Risk mitigation unlocking opportunities

Tuliikeni Ndadi

Mining Engineer at Standard Bank Namibia





It is widely known the mining industry is a risky business. Along with the conventional risks such as the ability to access and replace reserves, volatile commodity prices, and access to capital, new and growing risks have emerged throughout the years involving the current pandemic at large, access to clean sustainable energy, digitization and cyber security. These risks, both old and new, play a critical role in shaping the landscape of the mining industry.

Fortunately, mining businesses can have a proper strategic response to mitigate these risks and unlock further streams of value. The key lies in identifying these risks and understanding them.

Here are five risks that have emerged throughout 2020:

Global Pandemic: COVID-19

The mining sector has succumbed to periods of devasting economic conditions before, but the Covid-19 pandemic is different. It is not only a health, social and economic disruptor, but also impacts global wellbeing and worldwide economic activity, simultaneously. The lockdown and economic shut downs, as a measure introduced by various governments to curb the spread of the virus, has caused disruptions to global mining supply chains. This has resulted in a double impact on the supply and demand. The demand for commodities has dropped as a result of a reduction in economic activity, however concurrently, the supply side is also hindered as a result of travel restrictions. Ultimately, this has impacted global commodity prices with some prices increasing such as uranium and gold, whilst other prices decreasing such as fuel, copper and zinc.

Access to clean sustainable Energy

Mining operations are highly energy intensive with the cost of energy accounting for up to a third of the total cost base. The industry throughout the years has relied on conventional fossil fuel-based energy sources such as coal, natural gas and diesel. Faced with rising fossil fuel prices, unreliable power supply from the grid, and uncertain power prices, the sector must also meet a growing demand from global and local regulatory bodies and investors, to operate in a sustainable manner. These pressures have led mining companies to integrate conventional fossil fuels with renewable sources of energy such as wind, solar, hydropower and biodiesel. The use of renewable energy sources creates a vast stream of benefits such as, cheaper mining operations in the long run, lower greenhouse gases emissions, energy efficiency on site, and sustainable development support.

Regulatory and fiscal stability

With the growing demand in commodity prices and reserves depleting in first world countries, mining firms are finding themselves in jurisdictions known for fiscal and regulatory instability; namely in Latin America, Africa and Asia. Governments in natural resource rich countries are seeking more ways to have larger returns from their natural resources beyond the normal taxation system. One of the key risks is resource nationalism and studies have shown that the higher commodity price are, the more disputes and controversy is around the structure of mining firms within a jurisdiction. It is therefore crucial that both mining firms and the host governments operate on a basis of transparency with reasonable expectations of the anticipated revenue from the project.



Digitalization

With the awakening of the fourth industrial revolution industries across the globe are adopting smart technology to increase efficiency. Mining companies have commenced in with digital innovation. The mining landscape is being transformed through data mining and analytics, automation and industrial internet. However, digital innovation goes beyond the implementation of smart technology. Adopting these technologies should be based on solving operational constraints such as enhancing productivity and increasing margins from the pit to the port.

Environmental sustainability

Historically, the mining industry has been known for its environmental damage including concerns around emissions, water use, deforestation and community relations. Recently, there has been a growing number of regulatory structures that govern the environmental policies and impact of the mining sector. These structures have recognized and emphasized on the importance of a low-carbon economy and less destruction to the environment, placing pressure on mining companies to find innovative ways to reduce their carbon foot print across the value chain.