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Mining companies continue to strive for excellence

ANDREW SWART The mining industry could be facing a cliff if new mines and developments are not invested in

NORTH AMERICAN MINING Facing a rocky economic climate, mines are shedding costs and pursuing operational excellence

20th February 2015

By: Dylan Stewart

Creamer Media Reporter

  

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North American mining companies are increasingly pursuing superior performance as they respond to low commodity prices, with innovation gaining in importance and energy costs being managed as a diversified portfolio that can be optimised, advisory firm Deloitte Canada national consulting mining leader Andrew Swart says.

These observations are among the ten key global mining trends set out in the 2015 edition of Deloitte’s ‘Tracking the Trends’ report, which Swart applies specifically to the North American mining industry in an interview with Mining Weekly.

He says the first key trend is companies’ pursuit of operational excellence, explaining that, over the past three years, firms have been resolute in cutting costs at their head offices and operations amid low commodity prices.

“While there have not been any major structural changes in the North American market in the form of a major entry or exit by a corporation, high-cost operations have been shed.”

Companies are compensating for this cost reduction with a drive towards achieving incremental productivity improvements, he states, adding that, in North America, companies have tended to consolidate around more productive mines.

Other measures have also been taken to improve productivity, such as establishing structures within a company to enable actual miners to provide input and ideas, and using more sophisticated techniques, such as analytics, to achieve operational excellence.

The second key trend is a shift in the mining industry’s attitude towards innovation.

Previously, mining regarded innovation as a luxury, but it is now being perceived more as a key to survival, Swart says.

He adds that innovation has typically been regarded in a narrow sense – being simply about technology and research. However, firms are creating more sustainable cost positions by doing things differently in all operations, from a technological angle in terms of mining and exploration to areas of corporate social responsibility, which also include mining companies’ interaction with governments.

Thirdly, managing energy costs is starting to develop as a diversified portfolio that can be optimised.

Swart explains that, despite energy costs totalling up to 50% of a mining operation’s cost, energy sources, such as diesel, were simply regarded as an independent cost input.

However, firms are starting to consider energy use for an organisation in a holistic manner by assessing the use of less conventional forms of fossil fuel, such as compressed or liquefied natural gas (LNG) or alternative renewable-energy options.

For instance, American coal producer Alpha Coal West converted its 16 haul trucks at the Eagle Butte mine, in Wyoming, to using LNG, while multinational commodity trading and mining corporation Glencore installed a 3 MW wind turbine at its Glencore Raglan mine, in Northern Quebec.

Companies are also responding to energy’s impact on the environment, communities and general stakeholders, Swart says.

The fourth trend is that the industry finds itself on a dwindling long-term development path, with numerous firms having scrapped their corporate development departments.

Swart warns that the industry could “face a cliff” if there is no investment in new mines and developments and he foresees a significantly different supply-demand balance if this trend deepens.

The fifth trend pertains to financing and the current parched financing market for mining companies.

Swart elaborates that this has particularly hurt junior mining companies, with no capital left in equity funds for new projects at this low point in the commodity cycle. Therefore, firms are searching for alternative financing sources, including sovereign wealth funds in the Middle East.

The sixth key point that Swart draws on is junior mining companies’ fight for survival.

“The junior sector is the lifeblood of the industry and major mining companies typically look to the juniors for acquisition opportunities to supplement their development pipelines; however, very few major mining companies currently have healthy balance sheets . . . to facilitate these kinds of acquisitions,” he adds.

In addition, many junior companies operate at a prospecting level and, therefore, have not benefited from the lower oil prices from which many of the major companies might benefit.

The next trend – organisations seeking new skills sets – stems from the skills shortages at different levels across the North American mining industry, Swart says.

Diversification at management and board level is a trend that more companies seem to be following, in terms of not only gender, particularly in North America, but also industry background, with some companies appointing individuals from the broader sciences, healthcare and the consumer products industry as board members.

Swart believes that, as a historically insular industry, the importance of “diversity-thought” as well as drawing on and applying lessons and best practices offered by other industries, is gaining momentum.

The eighth trend is the ways in which different organisations have negotiated geopolitical uncertainty.

Global mining companies have to cope with unpredictable conditions and Swart contends that, as opposed to simply “riding-out this wave of uncertainty”, more positive companies are aiming to develop techniques, such as scenario planning, to better prepare for the unpredictability of the geopolitical climate.

The second-last trend is particularly strong in North America and it involves increasingly more contact between mining companies and the surrounding communities.

Swart explains that, in the US and Canada, there is a lot of community activism and engagement from mining organisations with First Nation communities – often referred to as ‘aboriginal communities’. In Canada, new laws will require companies to disclose payments to foreign and domestic governments as well as aboriginal entities.

He states that a fine balance must be struck by mining companies to create mutually beneficial agreements that benefit not only the mining company but also the surrounding communities.

Mining organisations are undergoing an in-house process of developing new skills to acquire this balance, Swart believes.

He describes the tenth trend as companies’ re-evaluation of their fractious relationships with governments and the broader economic concerns of governments, which have become more salient in creating productive dialogues between mining companies and governments.

Rather than focusing on only mining operations, mining companies have had to widen their scope to consider the impact of their operations on the broader economy and how mining projects can help drive development in those regions, he says.

In recent years, the friction between governments and mining operations has often centred on environmental platform issues. Swart highlights US President Barack Obama’s hesitation to approve a permit, which will allow for the extension of Keystone XL pipeline over the US border to Canada’s Alberta bitumen site – commonly referred to as the Alberta oil sands – to illustrate this.

Swart notes, however, that contrary to the Keystone XL case, national laws are often trumped by laws and concerns specific to regional politics.

Andrew Swart
Consulting Mining Leader
Deloitte Canada
aswart@deloitte.ca
http://www2.deloitte.com/ca/en/industries/energy-and-resources.html?icid=top_energy-and-resources

 

Edited by Leandi Kolver
Creamer Media Deputy Editor

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