"The ranking of the top ten risks and opportunities in the mining and metal industry in this period reflects the competitive priorities faced by mining enterprises in a rapidly changing world."
Environmental, social and corporate governance (ESG) remains the top agenda of enterprises in the mining and metals industry, but business leaders also need to focus on geopolitical uncertainties, costs and supply chains.
Report summary:
? ESG is still the primary risk and opportunity, but with the impact of global conflict and uncertainty, the geopolitical ranking has soared to the second place.
? Due to the impact of inflation, the ranking of cost and productivity has jumped from tenth to fifth. Mining enterprises need to explore new ways to manage costs and release value.
? When solving various factors that cause supply chain disruption, enterprises feel pressure, and the supply chain has become a new risk among the top ten risks.
How can mining and metal enterprises cope with such challenges as rising costs and supply chain disruption when they are moving towards a purposeful, low-carbon and digital transformation?
The ranking of the top ten risks and opportunities in the mining and metal industry in this period reflects the competitive priorities faced by mining enterprises in a rapidly changing world. ESG is still the primary challenge, but its scope and complexity are expanding and increasing. At the same time, global conflicts and resource nationalism have led to the rise of geopolitical ranking, which requires mining enterprises to further understand the impact of geopolitics on strategy.
The approach set by mining enterprises to achieve net zero emissions shows that all sectors of the world are concerned about climate change. However, if you want to achieve the goal, you need to develop a practical and balanced strategy.
The supply chain was listed for the first time this year. The interruption of global trade has hit the industry particularly hard. In 2023, mining enterprises will withstand the pressure and follow the progress before the COVID-19 to rapidly promote the transformation of supply chain.
As we move towards 2023, the mining and metals industry is making a more fundamental shift in its business and operating model. The new business model is expected to reposition mining enterprises in the uncertain future. Many companies are considering the benefits of rationalization, growth and transformation strategies. With changes in demand and expectations, companies that carefully review and transform their business models can now stand out from their competitors.
Trend 1: Environment, society and corporate governance
ESG has now become an essential part of the strategy, its scope is increasingly broad, and the pressure to improve the transparency of reporting is increasing. ESG is still the first risk and opportunity faced by mining and metal enterprises in 2023. As the impact of this problem on operations is almost everywhere, it has been firmly integrated into the enterprise strategy.
The major areas that ESG needs to improve most have become commonplace. Improving diversity, fairness and inclusiveness is still a major challenge, while the closure and recovery of mining areas need a more long-term and strategic perspective.
However, with the continuous evolution of ESG issues, mining enterprises need to combine different issues and broaden their own capabilities to achieve efficient management. For example, in the face of changing climate, water resource management and biodiversity are rapidly becoming urgent priorities. Stakeholders hope that mining enterprises can better assess risks and opportunities, and make relevant statements through transparency, results based measurement and reasonable assurance. In fact, if the company aims to meet the increasing expectations of stakeholders and avoid being accused of "greenwashing", it will be crucial to issue more strict reports. If mining enterprises can achieve this, they can have competitive advantages in obtaining capital to ensure business license and attracting talents.
Trend 2: Geopolitics
Global conflicts and trade tensions highlight the opportunity to strengthen relations.
As mining enterprises realized the impact of the war in Ukraine, as well as the tension in Sino US relations and the rise of resource nationalism, the geopolitical ranking was improved. At present, geopolitical risks should be included in broader strategic planning, and the attribution of such risks should be clarified within the organization.
As many geopolitical factors are beyond the control of mining and metal industry enterprises, it is difficult to reduce this risk. Further strengthening close ties with the government, strengthening collaboration with stakeholders, including trade and industry groups, and exploring the possibility of government incentives and joint investment are expected to usher in the greatest turnaround.
Trend 3: Climate change
Although the mining enterprises have set a path to achieve net zero emissions, if they want to achieve the goal, they will need to develop a practical and balanced strategy.
Accelerating the decarbonization agenda and paying more attention to emission reports add urgency to further reduce the risk of climate change.
Mining and metal industry enterprises are getting better at coping with this challenge, but there is still room for improvement. For example, only a few mining enterprises have taken measures to minimize the natural risks of climate change (such as wildfires and floods) that may threaten their businesses.
More and more mining enterprises set net zero emission targets, but the way to achieve these targets is sometimes unclear. Some companies seek a variety of options, including carbon compensation, establish cooperation in the upstream and downstream of the value chain, and cooperate with suppliers and sellers to monitor the carbon emissions in Scope 3, so as to establish a positive strategy to deal with the possible increasingly complex risks.
