How technology is reshaping supply and demand for natural resources, Productivity at the mine face: Pointing the way forward, Getting big mining projects right: Lessons from (and for) the industry, variables that a mining management team doesnt have control over. Can you talk a bit about the downswing? Mining companies, including Constellium SE, Copper Mountain Mining Corp., and BHP Group Ltd., are leading peers in revenue growth as a weaker U.S. dollar and growing economic uncertainty push. Research shows that workforce diversity bolsters a companys ability to innovate. The authors would also like to thank Joanna Lambeas and Meghan Gragtmans for theircontributions and Anup Mistry for his endless support and expertise on the mining roles of thefuture. Push digital transformation further. Despite the fact that most of the industry has recovered from the initial shock, great uncertainty remains about the macroeconomic outlook and about COVID-19s longer-term impact. Although battery metals companies represent a relatively small portion of our survey sample, they had the largest proportion of strong performers, generating a median TSR of 14%. The authors would like to thank the following people from Deloitte Consulting for theircontributions to this article: Kristy Delaney and Aparna Burke for their knowledge of operationalmining roles, Jessica Sonnekus for her expertise on supervisor roles in the mining sector, andLeani Hanekom and Cassandra Wilding for their passion and insight into behavioral drivers of safetypractices. 1 2 2020 was a tough year for the mining industryand the past decade has been even worse. Through creative ways of working and learning, Wing wants to continue to be a part of, andbuild, high-performing teams by challenging everything we do from a personal, work, and mindset perspective. Simultaneously, mining companies are experiencing a growing shortage of skilled employees in the industry's expanding specialised departments, such as mine . Her specific specialization includesleading delivery and thought leadership in areas of digital and the impact on work, the workforce, andthe workplace. The degree of uncertainty in the current environment is especially high because demand in the immediate post-COVID-19 era and volatile trade policies have compounded uncertainty about the industry cycle. The future is always uncertain, but a crisis unleashed by a global pandemic is truly unknown territory, especially in a highly connected global economy. BCG uses a straightforward methodology to quantify the relative contributions of the various sources of TSR. The mining industry relates to extracting various minerals and metals from the ground, either on the surface of the Earth or underground. We begin with a review the ups and downs of the year when COVID-19 struck, and then we revisit the challenges of the last decade. Dwindling mineral basins are leading mining companies to remote locations with limited infrastructure. The global mining equipment market size was estimated at USD 135 billion in 2022 and is expected to expand at a compounded annual growth rate (CAGR) of 5.1% from 2023 to 2030. In the early months of this year, stock prices have rebounded and commodity prices have increased even more strongly than they did last fall. In the first quarter of the year, widespread lockdowns hammered the S&P index by 30% and lowered commodity prices by double digits, eroding total shareholder return (TSR). Colombia's coal production could hit 71.9 million tonnes this year, driven by favorable weather conditions in mining regions. The Wall Street Journal reported last week that, although the U.S. is very rich in underground lithium resources, it currently mines and processes only about 1% of annual global lithium production . They needed to think about what investments were needed to rehabilitate that. We have mines in conflict areas and conflict zones in different parts of the world. Learn about Deloittes offerings, people, and culture as a global provider of audit, assurance, consulting, financial advisory, risk advisory, tax, and related services. initiative.4 Today, there are nearly 13,000 active mines in the US as of 2019, valuing at $61 billion. Actions taken by the industrys top value creators offer useful lessons for others in the industry on how to chart a path to success despite the many uncertainties that lie ahead. To tap the power of digitization and automation, companies can focus on automating their operations and support functions, establishing new goals for productivity, safety, and efficiency. Our research underlines how much has . Economic history Sectors Economy by state Economy by city or county Labor United States portal v t e Mining in the United States has been active since the beginning of colonial times, but became a major industry in the 19th century with a number of new mineral discoveries causing a series of mining rushes. Four of the ten bottom performers for the decade are coal companies, several of which are directly exposed to commodity price and ESG pressures. Promoting diversity also means seeking talent with backgrounds in different industries. Il aide de hauts dirigeants traiter leurs enjeux stratgiques les plus urgents, notamment en ce qui a trait leurs stratgies relatives lentreprise et la concurrence, ainsi