Striking gold: Expert insights on sustainable cost reductions, geopolitical tensions and community engagement

ESG criteria represent the main risk and opportunity for mining companies globally, as the industry is currently focused on increasing its environmental credibility.

But amid global economic uncertainty and geopolitical tensions, miners have also been mobilizing to secure their supply chains and meet carbon neutrality goals, while minding costs and output. 

These industry concerns are compiled in EY's Top 10 business risks and opportunities for mining and metals in 2023. BNamericas conducted an email interview with the consulting firm's global mining & metals leader, Paul Mitchell, to find out more.

BNamericas:  Mining costs moved from tenth to fifth place in your report this year, driven by inflation and supply chain disruptions. How can companies offset these factors? 

Mitchell: Increasing productivity remains the most effective way to sustainably reduce costs in the mining industry. With an increasing number of external factors impacting the industry and an increased focus on ESG factors, it's critical that a cost reduction program does not negatively impact any other strategic initiatives. Increasing productivity also has the advantage that it reduces carbon, as less inputs mean less outputs with carbon. 

It is critical to understand what cost reductions need to be made, how quickly they can be made, and how long they can be sustained. The use of analytics can help miners to better measure and manage costs. By conducting both qualitative and quantitative analysis, miners can quickly identify opportunities for cost reduction, prioritize them and develop quantitative estimates of the value of cost reduction. 

Mining companies will also need to maintain focus to protect margins and reduce exposure to current and potential future cost increases. Any cost-reduction measures must also be sustainable with long-term value in mind and not have a negative impact on LTO [long-term orientation]. Some possibilities are:  

• Switching to lower-cost renewable sources of energy
• Encouraging innovation and partnerships that will reduce costs in the longer term
• Reviewing capital tied up in high levels of pre-stripping, advance development and stockpiles 
• Considering the use of contract mining versus sale or leaseback 
• Reviewing supplier and service contracts 
• Creating strategic joint ventures to optimize economies of scale 
• Reducing back-office costs through automation or outsourcing
• Consider collaborative contracting on supplier contracts 

BNamericas:  What role do public policies and incentive mechanisms for investment in mining play in the objectives of achieving economically sustainable mining?

Mitchell: Governments around the world are using sustainability tax measures to reduce emissions, meet their commitments on carbon neutrality and tackle climate change, as well as to raise revenue and fund important policy objectives. 

More recently, with the focus on securing supply of critical minerals, incentives are being offered to develop critical mineral mines; e.g., the US Inflation Reduction Act (IRA) establishes a New Advanced Manufacturing Production Credit of 10% of the cost of production to incentivize the domestic production of various components, including applicable critical minerals used in renewable energy generation, storage and related manufacturing.  

Not only does the IRA incentivize domestic production in the US but it will likely drive M&A for the next 10+ years, given it offers US$500 billion of tax deductions and loans to invest in the sector. We are very hopeful that the Chilean government will have some positive incentives for lithium.

BNamericas: How will geopolitical tensions affect decarbonization targets and the energy transition? 

Mitchell: Global tensions are likely to continue as the energy transition gathers pace and companies set decarbonization targets and demand for green minerals increases. Supply chain disruption, rising costs and shortages of raw materials put focus on the geographic concentration of critical minerals and the need to diversify supply chains and ensure domestic or friendly supply. 

As a result, the EU and US will cooperate to try and build sustainable, secure global supply chains of strategic minerals with like-minded partners and developing countries. The US-led Minerals Security Partnership and the EU’s Critical Raw Materials Club are likely to be the primary means by which investments and export deals are arranged. Western developed markets with significant mineral resources, mainly Australia and Canada, will continue to increase scrutiny over foreign investment in green minerals. 

Some resource-rich developing countries will continue implementing measures to retain control of strategic minerals and develop downstream industries at home. Starting in June, Indonesia plans to ban exports of raw bauxite. In addition, a group of Latin American countries representing 65% of global lithium reserves is considering the formation of an OPEC-style lithium organization to develop processing capacity and sustainable mining practices, and coordinate production flows and pricing.

BNamericas:  China has assumed a key role in harvesting and distributing critical minerals. Will it cement its leading role in global mining? 

Mitchell: China will likely intensify its investment activity into mining in South America and Africa as countries such as the US, Australia and Canada invest in domestic critical mineral supply and increase scrutiny of foreign investments into mining. China is also the major producer and consumer of many other base metals and bulk materials required for infrastructure and construction, and this is likely to continue. 

BNamericas: There is increasing pressure from mining projects' surrounding communities. How can miners improve their communication efforts and dialogue with local residents?

Mitchell: Shape a stronger message around mining’s value to society and the economy: In a market where capital is scarce and investors seek evidence of value beyond the financials, miners must rebrand. Companies should consider how they can work more closely with governments, communities and sector associations to more clearly demonstrate how they are creating long-term value. 

Deepen the company’s understanding of specific community issues and concerns that impact stakeholders. Any small misstep could cause loss of LTO. Taking a holistic approach to community considerations will help allocate time and capital to projects that deliver meaningful shared value for companies and stakeholders alike.

Engage early and openly with communities to understand and address concerns around mining operations and implement strategies to reduce impacts, with the view to create lasting value for both the community and the organization.

Identify how operations can be adjusted to create more value for communities and consequently increase the value to the company. 

Develop community engagement and development programs with a clear strategic focus, linking to a well-defined business case considering risk and opportunity.

Measure and clearly report on the impact and outcomes of community engagement and development initiatives so that value is demonstrated to stakeholders and decisions on investment can be targeted toward the initiatives providing the greatest value

Engage communities early in mine closure discussions to ensure value beyond life of mine as well as just transition.

BNamericas: Do you think there's a growing greenwashing trend in mining? 

Mitchell: Claims of greenwashing are a risk for mining companies. Increased scrutiny of mining companies is inevitable as the green energy transition gains momentum and manufacturers and customers seek transparency as to the source of raw materials and products.  The International Sustainability Standards Board (ISSB) aims to help meet the demand for high-quality, transparent, reliable and comparable reporting by companies on ESG, including climate data.

Mining companies can increase their credibility, and avoid claims of greenwashing, by ensuring robust communication of disclosures that are based on data and backed up with action plans. Mining companies can also improve the availability, rigor, trust and reliability of data used in disclosures. Policymakers and companies also need to work together to ensure the availability of better climate and other ESG data to create transparency and assurance of company actions or plans.