Six critical challenges facing mining post-COVID
For the last two years, COVID-19 has dominated our thoughts, and we have been forced to adopt a short-term perspective to ensure immediate survival.
However, while only the most optimistic would suggest the pandemic is behind us, we now need to focus on longer-term trends and factors that could have equally significant consequences.
Over the past few months, Swann has explored some of the most impactful developments facing the global mining sector. In June, my friend and colleague, John Murray, presented our initial thoughts at the Critical Minerals Associations G7 event. In this article, I'll consider the six critical challenges we identified.
I don’t pretend we have all the solutions to these challenges. This article aims to provoke thinking and start a debate so that our industry might work together to find ways to address them. Mining has proven resilient over the past two years, and I hope the collective knowledge of our sector can be brought to bear in dealing with these challenges and finding new opportunities.
1. Mining’s relationship with society
Mining is a greatly misunderstood sector. Evidence suggests a whole generation has been persuaded by negative social media and some campaigns that mining is an evil, carbon-intensive, dirty and socially-irresponsible industry.
We haven’t helped ourselves. Mining’s PR work has been poor, and we have failed to effectively profile the value of the industry. Events such as the destruction of the Juukan Gorge cave have also had a significant negative impact.
Society’s desire for a cleaner, greener world is understandable. But we have been poor at explaining that the metals used in green technologies such as solar panels, wind turbines and electric vehicles need to be mined. We would do well to educate Millennials and Generation Z that the smartphones from which they are inseparable are packed with materials from the extractive industries.
Mining also provides employment prospects in emerging economies that go beyond the manual jobs of old. Mining companies offer training and education to encourage local talent into management and leadership roles. Yet, we hear little of these initiatives outside of our industry bubble.
Mining needs to build a new relationship with society by explaining the value we can add to a greener world. ESG needs to become a topic in which all miners should collaborate to ensure we positively impact the world and the communities in which we operate.
When we get this right, we can communicate the benefits of mining in an authentic and evidence-based way. In Australia, for instance, mining’s economic benefits to the country have been more greatly appreciated during the pandemic than they have in recent times.
We need to work collectively through representative bodies such as the ICMM and AusIMM, and collaboratively with regional chambers, educators, and government ministries to do this effectively.
2. Securing external investment
If mining fails to build a new relationship with society, it will become increasingly difficult to attract funding from traditional sources.
This imperative is made even more critical owing to the rise in ESG-focused investments, which in Europe in 2019 amounted to EUR 1.66 trillion AUM, representing 15 per cent of total mutual fund assets (PwC, 2020). The majority of the European institutional investors expect that ESG and non-ESG products will converge next year, and 77 per cent will stop investing in non-ESG products then.
By 2025, PwC forecasts European ESG investments to reach EUR5.5 – EUR7.6 trillion, representing up to 57 per cent of the total. Persuading these investors that mining should be the target of their investment will be challenging.
Organisations have a choice about how to respond. The temptation of greenwashing will be too difficult to resist for many. But making positive change is the best option, providing better returns for shareholders and investors, improving the running of the business, and contributing to a more positive profile for the industry.
With the proper positioning and messaging, we anticipate mining will continue to attract investment from investors with a longer-term perspective.
3. Adopting new mining technology
Mining’s adoption of new technology has been mixed, and the industry remains heavily reliant on manual labour and plant that has not needed to change for years.
It is time to embrace the technologies that can transform the industry by applying existing technologies from other industries and developing new ones to address challenges particular to mining. The right technologies will reduce employees’ exposure to harsh working conditions, resulting in a safer working environment with fewer injuries and stoppages. And it can make the industry cleaner, greener, efficient, sustainable, and more profitable.
Large miners that resist the adoption of new technologies risk being outcompeted by agile, small-scale miners unencumbered by massive investments in old technology. Such firms may be more attractive investment vehicles offering lower risk and faster returns than large-scale projects.
Miners that fail to embrace incremental technological change will reach a point where the only option is a step-change in technology, with all the disruption and expense accompanying such change.
A potential pitfall lies in the flow of data received by mining companies, which could quickly become overwhelming with the introduction of more technology. Mining will need to secure new capabilities in IT, automation and, perhaps more than anything, analytics. Local workforces will need to be trained in using the technologies, resulting in a welcome upskilling of local communities.
4. Nationalism
As we’ve seen in the new mining conventions agreed with governments in Sierra Leone, Mali and the DRC in recent years, developing countries will increasingly seek to renegotiate agreements with miners – with some justification.
The exploitation of the past will need to be addressed as governments respond to pressure to address local demands for better living standards. At the very least, these governments will expect miners to invest in local processing and refining facilities to keep value-adding processes within their jurisdiction.
