Faced with rising costs, falling commodity prices and other challenges in these volatile times, mining companies should avoid the urge to retreat and play it safe, says a new Deloitte report.
"For the second year in a row, mounting costs tops the list of the key issues affecting the mining industry," says Glenn Ives, Americas mining leader at Deloitte Canada.
"This is expected to worsen in the short term as commodity prices continue to dip, workers demand higher wages and regulatory costs rise. But rather than halting production in the face of shareholder demands for more immediate returns, miners should be making investments today to meet the expected long-term demand for commodities."
The report, Tracking the Trends 2013, lists the top 10 challenges for the mining sector in 2013:
1. Higher costs
Currency volatility, high operating costs and lower grades are influencing strategic decisions regarding production, expansions and the delinking of corporate equity from commodity prices. For better cost-control, companies need to pinpoint their cost drivers, automate, improve asset efficiency with more analytics and streamline the supply chain.
2. Demand uncertainty
Flagging demand from China is hurting commodity prices and having an impact on investment decisions. Mining companies should think twice before halting production and risking an inability to meet future demand, and consider applying game theory to scenario planning as a guide to capital project decisions.
3. Capital project deceleration
Companies should focus on making disciplined investment decisions rather than caving in to pressure to pay shareholder dividends or automatically freezing projects.
4. Increased M&A volumes
Transaction volumes are expected to rise in 2013 as companies cope with limited debt financing by merging with partners. Companies should carefully assess potential partners and plan well in advance of any tie-up.
5. Resource nationalism
Miners should work harder at strengthening their relationships with national governments as resource nationalism – expropriation, resource taxes, export controls – rises. They should also diversify their commodity mix and geographic focus.
6. Combatting corruption
There must be even more responsible practices to counter the risks posed by corruption.
7. A new level of responsible behaviour
Mining companies need to step up their commitment to sustainable development and meeting the demands of non-government organizations and other stakeholders.
8. Skills shortages
Companies should bolster workers' retraining, recruit from non-traditional labour pools, sponsor university programs and do more work force planning.
9. Analytics to improve safety outcomes
The dangers associated with mining are on the rise, especially as companies move to ever more remote and less hospitable regions. Companies need to do more predictive modelling and use new analytical tools and technologies to improve preventative measures.
10. Getting the most out of emerging – and existing – technologies
Miners would do well to revisit their IT strategies and consider investing in such tools as programmable logic controllers, manufacturing execution systems, data analytics and advanced manufacturing systems.