Mining has never been for the faint-hearted. Issues like climate change, resource shortages, geopolitics and the social license to operate have been on the mining risk registry for years. But – more recently – these risks have evolved, and their priority has changed. That is forcing many mining leaders to rethink the way they design, develop, operate and close their assets.
Consider, for example, the rapidly changing expectations of investors. Mining interests competing for capital are now facing new criteria, particularly related to climate change and ESG impact. ‘Net Zero’ plans are not enough. Investors want to see practical and verifiable strategies that include considerations related to decarbonization, carbon offset investments and supply chain partnering. Governments are also ramping up the pressure on ESG assurance.
Geopolitics are also having a significant impact on decision-making in the mining sector. Beyond the obvious global conflicts and trade tensions, we are seeing a significant rise in resource nationalism. Governments around the world are using policy (often in the name of national security) to influence resource investment. Some are banning the export of certain primary products. Others are asking foreign owners to partner with local firms or meet localization requirements.
Perhaps the most significant global headwinds are coming from the macroeconomic front. Input costs are spiking, inflation remains stubbornly high in many markets, freight markets and delivery times remain in flux. This uncertainty is having a massive impact on execution strategies in the mining sector. Many are moving to inventory-based ordering. Some are seeking early funding in order to secure manufacturing slots during the Feasibility Stage. Almost everyone is looking at new technologies to figure out how they might unlock additional project value.
On one level, participants wanted advice on managing unexpected changes to project teams, status or goals. We talked about the importance of documenting everything – decisions made and tradeoffs accepted, through to assumptions and plans – to ensure continuation in the case of turnover or project start/stops. We discussed the need to keep people engaged, the use of remote work models and the benefits of integrated design and planning. And we talked about the need for more flexible execution strategies.
Participants were keen to learn how they could make their supply chain strategies more resilient in this unstable environment. We talked about the need for better insight into supply chain risks, more investment into supply chain relationships, the importance of subassembly providers and the challenges they face, and the benefits of bringing the engineers and the delivery team together to fast-track supply visibility. We agreed on the need for a more innovative response that challenges the old ‘play books’ and traditional project planning approaches.
Mitigating the macroeconomic
Not surprisingly, many of the questions related directly to the current economic climate and rising cost pressures. Participants wanted to understand how these forces might influence development in various parts of the mining ecosystem. They were looking for advice on how to benchmark cost increases and manage forecasts from the early study phase through to execution and operation. Few, if any, of our webinar participants had significant experience decision-making in an inflationary environment like the one we face today.
The good news is that some of the economic volatility and supply chain pressures experienced in 2021 and 2022 have started to ease. Costs for equipment, freight and raw materials are starting to normalize. Project planners and designers are becoming much more sophisticated in their use of risk-based approaches to enhance project estimation. At the same time, however, there are indications that labor costs are on the rise even as productivity is in decline. And capital markets have still not returned to normal.
Looking out over the longer-term, we also identified a number of trends that will continue to put cost and permitting pressure on mining organizations going forward. ESG regulation – climate change expectations in particular – could add significant costs and complexity. The Energy Transition will likely require mining participants to invest into new technologies (or into embedding energy flexibility into their current technologies). Community relations and social costs will likely continue to rise.
Ultimately, the group recognized that each organization faces unique costs and pressures depending on the elements involved and the stage of the project. The impacts of these trends on engineering and design costs are very different than they would be on delivery or operational costs. And a company’s ability to manage these costs will, in part, depend on their relationships with suppliers.
5 tips for facing into the wind
Our webinar and subsequent discussion highlighted five key takeaways that mining leaders and professionals should consider while managing global headwinds on mining projects:
- Understand the forces. The headwinds will influence each company differently, requiring mining leaders to recalibrate their rankings of critical risks.
- Don’t rely on the past. Benchmarks and plans from previous decades are now irrelevant. Learn from recent history and the experience of peers and advisors.
- Create an ecosystem. Partnerships are key to the success of projects through the lifecycle. Focus on building strong supplier relationships.
- Assess technology. New and emerging technologies can help unlock value on projects. Consider how they might influence cost structures and climate goals, in particular.
- Take an integrated approach. Take an integrated approach to design, engineering, permitting and environmental to enhance project value and success.