Mining sector: Time for a makeover
Mining companies are increasingly concerned about their licence to operate — not just in regulatory terms, but also when it comes to approval from stakeholders and society
If delegates wanted to play a drinking game at the 26th Investing in African Mining Indaba in Cape Town this week, drinking a shot every time the phrase "social licence to operate" was uttered would have had them three sheets to the wind in no time.
The expression captures the idea that companies no longer just need regulatory permission to operate; they also require approval from stakeholders and society at large. It was a favourite cliché among speakers at the event.
In fact, a recent EY survey of more than 150 global mining executives found that their largest concern is retaining their licence to operate.
It’s not hard to see why, given their environmental and social track record in the context of diminishing natural resources, rising inequality, community unrest and climate change concerns.
Still, rebranding the mining sector as green, socially conscious and sustainable is a tall order for even the savviest of marketing gurus. But cleaning up its image — and its act — is something the industry must pursue to secure its future.
It has some way to go.
For example, for Anglo American to produce 40kg of copper today requires 16 times more electricity than it did 120 years ago. And processing it now uses double the amount of water.
Community unrest around mines is growing. In SA, in particular, the Minerals Council SA has noted a definite upward trend as dissatisfaction over widespread poverty and unemployment deepens.
Tackling this is something Barrick Gold, the second-largest gold miner in the world, has prioritised. Just last week it entered into a joint venture with the Tanzanian government to oversee future gold mining operations in that country and settle a long-running tax dispute between the two.
"Industry and its investors still have some way to go adapting ... to the expectations and demands of a changing world, not least by creating catch-up opportunities for societies that have been left behind in emerging countries," says Barrick Gold CEO Mark Bristow.
Miners need to be part of the solution, not the problemPaul Mitchell
Miners are also feeling the pressure to decarbonise their operations as action over climate change intensifies. Carbon taxes look set to hit them where it hurts.
"Miners need to be part of the solution, not the problem," says Paul Mitchell, EY’s global mining & metals advisory leader. "Hence their engagement around topics such as the circular economy and green mining of the future."
Discussions on those — especially the latter — were a prominent part of the mining indaba.
Globally, mines are looking to implement renewable power solutions to bring down costs and decarbonise their businesses. In SA, where load-shedding has again become a regular feature, the incentive is even greater.
Mines have, however, been prevented from establishing any significant green power projects of their own due to regulatory hurdles. Positively, mineral resources & energy minister Gwede Mantashe told delegates on Monday that these restrictions would be lifted soon.
The industry’s clear focus on developing energy efficiency and renewable power solutions is not just because of carbon tax liability. It’s also due to pressure from customers — particularly consumer-facing ones such as jewellery outlets and smartphone producers — to clean up its act.
Kirsten Lori Hund, a senior mining specialist at the World Bank, says future-proof mines will have to go well beyond just injecting renewables into their operations. "It’s as much about innovation for a sector that is not naturally super innovative," she says.
"It is very much about sustainable natural resource use and reassessing your portfolio. Then there is the issue of recycling and reuse which is not at all an issue the mining industry is talking about, and I think that is something that needs to be discussed a lot more in this sector."
According to Hans Kuipers, MD and partner at Boston Consulting Group, many mining companies still underestimate the risk climate change presents for their businesses.
Kuipers says the typical response to climate change among mining companies has been to launch initiatives to enhance energy efficiency, secure water sources and, in some cases, restructure portfolios to exit commodities perceived as unfriendly to the environment — mainly coal.
But proactive companies that go beyond this will have an advantage. Kuipers says mining executives should focus on three key priorities: developing a climate-conscious, scenario-based business strategy; climate-proofing operations; and engaging stakeholders with an inspiring narrative.
Evidence suggests that the marketplace will reward those that do, he says. In his company’s analysis, mining companies that have most proactively addressed climate change — those in the top quintile of emission performance — already have, on average, valuations 20% greater than their peers in the bottom quintile.
Anglo American’s Mark Cutifani sees mining as key to human progress. However, he says "we need to ask ourselves some tough but necessary questions about our values as an industry and how we can work together to go forward.
"We need to connect the future of mining with emerging and next-generation societal values."