The 2017 edition of Deloitte’s annual Tracking the Trends mining report said most mining companies were in better cost positions than in the recent past, with commodity prices rising and growth returning to different end markets.
But at present, most were working to pursue low capital intensity growth options – squeezing more value out of existing assets and investing where the perceived returns are highest – while moving away from progressive dividend commitments helped make the mining industry leaner and fitter.
Deloitte national mining leader Nicki Ivory said mining industry shareholders were now focusing on getting a return on invested capital.
“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,” she said.
When doing this, companies should analyse their asset mix on an ongoing basis – strengthening third-party risk management to avoid revenue leakage, reviewing supplier invoices to recover any overpayments and petitioning governments to reclaim unpaid tax credits, the report said.
Where mergers and acquisitions were pursued, companies should take steps to adopt a disciplined investment decision making process and strengthen its transactional capabilities.
“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,” Ivory said.
“But these companies will require strong leadership, greater collaboration and adoption of a long-term view to propel the industry forward.”
The report said industry leaders understood the importance of adopting operating models to help their companies respond to 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,” the report said.
Companies could pursue innovative growth options by refining their marketing options to gain commercial negotiating leverage and pricing power; and by exploring commodity trading opportunities and commercialising existing assets (such as power and water treatment plants) to generate additional income.
Working together across the sector by turning vendors into partners, collaborating with competitors and building extended partnerships can find new ways to solve problems while helping to create a shared vision for the sector.
Other challenges identified for the year ahead identified in the report included embracing digital technology, beefing up cyber security and working to building a healthy and more inclusive workforce.
With a mood of cautious optimism in the air, mining companies now face some key choices as to where to invest and how to position themselves in the coming years – choices requiring a more structured approach than ever before.
“Disconnected investments are no longer sufficient to drive the level of change required to gain a sustainable competitive advantage,” the report said.
“Instead, a systemic approach is needed—one that runs from the top down, takes a critical look at enterprise level practices and processes, aims to build integrated and coordinated responses, and fosters a culture that supports this directional shift.”