Trend 4: Business license
Linking brands with long-term impact helps to obtain business licenses.
The issue of business license is becoming increasingly complex, disorganized and difficult to clarify.
Mining enterprises meet higher expectations. For example, long-term challenges such as promoting local livability, protecting cultural heritage, and strengthening the trust of indigenous people need more cooperation. All organizations should not be rigidly bound by their obligations under the law, face reality and promote reconciliation.
Finally, mining enterprises need to reshape business license around long-term value creation, and link the brand with the positive impact.
Trend 5: Productivity and cost
Modeling and digital twin management costs can help mining enterprises achieve sustainable savings.
Inflation and soaring talent costs have led to a significant increase in mining costs, hindered productivity and delayed expansion plans. However, at present, the focus on cost management and productivity seems to be getting results. In our survey, only about 20% of respondents will experience a decline in asset or labor productivity in 2022.
Costs seem to be on the rise, and more innovative methods to manage potential change risks (including improved modeling and digital twins) can improve productivity in a real sense. Management costs should take into account both long-term value and short-term benefits. Sustainable cost reduction measures include switching to renewable energy, encouraging innovation to reduce long-term costs, and establishing strategic joint ventures to optimize economies of scale.
Trend 6: Supply Chain
Due to the recent supply chain disruption, accelerating the supply chain transformation has become a new critical task.
Under various pressures, supply chain disruption was included in the ranking for the first time this year, but this is a problem that mining and metal industry enterprises have been trying to solve for a long time. Now, enterprises are stepping up their supply chain transformation to better cope with the current changing situation and seek new opportunities to improve efficiency, resilience and transparency.
Mining enterprises are considering adopting more innovative and advanced methods to reduce supply chain risks, including strengthening supplier relationships and signing collaborative contracts. The COVID-19 has exposed defects in the "just in time production" model. As mining enterprises gradually find a way to achieve the balance between supply chain resilience and cost, we predict that there will be a supply strategy that combines the "guaranteed production" model with the "just in time production" model.
Trend 7: Labor
Establishing a targeted enterprise brand and improving the training of new skills will help enterprises solve the problem of talent shortage.
After the upsurge of retirement and resignation of a large number of employees, mining and metal enterprises are facing the most serious talent shortage in history. In the process of selecting talents to replace these former employees and recruiting talents with key skills, the mining industry needs to thoroughly reflect on its methods of attracting, retaining and cultivating talents. The image of the mining industry scares off younger workers. Mining enterprises must increase their efforts to establish a brand that conforms to today's values and has clear goals.
Ernst&Young's survey found that industry leaders have recognized the need to train employees in new skills and improve their skills, but few enterprises have seized this opportunity. Improve the training of existing employees and industry newcomers in different skills, so as to fill the talent gap and create a more flexible and agile workforce.
Trend 8: Capital
Changing demand and investor expectations are changing capital allocation strategies.
Mining enterprises are still focusing on capital constraints, but they are also exploring how to invest in development and transformation. The energy transition is changing demand. In response, mining enterprises also began to invest in more "future oriented" commodities (including copper and lithium), reducing investment in coal assets.
The original intention of making such decisions is not only to adapt to the changing market, but also to meet the expectations of investors on ESG performance. The ability of enterprises to show how to create value above profits increasingly affects the difficulty of obtaining capital.
Trend 9: Digitalization and innovation
Data capability investment will guide enterprises to make faster and better decisions.
As mining enterprises have gradually built confidence and ability in the field of digital innovation, the ranking of this project has declined. Mining enterprises have gained a lot in terms of cost, productivity and safety due to the implementation of a number of new technologies, including unmanned aerial vehicles, remote operation centers and autonomous freight trucks.
Although encouraging progress has been made, we still see that the application of digital and innovative technologies in the whole industry is largely isolated. The adoption of an application strategy covering the entire value chain will improve the return on investment and help mining enterprises better cope with the most complex challenges, including ESG and production capacity.
Trend 10: New business model
Rationalization, growth and transformation - mining enterprises are exploring potential future strategies to obtain value.
The demand for specific commodities is growing, and sustainability has become a greater focus of the industry. Mining companies should now rethink their operating models. Mining enterprises are analyzing the areas where the optimal value can be found, and designing the operation mode to obtain the value. Whether an enterprise decides to restructure its restructuring, development and transformation model or considers strategic integration of the three, those enterprises that take action at the moment to make their operations stand the test of the future will be most able to withstand interference, control the growing business relationship, and ultimately win the competitive advantage.
