How to mitigate top mining business risks

In September of 2022, Ernst & Young Global (EY) released their annual report on the risks faced by the mining industry as identified by people in the industry (https://www.ey.com/en_gl/mining-metals/risks-opportunities).

The top 10 business risks anticipated in 2023 for mining include the following: Environment, social, and governance (ESG); geopolitics; climate change; license to operate (LTO); productivity and costs; supply chain issues; workforce; capital; digital innovation; and new business models.

Any ranking of risks or priorities is subjective and can be debated ad nauseum. Regardless, most people familiar with the industry, particularly in Canada would agree with the issues identified even if they might order them a bit differently. The question is “So what?” – as in so what can we do to mitigate against these risks and create a competitive value proposition that meets the need of our shareholders and stakeholders?

Regrouped risks:

1 Stakeholder relations and sustainability (ESG, geopolitics, climate change, license to operate).

2 Workforce management (workforce planning and talent management, productivity and costs, supply chain management).

3 Capital.

4 Digital innovation.

5 New business models.

First, we need to analyze each issue and determine who within the organization ought to be responsible and accountable for managing the risk. Before we do that, we should note that there is some overlap between many of the identified risks, so it is a bit easier to group them in some manner. For example, ESG, geopolitics, climate change, and license to operate all relate in one way or another to stakeholder relations and sustainability. Workforce management, when looked at more broadly as how an organization will find the people resources (rather than just employees) it needs to accomplish its goals, this necessarily includes reviewing inputs such as productivity, costs, and supply chain. These people resources might include contractors, consultants, and other services providers. In this article, we will let capital, digital innovation, and new business models stand on their own for now.

The reason we distill the list down is to identify where responsibility within the organization lies. Ultimately, the organization’s top leaders need to develop a strategy to deal with the identified risks while also pursuing its unique key business objectives. Once a strategy has been developed, it should be clear what organization structure is needed to ensure the right resources at the right level of competence are in place from top to bottom to execute the strategy to deal with the expected risks.

In developing the overall strategy, as business traditionalists we advocate that mining companies need to review their fundamentals. To that end, we start with the potential “capital risks” as EY identified. These can be broken down into two buckets. The first looks at investor preferences which are shifting away from some commodities (such as coal, which is seen as being phased out of existence as an industry) and shifting towards commodities that support the future, such as lithium and copper, which are critical to the emerging electrification of vehicles. This trend obviously will force some mining companies to rethink their overall strategic direction.

The second part of the capital risk that EY identified is associated with how companies invest in their assets and specifically looks at the need to modernize operations to include new technologies such as electric equipment (i.e., mining vehicles), remote operating centres, autonomous equipment (e.g., haul trucks), and a myriad of other innovations. Hence, there is a distinct link between the capital risks and the risk of not addressing the need to innovate. Mining companies need to ensure their long-term strategies embrace digital innovation.

Addressing capital risks will help in dealing with other risks as well. For example, in the competition for talent, including talent at the front lines of production, the winners (who will attract investment) will be those who have the latest technology that enables their employees and stakeholders to participate in the future. This is a requirement if an organization hopes to attract new workforce participants to the sector. It should become obvious that there is a deep interconnection between risks. A failure to mitigate against one risk (attracting the requisite workforce or capital, productivity, and costs) will have a knock-on effect on others.

Therefore, the organization’s overall business strategy needs to be cohesive, integrated, and ultimately simple. Therefore, it is important to step back and consider EY’s list as a group and avoid the tendency to deal with each one in a functional silo. In doing so, seeing the forest and not just the trees, the organization should understand how it will need to structure its business in new ways that help it deal with various risk categories without resulting in the proliferation of functions and bureaucracy.

No organization can or should attempt to be the leaders in everything. So, when we look at establishing a strategy and possibly new business models what we are really talking about is how the business will address their risks. For example, the electrification of a mine likely will involve partnering with a vendor who has developed the necessary expertise with respect to electric vehicles, power distribution, autonomous equipment, and data management. It also means that the internal people responsible for asset management will need to have the level of competence to balance both internal and external resources in these new areas in ways that optimize costs and productivity. The essential next step after the development of a strategy to deal with the risks is to ensure the organization’s structure is aligned to the plan of action.

This means ensuring the organization is built around requisite principles, so the right level of strategic focus is given to each key risk area.

For some organizations, the CEO may want to take a close look at just how significant some of these risks are and to ensure that s/he has the right roles established and the right people doing this work. One specific area that we see as being overlooked is having a C-level executive who is responsible and accountable for managing key stakeholder relations and organizational sustainability. This person should be a peer to all the other C-level participants (i.e., CFO, COO, and CTO) and oversee a portfolio of functions that includes stakeholder relations (e.g., government, indigenous communities, NGOs, the general public, employee relations, labour relations, procurement, and supply chain) – all under the aegis of a chief sustainability officer,

In addition to direct reports in traditional areas like finance, operations, sales/marketing in today’s mining environment, the CEO ought to have a C-level executive managing technology and not just information technology but technology in all areas such as metallurgy, production technology, and all other types of equipment.

When establishing who is in role, leaders need to avoid position inflation. By this, we mean not only establishing the right C-level positions but importantly ensuring you do not overpromote and that individuals given the roles have the capability to think strategically and can appropriately integrate activities with their peers’ areas of accountability.

Strategy and structure are the foundations of managing risk in any environment. In today’s environment, mining executives must make changes in both these areas to address new and present risks.

Hugh Secord is chief strategist, Oakbridges Labour Strategists.

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