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Future of mining depends on closing the trust deficit

Published: 30 March 2021

According to Deloitte's Tracking the trends 2021 report, closing the mining industry's trust deficit with its stakeholders is central to winning back the confidence of investors, employees, and communities as miners traverse a more fractured landscape due to COVID-19. Looking beyond the pandemic, the report also identifies the top 10 emerging issues set to transform mining.

"COVID-19 disrupted most companies' best laid plans, forcing leaders across the mining sector to refine their strategic objectives, recommit to stakeholders, and reset their priorities," says Kevin Xu, Deloitte China Mining & Metals Sector Leader. "The issue of trust between the mining industry and its wider set of stakeholders has emerged as a central narrative from the pandemic."

The industry is at a key juncture. Mining is essential to a lower carbon future through many of the minerals it extracts, yet the industry is starved of capital. It is often not the first choice for talent despite its potential to create widespread, meaningful employment. And, although mining companies have played a vital role though the COVID-19 crisis by flying in personal protective equipment, leveraging their healthcare infrastructure, and keeping workers safe, many governments continue to target the industry for additional taxes and royalty payments.

"These dichotomies exist because of the trust deficit. To rebuild trust among their extended ecosystem of stakeholders, miners are pursuing M&A strategically, strengthening ESG performance, creating agile supply chains and introducing new ways of working," Xu adds.

M&A in an altered world has become a key issue for miners. Many mining companies lost investor trust in the last mining cycle, in part because of highly priced M&A deals that failed to deliver. Although M&A activity is expected to recover quickly once the uncertainty caused by the pandemic subsides, companies might need to find new ways to deliver consistent shareholder returns, enhance ESG performance, and improve capital and operational discipline.

Although ESG mandates have long played a critical role in the mining sector, companies are now more serious about decarbonization amid growing demands that they reduce their climate impact. Moving beyond risk identification and mitigation, they are executing decarbonization agendas by considering multiple ways to abate their climate impact and optimize operations. Moreover, miners are turning their corporate governance frameworks into a competitive advantage through initiatives that can drive value for their broader stakeholder groups. Most mining companies are also working to link their social investments to sustainable outcomes, and playing an active role in the transition to cleaner energy.

In light of supply chain vulnerabilities exposed by COVID-19, mining companies are also seeking to better understand their supply risks to create more predictable operations and build trust with investors. Although having more local sources is appealing, the costs have to be weighed and inventory management needs to be examined.

To rebuild trust among their talent, many miners are redefining leadership, changing their workplace cultures and recommitting to the goal of "zero harm". Although digital transformation has rendered a new type of leadership possible and necessary, leaders need to provide vision and purpose, empower people to think afresh, and collaborate across boundaries.

"It's impossible to predict the results of these efforts amid prevailing uncertainty. However, success will likely be judged on factors beyond financial performance. COVID-19 has taught us what people value most—safety, community, social impact and the environment. Mining companies should take these lessons to heart if they are to overcome the trust deficit and pave a path forward," says Xu.

Top 10 trends transforming the future of mining

  1. Building resilience amid volatility. Deloitte highlights four divergent scenarios of how the industry can play out over the next 3-5 years. The pandemic has impacted some megatrends in the market and how these unfold may be quite different in each of the four scenarios.
  2. M&A in an altered world. To build investor confidence, mining companies need to address some key table stake issues while at the same time look at the strategic opportunity around M&A as the industry undergoes some structural changes.
  3. Getting serious about decarbonization. Mining companies are under strong pressure to execute on fully developed decarbonization agendas. Companies are making net-zero commitments in line with the 2015 Paris Agreement and starting to shift to execution.
  4. Linking social investments to sustainable outcomes. As mining companies can play a greater role in remote regions, an opportunity exists to build trust with communities by collaborating more effectively with governments and linking long-term investments to sustainable outcomes.
  5. Corporate governance adding to competitive advantage. Companies have often relegated governance to a backstage role, opening the door to potential missteps followed by reputation damage and loss of market value. Miners are strengthening governance processes, especially around rapidly shifting issues.
  6. Creating an agile supply chain. Companies need to mitigate supply chain risks by illuminating the multiple tiers in their supply chain and reconsidering their inventory strategies. Geopolitics and cross-border supply challenges will also reshape global supply chains.
  7. The path towards integrated operations. Mining companies can better respond to external events and internal variables by driving integrated operations. This will requires firms to leverage technology, redesign processes, rethink workplace design and shift culture.
  8. Advancing the future of work. The pandemic has prompted many companies to review labor routines, institute more remote and virtual work, and to experiment with outsourcing key roles. Some are already redefining the role of and expectations for leadership, and enabling the creation of a new workplace culture.
  9. On the road to zero harm. While safety has long been a focus in the mining industry, there is a key opportunity for the industry to more actively collaborate around data pooling, addressing the interoperability of wearables and harness the power of predictive analytics.
  10. Meeting demand for critical minerals. As the world converts to renewable energy sources, demand for some commodities will rise. Candidates include copper, nickel, lithium, and cobalt, but no one is certain which ones will eventually see the most demand, and there is a scramble to lock in supply.

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