Introduction of Mining Industry
Everyone has a different idea while envisioning the mining industry. The public sees it as an old, dangerous, dirty and environmentally contentious industry. In order to change this view of the general public, the companies are left with only two options, i.e., to either stagnate or innovate. Therefore, the only constant element of the mining industry is its change. Historically, the industry has chased production growth at the expense of productivity on the grounds of cost and volume. Therefore, the more recent business models in the mining industry have been focusing on the realigning relationships which primarily focus on building financial solidity of customers, partners, and suppliers. It requires good asset management as well as good governance and workforce collaboration. The future of the mining industry lies in technological advancements and utilization of the workers and governance in driving change and improvement. It is high time for the industry to take a proactive stance in the environment and energy. Thus, automation is the future of the mining industry. However, there are several risks attached with introducing innovation into the mining operational activities; they are briefly discussed as under;
Potential Risk Inherent in Mining Industry and the Risk Mitigation Strategies
There are a number of business risks associated with the mining industry. The sector has been under-performing in terms of returns to shareholders for a few recent years. The equation must be re-balanced through allocation of capital to share repurchases and dividends.
Digital Transformation:
2018 is a year of digitization and advancements. Although the concept of digital mining is not new but there is disconnection between the potential of advancement and the record of successful implementation of the advancements. Secondly, digital transformation is key to improving productivity across the value chain. For instance, it can help determining optimal run rates under different conditions like preempt truck breakdowns and driving speeds and maximum loads in wet weather. Similarly, subtle and important changes to mining operations in wet weathers can be made with digital enhancements.
Workplace Safety and Health Risks:
Additionally, there are risks associated with workplace health and safety. The health risks affect health of the workers through chronic exposure to chemicals leading to illnesses whereas the safety hazards are characterized by acute consequences ranging from first aid to multiple fatalities. Significant management attention is given to these risks such as a number of guidelines have been developed by the authorities at both national and international levels through Standard Operating Procedures. The risk management of the mining industry in this regard has matured overtime. For instance, it has evolved from the ‘no care culture’ to a proactive approach towards providing and maintaining health and safety rules and regulations for the workers at the workplace. Several risk assessment techniques such as informal risk assessment (IRA), job safety/hazard analysis, energy barrier analysis, and preliminary hazard analysis have been developed to improve the workplace environment of the mining industry (Hermanus, 2007).
The Risk of Cyber Crimes:
Moreover, digital transformation comes with an inherent risk of cybercrimes. They arise due to the convergence of operational technology and information technology. This convergence makes the companies in the mining industry more vulnerable to unprecedented numbers of cyberattacks (Trend Micro). It results in lost revenues and data breaches. In order to avoid this risk, the industry is taking its step towards cyber protection. A baseline of cyber controls is established.
New Technology and Changing Attitudes:
The industry is also facing significant disruptions to metal and mining companies due to the dynamics of new technology and changing attitudes. The impacts of these changes on the portfolios must be understood. It is critically important to keep the balance between the new and old work commodities. Due to the changing environments, keeping this balance has become a complex task. For instance, a 12-fold increase in battery power will be needed by 2025 due to the increase in the combined production of plug-in hybrid electric vehicles and pure electric vehicles (UBS via ThomsonOne; Financial Times). Thus, the demand of cobalt will be increased at an average rate of twenty-percent per annum. Thus, the price of key commodities in making the batteries has exploded. Such risk of price increase must be tackled beforehand. The best strategy to achieve this objective lies in the energy mix, i.e., mixing the old and new technologies.
Environmental Risks:
Environmental risks are inherent to the mining industry. Such risk can be defined in two ways: firstly, it represents the impact of the operational activities of the mining industry on environment, it is the common approach; and secondly, these risks are classified as the ‘Act of God’ against which the companies and firms from the mining industry must stay prepared. Both types of the environmental risks have a range of impact on the businesses such as ongoing legacy risks after closure, cost of closure and rehabilitation, public outrage leading to reputation damage, and community health impacts (Nilsson & Randhem, 2008).
Regulatory Risks:
Furthermore, there are regulatory risks in the international mining industry. Uncertainty and risk have flown into the sector due to the intensified focus of the governments and regulators of the developing countries on implementation of new laws concerning improved local participation. Therefore, regulatory risk has increased for the sector due to the government’s involvement in the management and allocation of natural resources. For instance, the new regulatory framework of Brazil, which is currently under discussion, can result in increased taxation and royalties levied on the mining sector (Global Mining Industry Update, 2012). Similarly, mining bans and environmental reviews are being implemented in Philippines (Reuters, 2017). Also, an increased government ownership on mining sector and a mineral export ban are expected in Indonesia (Mining in Indonesia). Such regulatory risks are mitigated through an open and transparent communication while keeping abreast of proposed regulatory changes.
