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KPMG: Global mining industry balancing environmental risk with increasing demand

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Global Mining Review,

The global shift towards decarbonisation is driving growth and optimism in the world’s mining sector, according to KPMG International’s Global Mining Outlook 2022.

The annual report, now in its 12th year, draws on the insight and experience of KPMG professionals at member firms around the world, in addition to survey analysis from more than 300 sector executives in 23 key markets.

In the latest report, 62% of respondents revealed they were confident in the growth prospects for their organisation over the next 24 months. While the figure is down slightly from last year’s survey (66%), it reaffirms that volatility in commodity pricing, combined with wider geopolitical and COVID-19 uncertainty, is not dampening optimism in the market. Despite significant fluctuations, commodity prices remain at near all-time highs, driven by enormous growth in demand for minerals, including lithium, nickel, cobalt and graphite – all essential components in the global decarbonisation journey.

Trevor Hart, Global Head of Mining at KPMG International, said: “As the world’s supply chains look to meet rising demands, the mining industry finds itself increasingly in the spotlight, being challenged to quickly deliver the materials the world needs in a way that is acceptable to more and more stakeholders. In my view, transparency and high-quality engagement will be critical. For those who get it right, I believe the rewards will be significant.”

ESG increasingly recognised as top industry risk

While some of the impact from the COVID-19 pandemic has receded, it is notable the top risks facing then mining industry continue to come from outside the sector, rather than within.

Commodity prices, permitting risks and access to reserves are still key issues for executives, but environmental and geopolitical factors are increasingly taking up boardroom time. The top-ranked risk identified by respondents was environmental risks, including new regulations. Last year, environmental, social and governance (ESG) only ranked fifth among top risks.

Following the climate commitments of COP26, it should not come as a surprise that almost three-quarters (72%) of mining leaders questioned for the report anticipated that the wide array of ESG factors would create disruption in the industry over the next three years.

The sector faces increased scrutiny and investor pressure as the world looks to tackle the growing climate emergency, but for many leaders, a lack of clarity, inconsistencies in rules across different territories and ever-changing regulations could stymie otherwise optimistic growth prospects. More than half (55%) of respondents said they did not believe ESG issues were clearly understood and consistent across the market.

Katherine Wetmore, Risk Consulting Partner at KPMG in Canada, commented: “Increased stakeholder interested in ESG targets and rising investor expectations are signs that mining businesses are having to change their focus and make longer-term commitments they have not had to make in the past.”

Despite the uncertainty, there are signs that industry leaders are using the current period of growth to reinvest and commit to a greener, more sustainable future.

Ivan Mullany, Senior Vice-President of Projects at Newmont Corporation, explained: “To get to a 30% carbon reduction by 2030, we need to bring more renewables into our business. Doing that for our high carbon-emitting sites – converting them to wind or solar – will take us to that 30% target in combination with other efficiencies.”

Embracing technological transformation

One important way of reducing carbon footprint is through the adoption of new technologies – with 87% of executives believing that technology has a key role to play in solving ESG challenges. Nearly half of executives (46%) believe that technological innovation will be a source of major disruption in the industry over the coming three years, and nearly everyone is determined to jump on this as an opportunity rather than a threat.

Jeff Parr, Vice Chairman at Agnico Eagle Mines Ltd continued: “There is an opportunity for growth from embracing technology. You do not necessarily need to buy or find more ore. There’s technology emerging now that is starting to let us reduce cut-off grades, for example, and produce more of what we already have and do that profitably.”

Manuel Fernandes, Energy and Natural Resources Leader at KPMG in Brazil, added: “Mining companies are not well-known as technological disruptors. But there is a mandate now to invest more in technology to come up with solutions to the challenges of today – from ESG to productivity to ways of lowering costs.”

One striking note from this year’s research was the impact of COVID-19 completely disappearing from the top 10 risks identified by executives. The industry, like most others, has adapted to the ‘new norm’ from the pandemic, with some of the lasting effects remaining problematic for the sector, including increased global demand and supply chain issues. However, the world is now looking towards an economic recovery and has developed a growing acceptance that more chronic international issues, including ESG, need to be tackled more proactively.

Trevor Hart, Global Head of Mining at KPMG International, concluded: “For an industry that inherently operates over the long term, these shifts in a short space of time are striking. They underline the extent to which climate change-related issues and ESG more broadly are reframing corporate priorities in mining, as in almost every business sector. They also influence the attractiveness of the industry to the new and diverse talent it requires.

“ESG is becoming ever more top of mind in mining company boardrooms, but this does not mean that other opportunities and risks have fallen away. Commodity prices will always be the commercial lynchpin of the industry’s fortunes – and with prices riding high, executives in this year’s survey are generally in a confident mood. The risk is more around price volatility, with some marked swings of late challenging established LME trading systems, with temporary suspension of nickel trading as a result.

“Political instability, nationalisation and the global trade conflict threat have all become front-line factors too. The survey was carried out before the terrible events in Ukraine unfolded. I suspect that if we were to re-run it now, these risks would be appreciably higher still. From my observation, the opportunities for the industry are outstanding. The importance of the sector for the world’s future has been gaining more and more prominence and I believe it finds itself in such a strong position to deliver.”

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