Global forces shaping the future of mining and how to navigate them

The 16^th edition of the World Economic Forum’s Global Risks Report offers a fascinating overview of stakeholder perceptions of risks, and cautions that if the most pressing environmental risks are not confronted soon, environmental degradation and societal fragmentation will intersect, with dramatic consequences.

Every first-quarter, the big-four consulting firms publish their analyses of risks or issues facing the mining industry. All these reports are highly relevant, but questions remain as to how they can be used by mining companies to think through the implications for their business.

One approach is to look at risk and issues not in isolation, but to consider how they manifest themselves as forces shaping the future of the mining industry. Whereas risks vary from year to year (evidenced by the emergence of infectious diseases as one of the Forum’s top risks in a matter of months), forces endure over a longer timeframe. Unpacking the forces influencing the future of the mining industry can help make sense of complexity, better situate how risks manifest themselves, and improve our understanding of how to navigate them.

There are 10 identifiable forces (as indicated in the above graphic ) split evenly under the headings of proximate and remote forces. The distinction between proximate and remote forces partly relates to physical separation – most remote forces play out far from where mining takes place, whereas proximate forces play out closer to the point of mining. However, the difference has more to do with agency and influence: a combination of the capacity of a company’s ability to act independently and make choices, coupled with their ability to influence how the forces manifest themselves. Companies enjoy a much higher level of agency and influence for proximate forces, relative to remote ones.

Take the example of transactional forces from the proximate category. These are grounded in economic relationships based on the exchange of goods and services, notably between mining companies and their customers, investors, contractors and service providers. One feature of the transactional relationships between mining companies and customers that is radically changing is the ability to influence market access. Customers are no longer solely concerned with price and quality – increasingly, they are also concerned about the provenance and means of production of mined materials.

The industry has responded by developing a range of initiatives that establish performance requirements for the responsible production of metals and minerals. Supply chain integrity concerns have been a significant driver, especially from consumer-facing companies in the automotive and electronic sectors. Accordingly, the ability of a mining company to convincingly communicate to customers that it is responsibly producing metals and minerals is increasingly a differentiating factor for success.

The transactional relationship with investors is also being transformed through the growing role of Environmental, Social, and Corporate Governance (ESG) factors in investment decision-making. Historically, company valuations were based on the core metrics of expected production volumes, costs, commodity prices, currency exchange rates, size of reserves and quality of management. Increasingly, ESG factors are material considerations. Mining companies need to be able to engage their investors on ESG in a thoughtful manner. Otherwise, the risk is that rating agencies define how potential investors regard their ESG risks – often in widely differing ways.

In part the changing transactional relationships with customers and investors motivated the development of ICMM’s Mining Principles – our strengthened membership requirements launched last year. They represent a credible benchmark of responsible mining that provide an effective response to these demands and enable members to legitimately reclaim ICMM’s position as a leadership organization.

For contractors and service providers, the long-term trend is towards outsourcing many skills or services traditionally kept in-house as companies protect themselves from cycles of recruitment and retrenchment depending on market conditions. Recognizing this force allows companies to question what impact a heavier reliance on contractors and service providers can have on company culture. And as culture is a function of shared goals, values and practices, to consider how companies can retain a distinct culture when so much work is being outsourced.

Ownership of resources is another example of remote forces. States in most countries declare ownership of sub-surface resources in the interest of all citizens. They consider it their sovereign right to determine whether and how resources can be developed. Communities often feel a degree of ownership of the resources that lie beneath their lands and expect a role in determining whether or how these resources should be developed. In the case of indigenous communities, this sense of ownership is intensified by historical dispossession and disadvantage, as well as a heightened degree of land connectedness. And companies who have acquired the rights to develop natural resources from the state, understandably feel some degree of ownership.

Beyond this trio, there are several examples of governments going further and engaging citizens in decision making about resources development in countries such as Colombia, El Salvador and Mongolia, that have significantly blurred the boundaries of ownership and decision-making around mineral resources.

While I have identified 10 distinct forces in two categories, in practice, they don’t exist in isolation. The nexus and interplay between different proximate or remote forces is often what is most important. This holds true for technological and employment forces, whereby a singular focus on technology optimization – without considering employment impacts or opportunities – could result in very poor decision making. If the outcome was to render a large number of local employees redundant, the impact on relational forces and the degree of community support that a company enjoys could be profoundly damaging.

In a similar vein, conflicts around mining projects are often rooted in the nexus between contested perspectives regarding the ownership of mineral resources and the locus of decision making. Where unresolved tensions remain about either of these factors, there is a risk of conflict.

Ultimately, while companies can choose to either passively observe and react – or actively track, respond, and sometimes harness these forces – perhaps the most important thing for companies to recognize is that none of these forces are entirely beyond the control or reach of their capacity to engage or influence.