Mining companies will need to consider the balance between the removal, retention, and contribution of wealth in their relationship with any country. Governments that focus purely on the money will need convincing of the education, employment, and infrastructure development opportunities mining can bring.
Such demands are not restricted to developing countries. When the West Australian Government ran into budgetary problems, it demanded a significant increase in the iron ore royalty from major miners. Firms and nations that are heavily dependent on China will need to recognise that the country will always be searching for alternative and more economical supplies of iron ore and coal as part of a China First policy.
We can only expect such demands to intensify. The shift in global power and the subsequent threat to trading routes prompt nations to proactively secure sourcing of strategically essential materials – either by forging new, unexpected alliances or by sourcing materials domestically.
5. Embracing diverse thinking
The case for greater diversity at all levels in organisations is well established. Nevertheless, our research paper, Board Rigid, found that only ten per cent of individuals listed on the boards of LSE and AIM-listed mining companies are women. It's a pitiful number which, despite the efforts of individual companies, will take decades to change at current rates. In many countries, including Australia, diversity is paid little more than lip service.
Racial diversity in our industry must be improved, and education figures suggest that this will not change anytime soon. Age diversity, too, is an issue. Mining's struggle to attract new talent has resulted in a dangerously ageing workforce. This, of course, links back to our first challenge and the need to reposition mining as an attractive option for graduates. The benefits of neurodiversity – employing individuals with conditions such as ADHD, dyslexia, autism, and others for their fresh ways of thinking – are recognised by some companies. Still, these seem to be an exception to the norm.
There is a reluctance to employ individuals from different sectors or backgrounds, yet hiring from the IT sector, for instance, will help close the clear skills gap we describe above. Even when miners employ leaders from their industry, the range of backgrounds from which they are appointed is narrow. Our Board Rigid report found that only five per cent of mining board members have a career in health, safety, community, or ESG.
Diverse workforces, management and leadership teams bring more innovation, new solutions to old problems, and improved financial performance. We need visible role models, outreach work from industry bodies, and recruitment processes and methodologies that encourage applications beyond the usual suspects.
6. Talent shortfalls
The talent gap in mining – the result of large swathes of senior leaders retiring, divestments and redundancies forcing emerging leaders into different sectors, and the ongoing challenge to attract new graduates – has been well documented.
This has been compounded by the missed opportunity to capture the expertise of experienced team members before they leave mining. Semi-retired advisors and consultants fill the gap, but they are expensive and are not a permanent solution.
Those who left the industry during the downturn see little incentive to return. Young talent well versed in the new technologies is more attracted to what is perceived to be the cleaner, greener world of IT.
However, as mining becomes more technologically driven, these digital natives, currently unknown to the industry, are precisely the talent mining needs to complement more traditional mining skills. Education and industry will need to collaborate more effectively to develop the talent our sector will need in future.
Leadership and management styles can also be improved. The next generations expect to be consulted and informed and receive feedback informally and regularly, rather than as part of an annual performance review. New forms of development will be needed as this new talent matures into leaders. The future will see the pace of change accelerate, and we will require flexible, smart individuals who will remain effective even if the world has shifted by the time they reach a leadership position.
It will take a monumental effort from professional bodies, educators, policymakers and the industry, but I believe it is within our grasp. I firmly believe the next generation of mining leaders will be well-equipped to weather the storms of the future.
Conclusions
The mining industry has historically been slow to adapt. The largest companies have tried and tested processes that have served them well for decades, creating a mindset of ‘that’s the way we do things here’.
Mining companies sometimes seem to be over-reliant on the ‘Big 4’ consultancies to do their strategic thinking for them. This means they run the risk of not growing this kind of strategic talent internally. They have access to respected global thinkers but struggle to synthesise or apply what they are told. The mining industry deals with risk but pays scant attention to uncertainty, which is more difficult to assess.
In these most uncertain times, this must change, and we have seen examples of that happening.
Amongst the gloom of the last two years, positivity can be found in the resilience and adaptability shown by our industry. In the face of the monumental challenge of COVID-19, the way miners ensured production continued, using national workforces rather than ex-pats subject to travel restrictions, for example, is worth celebrating as an example of agility in the sector.
I am sure mining will withstand the impact of the trends identified in this report – and any others that will emerge in the coming months and years. But I want the sector to think about ways to thrive and grow and take advantage of emerging opportunities.
I hope this article will catalyse that thinking process for you. I’d love to hear your thoughts.
Lorraine Meldrum FAusIMM, Executive Chairman, The Swann Group
To download the full report on which this article is based please visit https://the-swann-group.com/research/
References
PwC, 2020. ‘2022 - The growth opportunity of the century’ [online]. Available from: https://www.pwc.lu/en/sustainable-finance/esg-report-the-growth-opportunity-of-the-century.html