Executive Summary

12018 edition

In this Executive Summary

Additionally, in the full report

1 EXECUTIVE SUMMARY 3

2 TRANSFORMATION Leader 12

3 EXECUTIVE INTERVIEWS Leader 16

1 ii AIMS & METHODOLOGY

2 TRANSFORMATION

ii Introduction

iii Drivers

iv Importance of transformation

v Long-term planning

vi Employee engagement

vii Execution success

viii Discussion

3 EXECUTIVE INTERVIEWS

4 LEADERSHIP

i Introduction

ii Most desirable leadership skills

iii Greatest threats/risks (to industry)

iv Greatest threats/risks (to company)

v Greatest opportunities (for industry)

vi Greatest opportunities (for company)

vii Discussion

Read the full 132-page Global Leadership Report for:

In-depth interviews with 21 executives from leading companies

Survey synethesising the thoughts of more than 500 mining professionals

Identification of key transformational drivers

Identification of the major threats and opportunities

Identification of the most valuable traits for leaders

Download the full report: mining-journal.com

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2 2018 edition

EditorialHead of Aspermont Research & Intelligence Chris Cann

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A DECADE OF PROGRESS AND ACHIEVEMENTFRESNILLO IS PROUD TO MARK 10 YEARS AS A LONDON LISTED BUSINESS IN 2018

• Invested over US$6 billion in both existing operations and growing our portfolio of assets

• Successfully established ourselves as the world’s largest producer of silver and Mexico’s largest gold producer

• Grown from three to seven operating assets• Increased silver resources by 177% to 2.3 bn oz

and gold resources by 301% to 38.5 moz• Seen a 149% increase in the number of people

we employ

• Directly invested US$32 million in local community projects and over US$120 million in health and safety initiatives

• Paid over US$2.3 billion in taxes to the Mexican Government

• Returned over US$2.5 billion to shareholders through dividends

• Seen our share price grow 134% over the last 10 years since IPO, outperforming the FTSE 100 by over 110%

Since being the first Mexican company to list in London in 2008, we have:

32018 edition

Executive summary 1

The purpose of the inaugural Global Leadership Report (GLR) was two-fold.

First, to shine a light on the process of business transformation in the mining industry, which is facing an unprecedented volume of challenges including, but not limited to, rapid technology developments and more sophisticated stakeholder engagement. These points and others are addressed in isolation but rarely in the context of an overall transformation process. Specifically, we wanted to know:

What factors are driving transformation?

Is transformation being prioritised by mining professionals?

Is the industry planning for a changing future?

Are leaders successfully engaging employees in their transformative goals?

Are leaders successfully implementing change programmes?

And second, to prioritise the most desirable leadership attributes in the current environment, along with the greatest threats and opportunities from the perspectives of both the overall industry and individual companies.

The first part of this research is the focus area for this year’s GLR only and will be changed out for next year’s edition, while the second part will be repeated year-on-year to identify changes in industry thinking around these core leadership themes.

The research was carried out across two key mediums: interviews with executives from the industry’s largest firms by market capitalisation, who answered four open questions on transformation; and an industry-wide digital survey that recorded data for both the transformation and leadership analysis. The four open questions for the executive interviews were slightly different from those in the transformation section of the digital survey, as below:

What should the industry be doing to prepare for transformation?

What are you doing to prepare your company for transformation?

How effective have you been at introducing/executing transformation?

How engaged is your staff with the leadership group and its objectives?

We secured interviews with executives, mostly chief executives or equivalent, from 21 mining companies with a combined market capitalisation of $367 billion. The digital survey recorded responses from 518 industry professionals spread relatively evenly across industry demographics including employment level (consequently broken into ‘leadership’ and ‘employee’ groupings), headquarters, age and sub-sector (explorers, developers etc). Respondents who identified with board-level employment inclusive of chief executives were classified as ‘leadership’, with those at lower levels considered ‘employees’ for the purpose of the study.

All values are stated in US dollars unless otherwise stated and market capitalisations from executive interviews were taken as at June 1. A comprehensive account of the aims and methodology can be found in the full report.

Author: Chris Cann, head of Aspermont Research & Intelligence

“The mining industry is facing an unprecedented volume of challenges including rapid technology developments and more sophisticated stakeholder engagement”

Executive summary

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Executive summary1

The greatest driver of transformation was Digitisation, which we used as a proxy for the broader theme of technology advancements. Digitisation was the clear leader ahead of second-placed Increasing Regulation, a proxy for stakeholder engagement and creeping resource nationalism.

Falling Ore Grades was the third-most-significant driver, which could also be viewed as a proxy for lack of exploration success. Fourth was a lack of skilled labour.

The leadership grouping ranked Increasing Regulation as its number-one driver for reshaping businesses, though Digitisation was a close-run second.

The employee grouping, in contrast, rated Digitisation as the key driver by some distance then ranked Falling Ore Grades at number two.

Overall, more than 90% of respondents said preparing for Transformation was either Very Important or Becoming Increasingly Important. This was evenly split, with 46% of respondents falling into each category. