I Mining Business Review I
” The mining sector has succumbed to periods of devasting 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 it impacts the world economic activity, simultaneously. The lockdowns and economic shutdowns to curb the spread of the virus has caused disruptions in the global mining supply chains. The demand for commodities has dropped as a result of a reduction in economic activity, however concurrently, the supply side is also hindered as a result of travel restrictions. This has impacted the global commodity prices with some prices increasing such as uranium and gold, whilst other prices decreasing such as fuel, copper and zinc.”
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 and more recently 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 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, and
- 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 it impacts the world economic activity, simultaneously. The lockdowns and economic shutdowns to curb the spread of the virus has caused disruptions in the global mining supply chains. The demand for commodities has dropped as a result of a reduction in economic activity, however concurrently, the supply side is also hindered as a result of travel restrictions. This has impacted the global commodity prices with some prices increasing such as uranium and gold, whilst other prices decreasing such as fuel, copper and zinc.
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.
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.
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.
Article by: Tuliikeni Ndadi, Mining Engineer-Standard Bank Namibia