Risk management, technology and collaboration remai.n key themes for driving productivity.
Australia mining is the beneficiary of a ‘mini boom’ driven by the coming together of strong prices for key commodities and increasing investment according to Trevor Hart KPMG’s Australian and Global Mining Leader.
Mining is a complicated and difficult business at the best of times and today’s miners have an increasingly full agenda to manage. Mr Hart has signalled four key focus areas for FY2020 to enable growth and deliver productivity.
The Australian Government has signalled it expects commodity export earnings to peak at a new high in 2020 – some 12 months later and higher in value than originally thought. The revised prediction is the result of a swing in the global iron ore and gold prices, coupled with a favourable Australian dollar. KPMG says that’s good news for the mining sector.
“In the June Quarter of 2019, the Department of Industry, Innovation and Science revised its export estimate upward by $12.9 billion for current financial year (FY2020) to $285 billion,” said Trevor Hart. “Iron ore is expected to deliver $79 billion of this value alone.”
But Mr Hart says this is not just a story about higher prices on larger production volumes. It is accompanied by increasing investment in mining projects in Australia, together with global expansion in exploration activity.
“While we don’t think this represents ‘Mining Boom Mark Two’ we do see it as a key driver of capital flowing into the sector.
The Australian Bureau of Statistics cites investment in Australian mining projects up year on year for 2020 with $32billion estimated – representing a nearly 30 percent increase over 2019 levels. There is anticipated expansion across many commodities, however the lion’s share is in iron ore, lithium and gold projects. Importantly, this should reverse a trend of reducing investment since the boom of 2012/13
Global exploration budgets are also increasing. S&P Global estimates that 2019 spend will continue to grow beyond $US 10.5billion. This will bring three consecutive years of growth after dipping to $US7.5 billion in 2016 with all miners recognising the criticality of replacing reserves.
“Not surprisingly, there is a lot of talk in Australia about the opportunity potential new exploration technologies might bring to identifying large ore bodies hidden under cover. This represents just one of the technology imperatives for the sector,” Mr Hart said.
The drive to optimise assets and maintain a focus on costs and productivity remains critical. Increasingly miners are catching up to other sectors on the use of technology to achieve this across the mine to market supply chain, with a focus on ‘day in/day out’ consistency and reliability.
“To illustrate this, KPMG see companies researching and deploying technologies across digitalised in pit shovel operation, sensors installed on major equipment to better predict wear, autonomy of heavy equipment and rail to increase productivity safely,” Trevor Hart noted.
He emphasised that these demonstrate just some of the opportunities that exist right across the production chain.
“Increasingly the benefits of collaboration are being considered and I see this continuing. Whether it is between miners and the suppliers to install digital sensors, the electrification and automation of equipment or with other miners on safety initiatives or the reduction of water usage in processing, the scale and number of opportunities will increasingly encourage collaboration.”
KPMG says Australia and its mining community is very well placed to be at the forefront of these developments. Already the sector is seeing specific education and training initiatives developed that can benefit across industry on the skills required for the future of mining.
Environmental, Social and Governance (ESG) has been a driver of change in the sector and it’s with us for the long term according to KPMG. It goes to the heart of being able to attract talent, capital, customers and maintain community support.
“KPMG continues to see increased demand for its advisory services across community engagement, greenhouse gas emission reduction strategies, water management and broader social license to operate considerations,” said Mr Hart.
“As ESG becomes increasingly complex, miners of all size must have a clear strategy, with measures that identify success. Going forward, these measures will be attached to executive remuneration and reported.”
Whilst in the past, success has been measured against key mine safety, profitability and shareholder return measures KPMG says future measures will be prominent, including those around reducing carbon emissions, protecting the environment and community contribution.
In the context of the ongoing trade discussion between China and the US, global uncertainty will remain in the short term at least. With IMF downgrading global growth forecast to 2.7 percent and governments searching for ways to stimulate slowing economies there are mixed messages at a macro level on the health of the drivers for demand for commodities
KPMG says that means a focus on ongoing risk management in mining is vital. All eyes are now on risk to add deeper value.
“Active risk management must help protect the strategy against risks such as demand volatility, disruption and competition– as well as mitigate the threats of poor culture, conduct and cyber risk,” said Mr Hart. “Heightened local and global investor expectations, with further regulatory scrutiny, will result in risk coming under fire if it fails to evolve and keep pace with business and environmental changes.”
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