In 2020, the top 40 global mining businesses, which account for the vast majority of the industry’s revenue, generated $656 billion in sales. However, the mining industry’s net profit margin has declined from 25% in 2010 to 11% in 2020.
The mining industry is facing many challenges as the world moves towards more sustainable sources. Demand for ‘critical minerals’ (such as copper, lithium, nickel, cobalt, and other rare earth elements) continues to surge while operating environments become more challenging, and new players emerge in this increasingly volatile and unpredictable sector.
Leaders across the mining sector have had to reset their strategic objectives and priorities. A central narrative emerged — the issue of trust. Mining companies are now considering what they should do to increase or rebuild trust among their ecosystem of stakeholders.
At the same time, the industry is also responding with more fundamental shifts to business and operating models. New business models offer opportunities for miners to reposition for a changing future, with many companies considering the benefits of strategies to rationalise, grow and transform. Companies that scrutinize and shift business models now can get an edge on competitors as demand and expectations change.
However, environmental, social and governance (ESG) related risks have quickly become a legitimate business concern. Community relations and social license to operate remain important issues for mining companies. Environmental risks, including new regulations, have also become more prominent.
How can mining navigate these immediate challenges while progressing their transformation into purpose-led, low-carbon, digitally enabled organizations?
How ESG in mining contributes to revenue growth
Mining companies with higher ESG ratings have outperformed the broader market. During the peak of the COVID-19 pandemic, these companies delivered 34% average total shareholder return over the past three years — ten percentage points higher than the general market index.
Mining companies are also leveraging on new technologies to improve their ESG performance and ultimately deliver net positive revenue growth for their shareholders. For example, big data and machine learning are being used to understand mineral diversity and distribution, and discover new, potentially lucrative mineral deposits5.
Delivering — and maintaining — positive revenue growth in mining
Mining companies must assure the long-term development of its resources if we are to maintain a competitive advantage for the industry. We can benefit from sustainable development if we entice investors, avert project setbacks, improve technical progress, and strengthen local and international partnerships.
Some of the ways that this objective can be achieved by mining companies include:
- Production increase
Mining companies can increase their production output by investing in new equipment, technology, or expanding their operations. This increased production can lead to an increase in revenue.
- Acquisition or merger
Mining companies can also record positive revenue growth through acquisitions or mergers with other mining companies. By combining operations, companies can reduce costs and increase production, resulting in higher revenue.
- Improved operational efficiency
By improving operational efficiency, mining companies can reduce costs and increase production output, resulting in higher revenue. This can be achieved by streamlining processes, reducing waste, or implementing new technologies.
- Exploration and development
Mining companies can also generate revenue growth by investing in exploration and development activities to identify new mineral deposits and bring them into production.
The Renoir advantage in mining
New technologies such as artificial intelligence, data science, and automation are creating innovative solutions that can optimise operations. There’s an urgent need to adopt these technologies to drive innovation and create mines of the future, but mining companies face high costs and rocky implementation initiatives.
Renoir has been working with mining companies to navigate this volatile environment by implementing successful changes to operations and building capabilities that are crucial for them to thrive and succeed. We achieve this through:
- Capex Management
We run procurement spending and diagnostics to identify cost savings on fixed assets across global operations. This includes supply chain maturity assessments (structure, process, and systems) to target reductions in the total cost of ownership.
- Performance Management
We establish operational KPIs to monitor and improve business performance through visual performance dashboards, and review mechanisms tailor-made for maintenance and supply chain operations. Additionally, we also work with clients to establish defined roles and responsibility statements such as RACI.
- Digital Transformation
We significantly improve materials management and increase service levels using systems and processes already in use by the client, while at the same time reducing working capital through inventory optimisation. Our cross-functional skills in strategic sourcing, and warehouse and materials management through embedded ERP solutions will reduce working capital and associated operating costs simultaneously and sustainably.
If you would like to learn more about how we do this, please feel free to get in touch with us.