Mining may be our oldest industry — it predates agriculture by tens of thousands of years — but that doesn’t mean it’s predictable. In 2016 mining companies all over the world face pressures that are testing their leaders and risk managers.
Rising scrutiny, falling prices
Issue number one for the mining sector is of course the reduced income caused by the long-lasting decline in commodity prices, which in many cases are near all-time lows. Other issues, however, weigh heavily as well:
- Regulatory pressure and the rising cost of compliance
- Greater scrutiny on mine closure obligations, financial assurance and environmental liabilities
- Challenges to industry business models, including long lead times for new projects, making new revenue streams harder to establish
Cutting costs, not corners
The combination of less revenue and more hoops to jump through puts a considerable burden on mining companies. Clearly costs must be cut if profitability — and viability —are to be sustained. As the same time, that does not mean cutting corners — increased scrutiny and smart operational management won’t permit it. Two areas standout as places where costs can be addressed: people costs and insurance costs. In both cases, analytic tools now available can aid in the process.
In the area of human capital, software tools can help companies understand, rationalize and strategize their overall costs, from compensation to spending on safety and employee health problems, whether caused by illness or injury.
In the area of insurance costs, analytic tools can reveal opportunities by examining risk retentions, costs structures and overall risk transfer strategies.
In search of efficiency
Risk managers, whether on the human capital or physical asset side, need first to understand their risks as fully as possible, including an analysis of what changes to their risk profile may be on the horizon due to the changes in the industry and in the organization’s immediate business objectives. They need to then look at the potential implication of these risks, their risk mitigation strategies and their risk retentions on their balance sheet. Armed with that data, they can then begin looking at ways to re-optimize their spend on people and insurance and create long-term strategies that are as efficient as possible.
The history of mining is full of stories of tools and technologies that have enabled miners to do a better job of extracting the raw materials that the world demands. Today we are finding that some of those tools have more to do with people and finances than earth and minerals.
Fred Smith IV
Head of Mining & Metals, U.S.
Head of Mining & Metals, LatAm