2017 saw a positive uptick in the mining market – with volatility easing off in a number of commodities and balance sheets in a better position. However, as companies prepare for continued growth in 2018, it is important to manage specific business risks that are on the horizon. In this post, we look at the top 4 business risks facing mining companies in 2018, based on a report by professional services firm EY. The report, titled “Top 10 business risks facing mining and metals 2017-2018” lists digital effectiveness as the number one risk, followed by competitive shareholder returns, cyber threats and new world commodities.

 

Let’s take a look at each of the business risks facing mining in order of their criticality, and how companies must respond:

 

  • Digital Effectiveness

Mining companies are increasingly turning to digital technologies to support their efforts to improve productivity and increase margins. However, as EY points out, there is a disconnect between the potential from digital technologies and the track record of successful implementations. Companies are at a risk of falling behind competition if they do not effectively integrate digital technologies into the operational aspects of their business. In such a setting, EY recommends that companies must focus on digital to solve the most urgent business problem first: improving productivity and margin across the value chain.

 

  • Competitive Shareholder Returns

A poor track record of shareholder returns in the recent years has challenged the mining sector to redress the equation in 2018. In light of strong cash generation through 2016, companies are now focused on building credibility within the investor community and regaining shareholder confidence through the allocation of capital to dividends and share repurchases, rather than investing in longer-term growth projects. With shareholders engaging in activism where capital allocation decisions are concerned, it will be increasingly important for mining companies to balance capital discipline with the growth agenda by selecting an optimal portfolio of projects. As EY’s report indicates, balancing short-term shareholder returns with long-term value can be both difficult but is key for mining companies.

 

  • Cyber Security

Mining companies are becoming increasingly vulnerable to cybersecurity breaches owing to increased digital transformation initiatives and the convergence of information technology (IT) and operational technology (OT). Cyber attacks can have a significant impact on the business by causing equipment damage, operational shutdowns, health, and safety risks, as well as data loss and damage. To mitigate this risk in 2018, it is imperative that mining companies establish effective security protocols to protect their assets. EY’s report indicates that “cyber risk” could be the downfall of all the productivity gains and digital advancement aspirations for a mining organization.

 

  • New World Commodities

 In light of changing consumer attitudes and emergence of new technologies like electric vehicles (EVs), miners will need to regularly review their portfolios to assess which commodities to invest in, and which to divest. In such a rapidly changing environment, companies will need to maintain the right mix of old and new world commodities in their portfolios. EY’s report explains this dilemma facing miners through the example of platinum demand at present, and in the future: “Almost half of all platinum produced globally is used in catalytic converters to minimise diesel pollution. Some estimates suggest that the adoption of EVs will result in a 7.5% decline in platinum demand by 2025.”

 

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