By Nicki Ivory, Deloitte’s National Lead Partner for Mining & Metals
Entering 2024, the mining and metals industry finds itself at the centre of a complex matrix of challenges and opportunities, expectations and demands.
In 2023, the geopolitical environment, which was already complex and heated, deteriorated further. Meanwhile, record levels of catastrophic weather events underscored the need for urgent action on climate change.
The global economy, already severely disrupted by the pandemic, remains challenged by levels of inflation not seen in decades and skill shortages plague many advanced economies, handicapping growth.
Meanwhile, despite mining companies’ efforts to improve transparency and adopt responsible mining methods, the industry is still battling an image problem and is failing to articulate a clear sense of purpose in the face of shifting public sentiment. And of course, last year was the year that generative AI (Gen AI) truly arrived, with governments, the private sector and the public realising the immense economic opportunities and challenges the technology presents.
Tracking the trends
In Deloitte’s 2024 Tracking the Trends report, we identify the key trends that we believe will shape and impact the industry over the next 12 to 18 months. In Australia, we find the following trends particularly relevant to mining and metals operators.
Navigating global uncertainty building capacity to thrive in the face of disruption
The disruption of the COVID-19 pandemic has given way to the kind of complex and tense geopolitical environment we have not seen in decades, which is disrupting business-as-usual operations and creating considerable uncertainty.
During 2023, the Russia-Ukraine war continued to disrupt commodity markets, impacting supplies of everything from nickel to fertiliser. This conflict has now been compounded by a deterioration of the security situation in the Middle East that has the potential to destabilise both commodity markets and global shipping routes that underpin supply chains.
While geopolitical tensions approach boiling point, the rapid pace of technological advancement continues unabated as a notable increase in extreme weather throughout the year underscored the risks posed by climate change and the need for action at a global scale.
Critical mineral supply chains find themselves at the intersection of global geopolitical uncertainty and the push towards net zero goals. The mining of these essential minerals is heavily concentrated in specific geographical regions, with Australia dominating lithium production, China leading in graphite and rare earths and the Democratic Republic of Congo in cobalt.
However, the processing stage is even more geographically concentrated, with China accounting for more than 50 per cent of the world’s refined supply of various critical minerals. It’s not hard to figure out that these supply chains are susceptible to geopolitical risks, posing a potential threat to the speed of the energy transition unless diversification efforts are expedited.
In response to this landscape, businesses are shifting away from vertical integration towards an ecosystem approach. The growing complexity of these networks means that changes in markets, politics, and regulations have far-reaching impacts across industries, sectors, geographies, and suppliers.
We are also seeing dynamic strategic planning emerging as a key solution to navigate this evolving terrain. A dynamic strategy allows businesses to proactively adapt to changing scenarios, minimising operational threats and capitalising on new opportunities by incorporating flexibility and innovation into decision-making processes.
A higher emphasis on scenario planning further aids in testing strategies in a hypothetical environment before making decisions. Encouraging executives to immerse themselves in hypothetical yet plausible scenarios provides valuable insights into how organisations might need to adapt to potential future developments.
Dealmaking for future-focused growth – rethinking minerals and metals investments
This growing complexity is prompting key stakeholders to rethink how they invest in minerals and metals and position themselves for the future.
The proof is the numbers – mergers and acquisitions (M&A) activity totalled USD$88.2 billion in value across 288 deals in 2023, a level of activity not observed in a decade. This has been driven by the need for traditional minerals and metals players to increase their exposure to critical minerals or metals key to the transition to net zero – think BHP’s acquisition of OZ Minerals, which increased the mining giant’s exposure to nickel and copper.
Other players prioritise organic growth into new markets while companies with portfolios centred on high-emission commodities are exploring ways to enhance investment appeal as environmental, social, and governance (ESG) concerns increasingly become a priority for both institutional and retail investors.
This shifting investor sentiment combined with major energy, resources, and industrial players adopting firm net zero targets requires executives and directors to put an ESG lens over everything they do.
ESG imperatives are leading key players into unusual alliances and partnerships. Globally, governments are also emerging as a crucial source of investment for not just ESG-focused initiatives, but also projects that enhance sovereign energy and minerals security.
For instance, the US Government’s Inflation Reduction Act and the European Union’s Critical Raw Materials Act are injecting substantial funds into critical minerals projects that will see the onshoring of parts of the manufacturing process for products crucial to the net zero transition, like lithium batteries.
In Australia, the Federal Government has announced a significant expansion in critical minerals financing, doubling the capacity of the critical minerals facility to support mining and processing projects.
Where government money flows, investor money follows. Organisations that put an ESG lens over everything they do and look outside the traditional partnerships and alliances box will, in the long run, prove to be more resilient.
Working toward net zero – building capacity and future-proofing ESG strategies for a credible transition
According to the UN, the world is in danger of falling short of its goal of limiting the global temperature rise to 1.5 degrees by the end of the century and could overshoot that target by as much as one degree. The environmental and economic effects of this would be catastrophic.
Research by the Deloitte Economics Institute has found that, if left unchecked, climate change could create USD$178 trillion in global economic losses between 2021 and 2070. Conversely, a coordinated effort in climate change mitigation could deliver an additional 300 million jobs by 2050 and boost the economy by more than USD$43 trillion by 2070.
