After commodity prices peaked in 2012, the mining sector experienced a severe decline, suffering weakened demand, squeezed margins and an ongoing lack of investment. Faced with a challenging climate, mining companies focussed on delivering operational efficiencies, and by 2017 industry capital investment was just a fraction of its peak five years earlier. CapEx and exploration spend were at an all-time low, and headcount and project capacity had suffered similarly. But the cycle has now turned – global economic growth has been stronger than predicted, boosting fresh demand for minerals and metals.
New growth in CapEx
Forecasters predict 2018 CapEx in mining to grow for the first time since 2013. And as investment ticks up, firms must learn the lessons of the past, and ensure that the next wave of capital investment is accompanied by improved project performance. The investment appraisal process must be far more rigorous than before, with business cases subjected to heightened scrutiny. Firms must explore the value of strategic partnerships that allow operators with specific skill-sets to share technical resources and engineering expertise. Partnerships will also enable firms that have downsized their exploration and technical assets to quickly get back up to speed. While mining companies must learn from other engineering and industrial sectors that have successfully deployed digital technology to deliver operational efficiencies.
Seizing the opportunity
2017 saw a significant recovery in the price of many key commodities, with global economic growth fuelling increased demand for minerals and metals – particularly from steel-hungry cities and large-scale infrastructure projects. A sharp increase in the number of electric vehicles has also boosted many commodity prices, and companies are gearing up to satisfy new demand. But with depleted exploration and production capabilities, many firms are poorly equipped to make the most of the opportunity. Yet this lag between demand and sufficient supply creates an enhanced opportunity for those operators who are able to plug the gap. As excess demand pushes up prices, it’s likely that commodities suppliers will benefit from a medium-term premium. And if firms can convince shareholders to pass up a potential cash windfall, and to invest in new production, this short-term boost could be converted into long-term advantage.
Making growth sustainable
Although the outlook for the mining sector looks strongly positive, firms still face a diverse range of challenges. Firstly, they need to regain the trust of their investors, which they can do through intelligent investment in innovation and digitisation, and through improving their public profile in an increasingly eco-aware environment. They must also impose greater discipline in their evaluation of CapEx projects, and crucially, invest in green mining practices and processes that reduce the environmental impact associated with mineral extraction. And of course, they must continue to invest in attracting and retaining senior leaders with the vision to lead them through the next decade and beyond.
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