RISK MITIGATION AS THE KEY TO UNLOCKING OPPORTUNITIES

Article By: Tuliikeni Ndadi, Mining Engineer at Standard Bank Namibia

It is widely known that the mining industry is risky, faced with disruptions from both within and outside of the mine site boundaries. Along with the conventional risks such as identification and replacement of reserves, volatile commodity prices, and access to capital, new and growing risks have emerged throughout the years involving the current pandemic at large, access to clean sustainable energy, digitization and cyber security. These risks, both old and new, play a critical role in shaping the landscape of the mining industry.

Mining businesses should have the proper strategic response to mitigating these risks and thus, unlocking further streams of value.

Some of these strategic responses are: 

• Investing in digital transformation to increase efficiency and decrease operational costs across the value chain
• Building partnerships with key stakeholders to secure supply chains and streamline disruptions 
• Constantly engaging with the community to ensure implementation of corporate social investments and adherence to regulations

However, as part of the strategic response in mitigating these risks, identifying these risks and understanding them is key. It is understandable that some risks are beyond the miner’s sphere of influence, however, early identification can help develop options and actions to enhance opportunities and mitigate the risk. 

HERE ARE FIVE RISKS THAT HAVE EMERGED THROUGHOUT 2020:

Global Pandemic: COVID-19

The mining sector has succumbed to periods of devastating economic conditions before, but the Covid-19 pandemic is different. This risk is different in the sense that it is not only a health, social and economic disruptor, but also that it is impacting the world simultaneously. Of particular importance for the miners, lockdowns and the consequential economic shut downs has caused disruptions in the global mining supply chains. Whilst, demand for commodities has dropped as a result of a reduction in economic activity, the supply side has been hindered as a result of travel restrictions. As we have seen demand return coinciding with governments promoting infrastructure programmes, many commodity prices have risen in response to Covid-induced “security of supply” concerns. The disarray during this pandemic has meant investors have sought refuge in gold as a safe haven with the yellow metal touching all-time highs.  This uncertainty may subside but the impact of Covid will have changed the mining industry forever. It is not only a macro story but also on a mine level that the impact will be felt with new work practices and the importance.  

Access to clean sustainable Energy

Mining operations can be highly energy intensive with the cost of energy accounting for up to a third of the total cost base. The industry throughout the years has relied on conventional fossil fuel-based energy sources such as coal, natural gas and diesel to generate electricity. However, the sector is faced with rising electricity prices, placing a tight squeeze on margins and unreliable power supply from the grid. Additionally, the sector is faced with a growing demand from both global and local regulatory bodies to operate in a sustainable manner. These pressures have resulted in mining companies integrating conventional fossil fuel methods with renewable sources of energy such as, wind, solar, hydropower and biodiesel. The use of renewable energy sources creates a vast stream of benefits such as, cheaper mining operations in the long run, lower greenhouse gases emissions, energy efficiency on site, and sustainable development support.

Regulatory and fiscal stability

With the growing demand for commodities and ore reserves depleting in first world countries, mining firms are finding themselves in jurisdictions known for fiscal and regulatory instability; namely in Latin America, Africa and Asia. Often governments in natural resource rich countries seek to have larger returns from their natural resources beyond the normal taxation system. One of these ways is through resource nationalism. Studies have shown that the higher commodity price are, the more disputes and controversy is around the structure of mining firms within a jurisdiction. It is therefore crucial that both mining firms and the host government operate on a basis of transparency with reasonable expectations of the anticipated revenue from the project.

Digitalization

With the awakening of the fourth industrial revolution and industries across the globe adopting to smart technology to increase efficiency, mining companies have commenced in adopting digital innovation. The mining landscape is being transformed by the fourth industrial revolution through data mining and analytics, automation and industrial internet. However, digital innovation goes beyond the implementation of smart technology. Adopting these technologies should be based on solving operational constraints such as; enhancing productivity and increasing margins from the pit to the port. Already we have seen the first autonomous underground mine in Africa (Syama mine in Mali) and it should be expected that some of Africa’s biggest open pit mines will use driverless trucks in the near future. 

Environmental sustainability

The mining industry has a reputation for its environmental concerns around emissions, water use, deforestation and community relations. It is an image that many within the industry have been working to rectify. The work done by the miners has been in conjunction with a growing number of regulatory structures that govern the environmental policies and impact of the mining sector. These structures have recognize and emphasize the importance of a low-carbon economy and the role of the community, challenging the mining companies to find innovative ways to reduce their carbon foot print across the value chain and to demonstrate sustainability to the community.