction of health testing equipment and ensuring that the workforce is supported appropriately. At the same time, the pandemic has heightened stakeholder expectations around how miners prepare for, manage and monitor all high-impact risk exposures.”
Of course, the overall impact of the pandemic varies across the sector. Each commodity has been affected differently depending on current and future demand, stockpiles and the virus’s impact on supply. Gold will remain in demand as a safe haven for investors both sovereign wealth funds and individuals, however, consumer demand is likely to continue to decline in the short term.
Godknows Njowa, EY Natural Resources Partner, added:
"In Africa the COVID-19 pandemic, has re-emphasized that a mining operation is an extension of the community in which it operates. This was evidenced by how mining companies and communities corroborated to fight against the pandemic and little production was lost. Maintaining the licence to operate will ultimately become a differentiating factor for mining companies and be part of their competitive advantage."
He noted that it was difficult to predict how COVID-19 will disrupt mining in Africa, but what is certain is that the mining industry must reconfigure and reorganize itself to operate under a new normal - one in which it can operate and sustain itself under the new constraints and challenges that such pandemics bring over and above the difficulty and complexity of operating mines.
The South African platinum group metals (PGM) industry’s leading producers still managed to post record results in 2020. However, as tempting as it is to attribute this performance to a fortunate confluence of strong prices and a weak exchange rate, there is a far deeper resilience being built by the most important stakeholders, driven by multi-faceted strategies and significant investment. For instance, there is an intense focus on hydrogen powered platinum fuel cells – and the intellectual property supporting them – to ensure that PGMs continue to play a significant role in the future of vehicle production.
Signs that digital confidence is growing
This year’s survey saw previously prominent issues – including the future of the workforce and digital and data optimization – fall in the risk ranking (to seventh and ninth respectively).
Botha says: “The lower ranking of issues like digital and data optimization indicates that miners are now more confident in managing these risks. For many, they are considered business as usual, and for others they represent a key opportunity, such as rethinking operating models and management systems, using technology and data to improve scenario planning and rapidly model new operating scenarios (e.g., change in plans due to disruption, shutdown planning)”.
Greater focus on environment and climate can create new opportunities
The study states that while leading companies are laying out their plans to decarbonize operations, for many in the industry, slow or inadequate progress may threaten their ability to access capital in an increasingly tight market. Increased stakeholder scrutiny of corporate behaviour seen during COVID-19 pandemic is likely to continue post-pandemic, with significant implications for how mining and metals companies manage issues surrounding environmental, social and governance (ESG).
Botha says: “In a recent EY investor survey, 67% of respondents said that insights from a company’s taskforce on climate-related financial disclosures would play a significant role in their allocation of capital. Companies that strengthen their focus on ESG now can gain a competitive edge in the fight for capital, while transforming their industry for the better.”
Opportunity to accelerate innovation
Innovation features regularly among the top ten risks and opportunities and was placed tenth in this year’s ranking. The study states that companies can broaden the scope and increase the effectiveness of their innovation agenda by building on the rapid pivot response that the industry has already adopted to address the impact of COVID-19.
Botha says: “The industry response to COVID-19 is acting as a catalyst to apply more creative, agile solutions to long-standing challenges around health and safety, the cost of energy and engagement with local communities. There is a huge opportunity to remove complexity, overcome historical obstacles to change, and accelerate a transformation agenda that will create long-term value for individual companies, the entire industry and communities. Now companies have the opportunity to reflect upon changes and focus on retaining the capabilities that enable agility and preparedness for future events.”
Notes to Editors
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