Global accounting firm EY says “disruption” is fast redefining perceptions of challenges and growth opportunities in the mining and metals space. Its annual sector review of risks and opportunities suggests stakeholder expectations around environment and social issues are “increasingly significant forces of change” in the industry.
EY says it surveyed more than 200 global mining and metals executives, mostly C-suite representatives, between June and September this year to identify top industry risks and opportunities for the year ahead.
Global mining and metals leader, Paul Mitchell writes that, for the first time in the firm’s annual report on the sector, environment and social issues were ranked by industry respondents as their number one risk.
“Decarbonisation” came in second, then licence to operate (LTO), which was in top position for the past three years.
“Decarbonisation is a major disrupter, dominating discussions and presenting both risks and opportunities,” Mitchell writes.
“Two new entrants to the ranking – uncertain demand and new business models – highlight the ongoing volatility in a market still impacted by the COVID-19 pandemic. Still, we see more opportunities than risks for miners willing to make the transformational changes that can drive long-term value for organisations and the communities they serve.
“As environmental, social and governance [ESG] factors become a bigger priority for investors, shareholders and a broader group of stakeholders, miners are doing more to integrate ESG into corporate strategies, decision-making and stakeholder reporting. Stakeholder pressure over issues such as biodiversity and water management are likely to intensify, requiring miners to progressively plan for mine closures and better manage the water-energy nexus to satisfy expectations.
“Companies are also under increasing pressure to take more responsibility for their impact on communities, and go beyond their regulatory obligations. Miners that help drive the long-term, sustainable economic and social growth of the regions in which they operate can leave a positive legacy beyond life of mine.”
According to Mitchell, building a “flexible path” to decarbonisation, which includes scenario modelling and reviewing funding, technology and assets, can help companies achieve net zero and differentiate.
“With investors and governments moving away from investment in thermal coal, and carbon pricing set to increase, miners must treat decarbonisation like any other strategic risk.
“While many companies have made progress in abating Scope 1 and 2 emissions, now is the time to focus on Scope 3. Those that can control these emissions can create genuine value and long-term sustainability.
“Creating long-term value for all stakeholders can secure mining’s future.”
Mitchell says with LTO evolving fast as expectations change around mining’s contribution to communities, economies, protection of heritage sites and engagement with indigenous and first nations people, and being increasingly linked to an organisation’s ability to access resources, capital and debt, a proactive approach to these challenges is critical.
“Broader consultation with traditional owners, a sharper focus on strengthening brand, and a commitment to driving value for both shareholders and communities, can help companies build a stronger LTO. Over 40% of our survey respondents say that community engagement will be the focus of investor scrutiny of mining and metals in 2022.”
Geopolitics, capital availability, uncertain commodity demand and substitution risks, digital and innovation, workforce, new business models and productivity/costs round out the top-10 list of risks/opportunities for mining and metals companies.
Mitchell writes: “Miners face a talent crisis as border closures and an unappealing brand make it difficult to find the right skills for a changing industry. Competing in a tight market requires miners to build a workplace that appeals to more diverse workers. Improving cultural safety on-site must be a priority, and miners should continue the mental health programs that began as a result of the COVID-19 pandemic. Diversity and inclusion are now firmly on investors’ agendas and must be a board-level directive in mining and metals companies.
“Productivity initiatives centred around people and enabled by technology can help miners achieve sustainable, end-to-end improvements without having a negative impact on LTO.”