Financial Risks:
New risks emerge as the industry stitches to growth despite the fact that the relentless cost-cutting exercises and a recovery in commodity prices have resulted in improved cash generations and higher margins. For this reason, the mining companies have been passing signals to return cash to shareholders while having relatively less cash commitments for reducing debts. Therefore, the risk has now turned towards management of competitive demands of the shareholders and allocation of capital versus growth projects. Due to this situation, unpredictable fluctuations are expected in the revenues due to a possible aftershock of the post-Brexit Europe, chance of slowdown in China and increasing pressures from the inward-looking policies of President Trump. Thus, there are potential headwinds towards which the global markets remain awake.
Social and Cultural Risks:
It is a delicate balancing act of issues and agenda to manage the needs and expectations of employees, government, communities and other stakeholders providing the industry with their social license to operate. It is a privilege earned through strong collaboration with a range of stakeholders and local community. An open expectation gap exists between the community wants and what the mining industry offers (Mogotsi, 2005). Resultantly, several projects are to be abandoned by the mining companies. For instance, the Guatemalan Government revoked the mining license for flagship Escobal of Tahoe Resources due to its long-running dispute with the local community (The Northern Miner via Factiva). Similarly, US$5b copper-gold Conga project in Peru by Newmont has been deferred due to community opposition (SNL Metals & Mining Daily).
Strengths and Weaknesses of Risk Management in the Mining Industry
The risk management process of the mining industry comprises of six stages. In the first stage of risk process initiation, scope and context of the risks are defined and determined; methodology, technology and tools to assess the risks are identified and defined; participation of each business unit in analysis of the risk is identified; risk acceptance thresholds are defined; and reports and updates cycles are prepared. The second stage is of risk identification in which the currently known risks are exposed and documented; risk is identified through different tools and techniques; and risk is documented in a risk register. However, risk is not evaluated at this stage for avoiding biasness.
The third stage is of risk evaluation. The probability of occurrence and consequences of the identified risks are assessed. The agreed risk acceptance thresholds are used for classifying and prioritizing risk for further attention whereas the consequences of the risks are classified in the categories of economic and non-economic. Later on, the level of risk acceptance is determined by scaling the economic consequences which include revenues, operating cost, capital expenditure, schedule, and production volumes. The scaling of non-economic consequences is not possible. Examples of non-economic consequences include reputation, personal safety, community impact, compliance impact, health impact, and environmental impact.
Risk management is the fourth stage in which suitable responses for the identified risks are determined and implemented. The cost-effectiveness of the suitable responses is determined and agreed risk responses are allocated to a single risk owner. Moreover, secondary risks might arise from agreed responses. This possibility is considered and risk responses against targets and milestones are monitored and reviewed. If an agreed risk response is failed, additional responses are developed for achieving the required results. The last two stages are of risk reporting and risk updates. In the former stage, risk is documented in risk register with a reference number, title of risks, description of risks, last update of risks level of risks, responses for risks, likelihood and consequences of risks, and owner of risks. And, in the latter stage, all risk assessments and analyses are updated in the context of operational improvements, progress, or development.
The strength and weaknesses of the risk management system of the mining system lie in between the operational activities of these stages (Kumar & Rathore, 2015). The industry has a strong risk policy which indicates the significance of involvement of leaders in the ownership of risk. Moreover, it fosters a culture of risk-awareness in all dimensions of decision-making, i.e., from lrgal regulatory changes at national level to the workplace health and safety rules and regulations within the business. The industry has evolved from the ‘no care culture’ to a proactive approach towards providing and maintaining health and safety rules and regulations for the workers at the workplace. Furthermore, it encourages the procedure of the risk management with an integrated risk reporting and governance framework and takes suitable action to handle those risks that surpass the thresholds. The industry is working towards the energy mix, i.e., mixing the old and new technologies which is great for mitigating the risks associated with the introduction of new technologies and changing attitudes. However, the industry must regard the closure challenge through anticipating numerous plants and mines to complete their natural lives over the period of time and thus, advancing its strategies for responsible and reasonable closure. The industry also does not regard the climate change challenge. Therefore, it must comprehend its contributions to both the cause and effect of climate change.
Suggestions for Improvements
As pointed out earlier, digital transformation to increasing productivity levels. Technology players will introduce artificial intelligence and innovation in mining with automation in the field in future. Therefore, the industry must invest more in integration and expansion with a pragmatic approach targeting digital enhancements.
With regard to the increasing cybercrimes in the industry, the companies must apply a cybersecurity framework to achieve the target cyber risk profile. It is essential for identifying the critical cyber control gaps that need to be addressed.
The energy mix in China and the United States will be different from Australia so as the demand for electric vehicles in developed versus emerging markets. Therefore, the big names of the industry must take long-run decisions concerning where to invest and where not to invest and allocate capital in advance and with care.
More efforts must be made by the companies in the mining industry to earn a social license to operate from communities; they must engage early and openly with them, identify how to adjust the businesses to create more value, develop community engagement and development programs, and measure and report the impact and outcome of such development initiatives and community engagement.
