Miners need to balance financial discipline and growth to deliver shareholder value in 2017

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Miners need to balance financial discipline and growth to deliver shareholder value in 2017

  • Deloitte releases ninth edition of annual top 10 mining trends 
  • Mining industry has traditionally underperformed in the shareholder value space
  • Digital strategy, collaboration, cyber security, environmental stability and energy management among critical concerns 
  • Creating a healthy and inclusive workforce a factor in productivity

2 February 2017: Intensifying the focus on shareholder value has been identified as a key trend for mining companies in the 2017 edition of Deloitte’s annual Tracking the Trends mining report.

The report identifies a mood of cautious optimism in the mining industry, with commodity prices on the rise, shallow growth returning to different end markets, and most mining companies in better cost positions than in the recent past.

“The focus on shareholder value in the mining industry is sharper than ever before, with return on invested capital a key metric,” explained Nicki Ivory, Deloitte National Mining Leader.

“While companies are starting to focus on growth again, this is being carefully balanced with the need to maintain financial discipline. Growth strategies are no longer about significant M&A deals and major new capital projects, but focused on portfolio optimisation through a combination of brownfield expansions, strategic acquisitions and/or divestments and productivity improvements.”

Whilst optimism is increasing, the industry is still at a pivotal point as it confronts challenges from cyber security threats, technological disruption and environmental issues. Mining companies now face key choices about where to invest and how to position themselves in the coming years.

“Miners willing to engage in substantive change, by rethinking strategy and embracing the digital revolution to help unlock productivity and improve sustainability, will likely be best positioned to succeed,” said Ivory. “But these companies will require strong leadership, greater collaboration and adoption of a long-term view to propel the industry forward.”

Additional issues identified in Tracking the Trends 2017, include:

  • Operating in an ecosysyem: for the sector to realise major breakthroughs, companies will need to shift from a go-it-alone mentality, to one that recognises the value of operating within an ecosystem. Adopting new forms of collboration including turning vendors into partners, collaborating with competitors and building extended partnerships can help companies achieve this goal
  • Digital revolution: while there are a number of benefits to embracing digital capabilities, miners must learn how to turn potential benefits into reality. To thrive, companies must embed digital thinking, processes and structures into the entire organisation
  • Mapping the threat landscape: as technology permeates all industries and sectors, mining is not immune to the accelerating threats of cyber security. Mining companies are subject to a wide range of risks, and with an evolving threat landscape, leaders must strengthen their cyber security programs
  • Creating a shared vision for the sector: to foster a shared vision for the mining sector, companies and governments could benefit from finding a middle ground that aligns interests and enhances cooperation when it comes to regulations
  • Re-earning the social license to operate: winning a social license to operate is especially difficult for miners in light of a number of recent catastrophic mining accidents and as communities continue to raise concerns about the industry’s impact on the enivronment. By focusing more on environmental sustainability and energy management, miners can foster community trust
  • Supporting strategic priorities: while commodity prices have begun to recover since they began falling in 2011, following years of record profits, industry leaders now understand the importance of adopting operating models that can help them respond to industry challenges and market volatility. Companies that took steps to strengthen their balance sheets in the latest round of cost take-outs are now considering how to align their operating models against these choices so they can position themselves to meet their strategic objectives and sustain their new, lower cost positions
  • Creating healthy and inclusive workforces: productivity improvement has been elevated to a mining industry mantra following the commodity price weakness of recent years. Companies, however, need to recognise productivity goes beyond reducing costs and streamlining processes: mental health, wellness and diversity should also be considered and addressed
  • Adopting an integrated approach to reporting: with governments demanding greater levels of transparency, the sector is working to strengthen compliance and disclosure practices. By standardising information, considering the benefits of over-reporting and reviewing IT systems to ensure consistent data measurement and reporting capabilities, companies can adapt to a step change in the reporting environment.

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Celine Gordine-Wright

Corporate Affairs & Communications
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