If stability really is the “most precious commodity” for mining companies to plan, invest and grow, as mentioned in the latest KPMG industry outlook report, miners really are going to find themselves between a rock and a hard place over the next few years.
With a reported 72% of the 300 or so mining and service companies that responded to the accounting firm’s early 2022 survey of industry views on top business risks saying they expect “disruption” on the environment, social and governance (ESG) front between now and 2025, it is more than a little disconcerting to learn that more than half of them don’t yet know what “good” ESG compliance looks like.
Many of the rest might be guessing given that key “ESG reporting standards and requirements are actively being developed by various bodies and should be finalised in the coming years”.
“One problem the industry is grappling with is that the rules and requirements that will emerge are not yet clear,” the KPMG report says.
“And instead of coming more into focus over time, our survey shows that, in fact, executives believe the situation has become less clear. Over half [55%] of executives disagreed or strongly disagreed that investor expectations and measures are clearly understood and consistent across the market. A year ago, that figure stood at 40%.”
The firm’s global head of mining, Trevor Hart said mining companies, not unlike operators in other industries, “like clarity and certainty”.
“So they are wrestling with the question of how they should report to the market about their ESG progress when it’s not really clear yet what good looks like,” Hart said.
The report also highlighted increasing conviction among miners about the potential for technology and innovation to mitigate environmental impacts, and improve safety and recruitment performance – “nearly half of executives [46%] believe that technological innovation will be a source of major disruption in the industry over the coming three years” – however, numerous industry statements and reports have underlined the inherent difficulties miners face retrofitting new technologies into existing operations and incorporating significant technological shifts into today’s mine blueprints.
A report this month from the Global Mining Guidelines Group (GMG) – backed by many of the world’s largest mining and mining supply companies – on strategy workshops held in January and February this year, said: “Mining is not typically an agile industry, and different players are advancing at different speeds, resulting in a self-perpetuating technology gap. Many operators identified that they need the basics first before adopting advanced solutions and technologies.”
None of this is conducive to large-scale, rapid response from a globalised but still niche supply base.
“An evolving regulatory environment and regional differences add a layer of difficulty to adopting new technologies and establishing common practices,” the GMG report said.
Many of the efficiency, decarbonisation and water and footprint-reduction technologies being put forward as game-changers for the mining industry are not yet commercially proven or available on the same scale as incumbent processes and products.
KPMG Australia’s Nick Harridge of KPMG Australia is optimistic.
“Social and investor expectations towards ESG are pushing miners to invest in innovative ways and adapt at a faster pace,” he says. “We expect the opportunity to commercialise new technologies will continue to fuel more innovation and investment, further increasing the pace of change. This is an exciting time for the mining industry.”
Still, KPMG’s Hart said while the COVID pandemic had “disappeared from the top 10” risk concerns of miners and service companies surveyed this year, “the pandemic has certainly left its legacy”.
“Supply chain issues have become more prominent. Political instability, nationalisation and the global trade conflict threat have all become front-line factors too.
“Inflation hovers as a new concern, just on the fringes of the top 10. Certainly, supply chain issues — the eighth top risk — have been driving a rise in the cost of materials and supplies, while economies globally are beginning to wrestle with inflationary pressures. In our view, energy costs for businesses are rocketing and there is also upward pressure on wages.
“Over half [54% of those surveyed] of executives agree that some consolidation is needed in the industry to manage costs. Rising inflation will only add to this.
“[And] … nearly two-thirds of respondents [62%] agree or strongly agree that companies need to embrace new business models, such as strategic partnerships, private equity and public-private partnerships.
“There are signs that a combination of funding factors and the increasing ESG-related scrutiny, reporting and regulatory requirements placed on public companies is leading more mining businesses to contemplate alternative models.”
In terms of the factors feeding flux in the market at a time when miners are contemplating the right commodity mix to take them into the future, the scale, and level of technological advancement, of new developments and the appetite of investors for certain types of geopolitical risk, KPMG says 2022 has already underlined “how quickly political scenarios and risk landscapes can change in real time” and that coveted stability to underpin new planning and investment might be becoming rarer “in today’s fractured world”.
“We believe more time, money and effort will have to be invested by mining company boards and strategy teams to help navigate political minefields,” it says.
Surprisingly, the “talent crisis” is a new entrant in KPMG’s latest risk list. It describes it as an “increasingly live issue” for the industry.
“It’s an issue that confronts almost every player in the industry,” it says.
“There is a sentiment that the industry needs a new wave of talent to fulfil a range of specialised and/or technology-centric roles. These needs are only getting broader: data analysts, computer scientists, environmental scientists, heritage experts, water management specialists, and more.
“To a degree, this is an area where key issues join up. Pursuing successful ESG strategies that decarbonise the sector highlights a progressive move to renewable energy and technology transformation, and emphasises positive community impacts, which can help the industry attract more of the talent it needs.”