White & Case reviews 2020 mining and metals industry concerns

Highlights:

• After 2 decades of supercharged Chinese growth and concerns about a global slowdown, other issues such as resource nationalism and trade pressures, compliance and ESG considerations are taking centre stage for investors and throughout the value chain.
• There is concern around the sustainability of record returns in 2019, driven by strong underlying fundamentals and whether the big miners have been neglecting growth.
• ESG issues are now prominent in boardrooms across the corporate spectrum and mining is no exception
• There is a renewed focus on the safety of mining and the impact on the communities around its operations, with investors demanding transparency.
• For the third consecutive year, the global economic backdrop remains the sector’s biggest concern, with trade tensions now seen as a greater risk than the slowdown in China.
• The US and Chinese governments have signed a preliminary deal after a year of negotiations, but the majority of border taxes remains in place, so there is still much to be done in a “phase two” deal.
• Beyond the macro climate, resource nationalism and climate change policy are the other prominent themes of concern.
• Over a quarter of respondents expect a continued focus on productivity gains to be the sector’s top priority in 2020.
• Pursuing ESG policies, dealing with tailings dams and responding to the challenges of climate change were all seen as more important priorities than growth in 2020.
• More than 37% said that expect generalist investors to remain wary of the sector (up from 30% last year), and shareholder returns are expected to be the most alluring factor to this group.
• Climate change response continues to gain traction, with 2019 proving that miners are in control of what they can do to adapt to environmental challenges and improve their reputation as a result.
• The majority of respondents felt it should be the combined responsibility of the raw material supplier, primary manufacturer and the consumer to deal with industry emissions.
• This year’s tailings controversy resulted in almost half of respondents saying the impact of the mining industry on local communities would be under the most scrutiny from investors and regulators, followed by water usage.
• Resource nationalism is another concern, with 41% expecting Africa to remain the riskiest jurisdiction, and 26% choosing Southeast Asia.
• Three quarters expect the environment to be the biggest issue for governmental enforcement in 2020, which is expected to increase.
• 50% say opportunistic deals are most likely in 2020
• Base metals and precious metals are expected the be the most active sectors, with battery materials falling one place to third.
• Base and precious metals are also expected to perform best this year, as battery material markets remain under pressure.
• In terms of technology, productivity gains reducing the environmental impact remain at the forefront.
• All major miners will continue to increase the spend and rollout of data analytics to improve mining and exploration activities and cost drivers will again be the biggest driver for innovation.
• Blockchain initiatives continue, especially in consumer-focused commodities or those with negative ESG associations. Its use in managing supply chains and logistics has the most support.

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Read the article online at: https://www.globalminingreview.com/mining/24012020/white-case-reviews-2020-mining-and-metals-industry-concerns/