(MENAFNEditorial) Mining companies will continue to face challenging market conditions in 2014 including rising costs, falling commodity prices, supply/demand imbalances, and decreased productivity levels. However, companies that embrace new forms of innovation can lay the foundation for long-term business growth and be best positioned for future success, according to Deloitte's Tracking the Trends 2014 report released today.
The report outlines that in order to mitigate risks of a volatile industry, companies must adopt more innovative strategies as related to financial, safety and talent management programs, as well as with their stakeholders including relationships with communities, governments, shareholders, and regulators.
"The high cost of doing business has topped our list of mining trends for the past three years, and it continues to dominate thinking in the industry though efforts are turning now to increasing productivity as well as reducing costs. To assist in this, we are also seeing an increased need for business innovation - something that links how mining companies are starting to interact with the local communities and stakeholders - as the use of social media increasingly becomes more prevalent," said Kenneth McKellar, energy and resources leader at Deloitte Middle East. "While mining companies cannot change global economic trends, they can change the way they operate. Rather than waiting out the market swing, companies should take this opportunity to evolve their business by adopting the processes, technologies, and mindsets necessary to strengthen their long-term operations."
According to McKellar, mining companies have to build innovation into the DNA of their businesses. "To drive performance improvement, mining companies need to adopt technologies that allow them to operate their mines remotely, automate core mining processes, and use techniques like remote sensing to localize ore deposits," he added. "How companies use their data on a daily basis to analyze their businesses and report needs to become core to their way of thinking."
Now in its sixth year of publication, Tracking the Trends examines the top ten issues affecting mining companies around the world. The report highlights key industry indicators and provides a range of solutions companies can adopt to manage the impacts of shifting industry dynamics.
The 10 trends and solutions identified and described in the report are:
1. The cost of contraction: mining productivity hits new lows- Despite commodity price weakness, input and production costs remain stubbornly high. To reduce costs sustainably, miners must improve their overall productivity, strengthen their management and reporting systems, use analytics to uncover their underlying cost drivers, and rationalize their supply chains.
2. Matching supply to demand: market imbalances wreak commodity price havoc- Ongoing global economic weakness and the short-term decline of demand out of China has pushed down commodity prices, resulting in industry performance dips. However, long-term demand indicators remain robust. Rather than mothballing projects, miners should find ways to weather current supply/demand imbalances.
3. The remaking of mining: exploring the innovation imperative- Genuine performance improvement comes only when companies revise their underlying systems. Miners should innovate by adopting technologies to enable mine design and planning, energy supply, as well as adoption of emerging technologies.
4. Finding funding: debt up, deals down, and juniors fight for survival- Weak shareholder returns and industry impairments have shut off equity markets. Traditional lenders also are pulling back from the mining sector. Although major diversified companies responded by issuing bonds, juniors have been hard hit. This may represent an acquisition opportunity for mining companies with large cash holdings.
5. The project pipeline stutters: record impairments call capital allocation practices into question- In response to demands from investors and analysts, mining companies developed massive project pipelines. Investment in marginal projects, however, has led to record asset impairments. To turn the tide, miners need more robust project scoping processes, governance systems, and risk control mechanisms.
6. Power to the people: local community demands ramp up- Social media trends and attention from monitoring and standard-setting bodies put corporate reputations and market valuations at risk. Miners should take a nuanced approach to stakeholder relations, including developing local supply bases, improving communications, sharing infrastructure among various economic clusters, and sourcing local labor.
7. Resource nationalism spreads: government relations marked by rising hostility- Governments demand contributions from the mining sector in the form of taxes, royalties, and other concessions. Mining companies must improve government relations and governments need to foster greater regulatory stability. Miners should open a dialogue by forming policy development lobbies, coordinate local infrastructure projects, engage citizens, and negotiate with all levels of government.
8. Crackdown on corruption: a zero tolerance regulatory environment complicates compliance -To improve compliance, mining companies should adopt appropriate internal controls and policies, engage in compliance audits and risk assessments, and upgrade their systems to support sufficient reporting detail.
9. Changing the safety equation: from zero harm to zero fatalities- Fatalities in the mining industry remain high. Mining companies need a more sophisticated approach to safety analytics. Companies should model high-risk events, re-examine their workplace practices, and break down the data silos that prevent them from accurately identifying safety incident patterns.
10. A dearth of skills: the talent gap slinks into executive suites- Talent shortages remain an issue in the mining industry, even in executive positions, and will widen as the workforce ages. Closing the gap requires the adoption of new talent management strategies. Miners should standardize systems, embrace new training environments, and take the steps necessary to attract both skilled management and sector-savvy directors.
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