Top 10 business risks
Risk radar for mining and metals
102468Transparency
Productivity7
89
Ran
kin
g
in01Up from 2016Same as 2016Down from 2016New to the radar
20–2
01Acc
ess
to an
d optim
ization of energy
Soc
ial lic
ense t
o operate
Cas
h opt
imizatio
n
Reg
ulato
ry risk
New
world
commodities
Cyb
er
Com
petitive
Res
ourc
e repl
acement
Digi
tal
effe
ctiveness
shar
eholder return
s
Man
agin
g join
t ventu
res
“Thisyear’sbusinessrisksreportclearlyrefectsthepositiveuptickin
themarket—volatilityhaseasedoffinanumberofcommodities,and
balance sheets are in a better position. It is now all about how you stay
aheadofthecompetition—gainingcompetitiveadvantageandbeing
atthelowerendofthecostcurveiskey.Managingtheriskswillassist
mining and metals companies to do this.”
Paul Mitchell,
EYGlobalMining&MetalsAdvisoryLeader
1Top 10 business risks facing mining and metals 2017–2018
Executivesummary
Our number one risk this year is digital
effectiveness. While the concept of digital
mining is not new, there is disconnect
between the potential from digital
transformation and the successful
implementation of new technologies.
We believe that digital transformation
will be a critical enabler to address the
sector’s productivity and margin
challenges. Companies risk being left
behind by their competition if they are not
at the forefront of this.
Competitive shareholder returns is a new
risk at number two as it has exponentially
increased in relevance over the last six
months. With cash being generated at
signifcant levels again, the level of
shareholder activism in the sector is
increasing on the back of the fear that it
won’t be sustained. Mining and metals
companies need to differentiate
themselves — by investing capital properly
and getting a good return compared with
the rest of the market. Ultimately, they need
to be a leader in the market to
attract capital.
Cyber risk has moved up to the number three
position as a result of increased digital
transformation and the convergence of
information technology (IT) and operational
technology (OT), which makes companies
more vulnerable to the continued rogue
activity in the sector.
New in at number four is new world
commodities as disruption in other sectors,
particularly with increased focus on
sustainability, is having a major impact on
commodities. The end of petroleum cars will
impact a signifcant part of platinum demand:
almost half of global platinum production is
used in catalytic converters to remove diesel
pollution. Other commodities, such as cobalt,
lithium and nickel, will beneft from the
increased demand for battery storage.
Regulatory risk is new and comes in at
number fve, although it includes elements of
transparency risk. While transparency is still
important, there has been a sharp upturn in
regime risk in developing countries as
commodity prices improve and countries
seek their fair share of improved returns.
Licensing requirements have also increased
as a result of environmental accidents.
Also new to the risk radar is risk eight:
resource replacement that needs to be
addressed now to future-proof your
organization. With leverage across the
sector signifcantly reduced, and cash fow
improved as a result of better capital
allocation and higher commodity prices,
shareholders expect higher returns than the
sub-5% on average over the last fve years.
Until these returns are met, investing for
growth will remain a marginal activity rather
than the central strategy that defned the
frst decade of this millennium.
“Digitaltransformation,
ongoinginnovation
and a focus on new
world commodities are
bringing a different
kindofvolatilityto
the mining and metals
sector. Companies will
havetobeincreasingly
fexibleandagilein
their business models
toremaincompetitive.”
Miguel Zweig,
EYGlobalMining
&MetalsLeader
T
o
p
1r
is
k
s
2017-2018
O
v
e
r
1y
e
a
r
s
2008 (peak of the supercycle)
01Digital effectiveness01Skills shortage
02Competitive shareholder returns02Industry consolidation
03Cyber03Infrastructure access
04New world commodities04Social license to operate
05Regulatory risk05Climate change
06Cash optimization06Rising costs
07Social license to operate07Pipeline shrinkage
08Resource replacement 08Resource nationalism (regulatory risk)
09Accesstoandoptimizationofenergy09Accesstoenergy
10Managing joint ventures10Increased regulation (regulatory risk)
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Top 10 business risks facing mining and metals 2017–20182
Thefocusshouldbeonusingdigitaltosolve
themosturgentbusinessproblem:improving
productivityandmarginsacrossthevaluechain.
K
ey
t
h
ou
g
h
t
Digitalishavingsignifcant
impact in the sector as
companies seek to use new
technologies to support efforts
toimproveproductivityand
margin.AnEYpollearlierthis
yearwithover700industry
representativesrevealedthe
majorityhavestartedthe
digital journey.
In our experience, the bulk of these digital
activities have been initial “no regrets”
projects on a small scale as many
companies have had mixed experiences
with new technologies in the past and want
to limit capital expenditure.
Digital goes beyond adopting technology
though — it needs to be solving a business
issue and is key to resolving the sector’s
number one operational challenge:
improving productivity across the value
chain. Companies need to be pragmatic
when targeting digital enhancements. New
tools can be OK, but investing in integration
and expanding usage of current applications
can also generate a lot of value. Using
digital provides access to additional data
and ways of analyzing that data to enhance
asset management, improve reliability and
consistency, and also introduce predictive
capability. For example, you make subtle but
important changes to your operations in
wet weather. Digital enablement could help
determine optimal run rates under different
conditions, such as the maximum loads and
driving speeds in wet weather, and preempt
truck breakdowns. There is a massive
opportunity through digital.
Much of the sector focus on digital has been
on driving the productivity agenda, but
wider themes may fundamentally change
how the sector works. For example:
Blockchain — Secure distributed ledger
approaches may offer pathways for
contract automation, reducing transaction
costs and improving Internet of Things
(IoT) security.
How we buy — Direct linkages between
machine health and virtual warehouses
can optimize working capital, and
analytics will help to identify spend and
cost-reduction opportunities.
How we sell — Analytics for customer
insights and optimization tools will drive
greater real-time sales to match
production profles.
New world assets — Rio Tinto’s New
Ventures business is focused on
investments in new and emerging
commodities.
Disruption — In the future, technology
players bringing innovation to mining with
automation and Artifcial Intelligence will
disrupt traditional structures.
We believe that new business models will
need to be developed, so agility is key.
Digital
effectiveness
(New)01
102468Access t
o and optimization of energy
Social lic
ense to operate
Cash opt
imization
Regulato
ry risk
New world
commodities
Cyber
Competitive
Resource
replacement
shareholder returns
Mana