qu leurs transformations organisationnelles. It was a unique period at the beginning of the supercycle driven by Chinese demand where the capital required by the industryand the capital that was available for the industry because of the expected returnswas truly amazing. Miners should develop a growth agenda. Rusal, which is also using renewable hydropower energy for its aluminum smelter, is reportedly earning 2% to 3% above average London Metal Exchange (LME) prices as a result. Thats pretty stark. Mukani Moyo: One of the things that weve done in our research is to create the metric that tries to quantify productivity in a mining context by taking into account all of these inputs that go into a mining operation and also trying to disentangle those variables that a mining management team doesnt have control over. David Hunter: And what sort of initiatives is that translating to? Theyre building other things that are not direct infrastructure considered in the mining operation but have to work in order for them to be able to do what they need to do. The global mining market is expected to grow from $1641.67 billion in 2020 to $1845.55 billion in 2021 at a compound annual growth rate (CAGR) of 12.4%. It then uses the change in the companys valuation multiple to determine the impact of investor expectations on TSR. Every sector is adopting new technologies to improve efficiency, achieve operational cost savings, and maintain sustainable growth, and the mining sector is no exception. But better days lie ahead. A focus on cash flow contributed significantly to other companies results. Mukani Moyo: Ill share an example here. As weve pointed out, a lot of that is going to be in new and more challenging places. And rebuilding the war chest for reorienting and rebuilding a growth agenda. The global imperative to support decarbonization efforts is forcing organizations to start rethinking the skills and capabilities needed to achieve the net-zero workforcea sustainable workforce that meets and supports organizations net-zero carbonization ambitions. We look at how companies may be able to take advantage of recent price hikes to improve their position for the future. The COVID-19 crisis has exposed the siloed nature of mining companies and highlighted the need for integrated operations. And when an industry recovers, businesses do not simply revert to their previous positions within it. As of late 2019, according to BCGs numbers, Fortescue operated the worlds second-largest installed fleet of automated haulers. At years end 2020 and/or years end 2010; see part 2 of the Appendix for the full list. goal.3 Notes: The mining industry is a highly technical field that already employs leading technology in autonomy, mobility, active safety, and advanced data and analytics. Wing hasworked with the Future of Work team on developing the digital Nerve Center solutions for the intelligent mine. The evolution of technology, from advanced data analytics to artificial intelligence (AI), has always had the potential to transform the mining industry by realizing operational efficiency improvements, enhancing productivity, improving safety performance, empowering employees to do more meaningful work, and allowing communities to be more prosperous. Many mines are building schools. David Hunter: What did that do to the production and profitability of the industry worldwide? Metals and Mining Industry, Current targets published by mining companies range from 0 to 30 percent by 2030, far below the Paris Agreement goals. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/path-to-net-zero-more-mining-companies-setting-targets-to-reduce-emissions-61626513. There are real opportunities to harness the information and data that we generate in mining operations. titre dassoci directeur du secteur nergie, ressources et produits industriels, M. Swart est responsable de la dfinition de lorientation stratgique et de la stratgie de mise en march. That big truck that you see hauling hundreds of tons of ore costs millions of dollars. Maybe our growth expectations for Chinese demand were a little bit optimistic. That means that we now have basically put on the tracks a bunch of investments that we either need to write off or see through to their logical conclusion. We have automated hauling. . Mergers and acquisitions activity in the metals and mining sector has been robust to date in 2022, capitalizing on high commodities prices. And this matters. Although the mining industry has endured a rather rough decade and the future isnt guaranteed to be rosy, companies have a lot to be optimistic about. David Hunter: Thank you, Chris, and thank you, Mukani. And the rollout of vaccines to counter the pandemic is helping generate optimism among consumers and businesses alike. It was the water and the water reticulation. At years end 2020 and/or years end 2010; see part 2 of the Appendix for the full list. The laboratory, equipped with atomic absorption spectrometry (AAS) and fire assay equipment, provides an extensive range of services related to sample preparation and fire assay analytical testing. And the rollout of vaccines to counter the pandemic is helping generate . And as importantly, thinking about the talentyou know, where would they get all of the skills, both technical as well as