The private sector has a pivotal role to play in ensuring we not only avoid the catastrophic consequences of missing our climate goals, but that we also capitalise on the economic opportunity inherent in the transition to net zero. But first they need the capacity to do so.
A potential first step organisations can take is to think beyond mere emissions reduction. ‘Climate Related Transition Plans’ (CTAP) are a useful framework for laying out holistic decarbonisation targets over the short, medium and long term by integrating capital allocation frameworks, operational impacts, and portfolio optimisation.
In addition to holistic plans, leaders should also look at what action is truly ‘credible’, recognising that standards may vary across sectors and geographies based on technological, physical dependencies, and equitable transition principles. It is good practice to stay abreast of evolving regulatory frameworks and socio-environmental shifts in their operational jurisdictions.
It is also important that leaders learn how to navigate ESG-focused disputes as scrutiny around global corporate climate disclosures and ESG grows around the world. Avoiding accusations of greenwashing necessitates ethical dealings and collaborative efforts with customers, suppliers, regulators, traditional owners, and competitors.
Collaborating with governments to rethink regulation
The true challenge in the transition to a net zero economy lies in swiftly ramping up supply to decarbonise economies before critical climate tipping points are surpassed. However, lengthy approval processes for critical projects endanger the ability of our industry to do all it can to help reach net zero.
S&P Global notes that the average mine takes 15.7 years to reach commercial production, emphasising the need for expedited processes. The industry should look at how it can take a collaborative approach with government to balance appropriate regulation against streamlining approvals and enhancing overall competitiveness.
The industry also needs to make strides to engage in effective project prioritisation, considering factors like power supply, water availability, and infrastructure. Economic relationships with Indigenous rights holders present both challenges and opportunities, highlighting the importance of not just mandated consultation but establishing effective voluntary collaborations. Integrating Indigenous knowledge systems into project design fosters direct community participation, addressing concerns promptly and lowering barriers to approvals.
Addressing workforce challenges through a skills-based approach – equipping mining and metals companies for the future
Lowering development approval times is a pointless exercise if the industry does not possess workers with the right skills. Skills shortages are emerging as a permanent, not a transitory, issue for the metals and mining sector and will not simply go away if the global labour market – currently running hot – cools down.
Solving this problem will require the industry to tackle the specific structural issues causing workforce challenges while keeping an eye on broader employment trends, like the importance of Diversity, Equity and Inclusion (DEI) and modern work.
The mining and metals industry grapples with the challenge of attracting talent, particularly among younger generations. According to the Australian Geoscience Council, the number of students completing geoscience degrees plunged more than 40 per cent in the eight years to 2021. Meanwhile, the Australasian Institute of Mining and Metals Industry reports that the number of mining engineer graduates more than halved between 2011 and 2020.
It has been suggested that the industry has an image problem among young people, who highly prioritise environmental and ethical concerns when searching for an employer. Despite notable strides in environmental and social commitments, the industry must evolve to appeal to the values-driven Gen Z and millennials and articulate a clear purpose that champions the worthwhile contributions the industry makes to clean energy, global food security, and economic development.
We also must make strides to rework industry education programs, specifically by focusing on micro-credentialing, as it makes it easier for workers interested in joining the industry to gain necessary skills. It will also make upskilling easier – a necessary development in a fast changing industry. Collaboration between industry players and universities is vital for developing relevant courses, curricula, and credentials.
A focus on workforce well-being is also important, and DEI initiatives play a central role. While the mining and metals industry is gradually becoming more diverse, a focus on systemic changes and supportive structures is necessary to reap the full benefits of diverse workforces.
Achieving gender balance, as seen at BHP’s South Flank iron ore mine where women make up 40 per cent of the front-line workforce, is essential to attracting and retaining talent.
Bringing Generative AI into mining and metals – capitalising on current and future opportunities
2023 will be remembered as the year of Gen AI. While its initial impact was noticeable in consumer-facing sectors, Gen AI holds immense potential for industrial and enterprise applications and could help the mining and metals industry solve many challenges.
Realising these benefits will involve the industry overcoming its inherent conservatism. Many companies are recognising the potential of Gen AI to introduce contextual awareness and human-like decision-making into workflows, fundamentally altering business operations.
Understanding potential use cases is crucial. In the near term, Gen AI is expected to impact workforce productivity and efficiency, enhancing back-office tasks and aiding developers in code writing.
Longer term, virtual ‘field assistants’ could improve safety, bridge knowledge gaps, and guide new recruits through processes. Gen AI’s simulation and modelling capabilities may support supply chain resilience and optimisation in the near future.
One of Gen AI’s crucial capabilities is facilitating deeper interactions with data, an asset for mining and metals businesses that want to be as efficient as possible. Despite previous digital transformation efforts, some companies struggle with data accessibility, and Gen AI platforms offer a solution to this challenge.
While Gen AI platforms are still evolving, their capabilities are advancing rapidly. Exploring and implementing Gen AI now could provide valuable insights, allowing organisations to adapt and evolve alongside the advancing technology.
What’s in store for 2024
It is clear that mining and metals companies will continue to play a critical role in the energy transition.
In 2024, miners must keep advocating for the critical role minerals play in addressing climate challenges. They must lead the way purposefully to a sustainable future by addressing supply shortages and ESG challenges, and adopting emerging technologies, all while attracting the best and brightest talent to the industry. If they can, the future looks bright..
