Metals & Mining Scenarios for the Next Decade: How Miners in Africa Should be Strategising in a ‘VUCA’ World

‘VUCA’ – volatility, uncertainty, complexity and ambiguity – has always been part of mining. But the industry now faces challenges that are debatably bigger in scope and scale than ever before in its history.

A previous article discussed the implications for mining output of the global energy transition and geostrategic risks facing miners in Africa. Should leaders of mining companies be ramping up exploration in order to capitalise on forecasted demand escalation for metals such as cobalt, copper, lithium and nickel? If so, how will this be funded – are balance sheets strong, are merger and acquisition or joint venture deals being lined up, or contract service agreements being considered? The rights to access metal and mineral resources vests with governments – how will licences-to-operate (LTOs) be secured in the face of regional risks, sometimes including conflict?

These are some of the major strategic issues at play. Technology, as an enabler of improvement and a driver of innovation, is another.

Leaping technology is the reason behind miners’ projected 5.2% compound annual growth rate (CAGR) in digital technology investments to 2030, by which time the industry’s technology spending during the decade will have reached $9.3 billion, according to tech intelligence providers ABI Research.

A significant proportion of this will involve Artificial Intelligence (AI), which has multiple applications in mining, including exploration, productivity and safety. In many mines around the world AI is already extending automation into self-operation equipment, self-drive mining vehicles, and predictive maintenance.

However, the consultancy firm Gartner has an apt term for technology trends, the Hype Cycle. By plotting the take-up of new technologies in various industries over time, and their rate of sustained adoption or of redundancy, it’s evident that many technologies are seized upon early, but peak usage incidence falls quickly unless they prove widely beneficial. So there may be first-mover advantage to rapidly adopting a new technology, but it may be better to wait until its value is clear – and its cost has fallen.

And so technology is vital in mining, but it is not the be-all and end-all of a mine’s efficient operation and the company’s profitability and prospects. Here’s further evidence: the non-ferrous exploration budgets for 2022 alone, at $13 billion, were 40% higher than the industry’s forecasted digital transformation allocations for the full decade.

Key strategy issue:

• Digital transformation must be near the top of the strategy agenda. A mining company that isn’t thinking about how to gather data and better use it, will fall behind. However, technology is valuable not for its own sake, but because it can create value. Its contribution to operations and business processes is paramount. So technology strategies should start by asking what’s needed to boost productivity and stay competitive. An interrogation of ROI and payback periods is important.

The disruption created by rapidly evolving new technologies should be understood in parallel with issues involving people – their existing skillsets and gaps between what is needed now and in the near future, and creating employment opportunities even as automation escalates. These are fundamental to the viability of mining operations, on two levels. First, because motivated and skilled mineworkers make better hour-by-hour and day-to-day decisions, threading everything the company does, from problem-solving to productivity, safety to adherence to standards.

Secondly, relationships with local communities set the scene for a mine’s success. Without their consent, obtaining the license to operate for greenfield projects will be far more difficult; for existing mines, their smooth operation, extended lifespan and overall profitability hinges on cooperation, participation and transparency. This is particularly important in view of the increasing environmental impacts of climate change, water stress or severe droughts as one example, which add to economic instability in many rural or peri-urban communities.?

Two key strategy issues:

• Set out training and talent development programs, and prioritise employment of local people.
• Link these initiatives to a broader environmental, social and governance (ESG) strategy which creates benefits for people living in and around mining areas and, as part of the industry’s global commitment to governance and sustainability, adheres to international standards for responsible mining. Twenty-six countries in Africa are registered with the Extractive Industries Transparency Initiative (EITI). Assess whether the company is aligned with this body’s principles involving the full industry value chain, from the awarding of mining rights to how revenues are channelled through governments and how they contribute to public benefit.

Being prepared for change brings opportunity

Multiple indicators point to the mining industry being on the cusp of seismic change. Global conglomerates, having largely prioritised repairing and then consolidating their balance sheets after the 2008-9 financial crisis, now plan capital investments more aggressively, as well as eyeing merger and acquisition and joint venture opportunities to position themselves for the projected rise in metals demand. With the European Union’s Critical Raw Materials Act, the announcement of the US-Japan Critical Minerals Agreement, and the centralisation of procurement activity in India, the way the industry – worldwide, including operators in Africa – interacts with governments is about to enter a new paradigm. Meanwhile, playing catch-up to other regions of the world, in many parts of Africa a new social contract for mining is emerging. ?

The complexity of these issues, alongside the ambiguity of geopolitical risks, the volatility of modern-day trading conditions and the uncertainty that comes with? digital transformation and energy transition, portray a challenging period for the industry.?

The long view is that mining remains a rewarding sector – for the value it brings to the world’s economies, its contribution to countries’ revenues, in the creation of jobs and secondary industries or spin-off services. And financial returns: dips have always been experienced, but the global top-40 mining enterprises’ profits have soared in the last three years, and their aggregated market capitalisation has more than tripled in the past 20 years.[1]

Mining companies have handled VUCA well in the past. But this is no time for complacency or conventional thinking. For growth, profitability and societal contribution, strategise smartly for the decade ahead.?

Is VUCA stressing you out? If you’d like to share your thoughts on the mining industry’s challenges in the next decade, contact me at [email protected]

[1] PwC, Mining 2023, 20th edition: The era of reinvention