operator, those skills to run this operation. But they also are very talented about managing a very complex web of stakeholders that allow them and give them the right to do that. No matter their starting point, BCG can help. Chris Mulligan: You start with demand and hopefully match it with supply. The future of work in mining has been saved, The future of work in mining has been removed, An Article Titled The future of work in mining already exists in Saved items. (See Exhibit 4.). Our future of work assets examine what future mining jobs will look like and enable the fundamental redesign of work, workforce, and workplace. Adopt new ways of working. According to McKinsey, the growing requirement for miners to be tech-savvy will result in an estimated 1 in 16, or around 100 million, workers globally needing to change jobs by 2030. The successful company of the future, regardless of industry, will be bionicseamlessly combining the capabilities of humans and machines. Operational monitoring and control systems have enhanced the productivity, safety, and . producers.5 In this episode of the McKinsey Podcast, McKinsey partner Chris Mulligan and Mukani Moyo, senior expert, discuss the complexities mining companies face in far-flung locations and the impact of technology on productivity. Similarly, BHP has launched a pilot project in autonomous shipping and deployed drones to increase onsite safety. Energy, resources, and industrial companies are among those facing the biggest constraints in offering flexible working and remote solutions. Chris, for listeners who dont closely follow the mining sector, can you start by setting the scene? Most mining companies have made a full recovery, and the industry finished 2020 with an impressive one-year median TSR of 26%. Companies in the sector are expressing renewed confidence, fueled by high commodity prices, fewer concerns about overcapacity, and a clear electrification trend worldwide. The valuations of some diversified companies dropped by as much as 50% in those early months. They recognize that its no longer an option; its a matter of competitive advantage. Gain valuable insights and practical knowledge from our specialistswhile earning CPE credits. First, the nature of work itself is evolving, with an increasing focus on automation, algorithms, and a growing need to be digital savvyresulting in an estimated one in 16 (more than 100 million) workers globally needing to find a different occupation by 2030. Urban mining not only reduces climate change by recycling products, but it also helps to reduce conflict in various zones. These innovations are also making mining operations safer, because were able to reduce the number of people that we have in some of the most dangerous activities that go on in mining. During the decade, their debt doubled, and by 2019 their median interest-coverage ratio was one-third what it was in 2007, despite the prevailing lower interest rates. And even though China is a resource-rich country, the amount of extra coal, iron ore, and copper, as well as a bunch of other commodities that China needed to consume in order to grow at the rates that it wanted to, entirely outstripped its own national ability to serve their own demand. The industry is unable to bring in new supply fast enough and technological innovation leads to materials . The South African construction industry is expected to see a 5.0% growth in 2023. Extracted gold and silver are commonly used to make jewelry or other precious goods. Viewed over a longer time horizon, though, the picture looks less rosy. Gold, traditionally a safe haven, climbed by 19% during 2020. But as markets stabilize post the initial COVID-19 shock, organizations are realizing that there is a critical, accelerated need to fundamentally rethink how value is generated and redesign how work gets done. Go straight to smart. Ongoing digital mine innovation is expected to transform the key aspects of mining during the next few years. However, there are some "green shoots," they say. (See Exhibit 5.) The mining industry is under increasing strain as the world population continues to grow. Whats the nature of the opportunity for mining companies? Compared to a chip fab or something that will run 99 percent of the time, or maybe an offshore oil rig, which will be around 80 percent, the mining industry is more like 60 percent, and some parts, even lower. BCG was the pioneer in business strategy when it was founded in 1963. Theres the technology opportunity. Those skills will become important. Even coal prices have seen a recovery toward early 2019 levels. Mukani Moyo: I think there are four things that mining companies are going to have to do to address the issues the changed environment has brought. 1. Muller plays an integral part in leading the Future of Work movement within South Africa by providing strategic guidance to business leaders on navigating the complexity of digital disruptions pertaining to changes in work, workforce, and workplace, and how to create exponential professionals. (See the exhibit.) The top ten value creators represent a mix of geographies and strategies. Nobody knows exactly what the impact of these operational lockdowns will be on the industry. Nearly 200 mines and 6,500 sand, gravel, and stone quarries in Canada produce over 60 different minerals and metals. Depending on how battery technologies develop, the industry will need more lithium carbonate or lithium hydroxide. For personalized content and settings, go to you My Deloitte Dashboard. This rebound has placed the mining industry in the top echelon for five-year TSR, according to BCG's recent 2021 Value Creators Rankings. 2 Limiting climate change will require a significant reduction in greenhouse-gas emissions between 2010 and 2050: a 41 to 72 percent decrease for a 2.0C scenario and a 78 to 89 percent decrease for a 1. . This speaks to some of the challenges associated with getting a mine up and running, and building all of the associated infrastructure that you need. David Hunter is an editor with McKinsey Publishing based in New York. Leaders face an uncertain landscape. This is a self-driving car on steroids, essentially. Chris Mulligan: Over the course of the past 15 years, the most pronounced trend has been what people call the supercycle, which was a Chinese-demand-driven desire for more commodities as they continue to industrialize their country. Gold is enjoying its biggest rally since 2012. More and more, were having to turn to new geographies, places that are untapped, often in the far-flung, remote corners of the worldplaces that have limited or no infrastructure. Get the Deloitte Insights app, Change your Analytics and performance cookie settings, Understand the effort required to clean up data and upgrade technology infrastructure, Integrate operations and governance by bringing planning and execution together in a closed loop system and integrating data across the entire value chain, Understand the staffing and skill requirements in moving toward integrated operations centers (i.e., Nerve Centers), Future roles and responsibilities within the Nerve Center, Skills needed to achieve new work outcomes, Relevant digital tools typically associated with intelligent mining and a Nerve Center, A glimpse into what a typical day in their lives could look like. Markets are increasingly fragmented. Diversity has served many top performers well over the past decade. You have to be able to negotiate and get to an acceptable social contractnot only in the near term, but in the long term, because these mines will last anywhere from a dozen to 50 years. That picture is changing markedly as 2021 unfolds, however. Streaming companies provide cash financing to mining companies in exchange for physical metal, which they obtain at a preset discount price. Now, yes, you do have to do that. The devaluation or divestment of anything ungreen. Increasingly, investors, governments, and communities are voting with their feet in response to companies ESG. Chinese . They needed to think about the rail infrastructure to get the material to the port. To achieve the desired value-driving outcomes, it is imperative to look out several years and understand and design for how humans could interact with the technology and with each other. Although many mining companiesincluding 11 of the 30 largesthave declared net-zero targets, they must become more responsive to stakeholders and the publics concerns if they are to avoid incurring financial penalties or disruptions to operations. Scientists are mining metals from an unusual source plants Scientists are starting to mine valuable metals from an unusual source: plants Grist / Arne Hodalic / Getty Images / Courtesy Antony. Pre-2008 was to increase throughput mainly by applying capital and without maybe as much cost discipline as you might expect. (See Exhibit 3.) Responsive companies are already seeing rewards: Rio Tinto gained an additional $6 million in EBITDA in 2015, the year it launched its green aluminum By contrast, technology companies valuations have soared during this period. So things like changes in the price levels of commodities or changes in the price of oil, which influence costs, changes in geology or the grade of a mineralweve essentially created a metric. These are technologies that have now been commercializedwhich means that in some mining operations out there, we have these massive fleets of giant ore trucks, pieces of gear that are the size of your house, driving and navigating their way around an open pit without anybody sitting in them. Theyre building roads. The evolution of technology, from advanced data analytics to artificial intelligence (AI), has always had the potential to transform the mining industry by realizing operational efficiency improvements, enhancing productivity, improving safety performance, empowering employees to do more meaningful work, and allowing communities to be more prosp. In many cases, its cheaper. Lastly, a special thank you to Tania Nieuwoudt for her contributions in both driving this publication as project manager and contributing as a future of work expert. Today, we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholdersempowering organizations to grow, build sustainable competitive advantage, and drive positive societal impact. In the top companies, digitization goes beyond mining operations and planning. But a gold producer created the most exceptional value for its shareholders. Some larger mining companies saw their TSR fall by 25% to 50% by the end of March 2020, as governments imposed the first lockdowns.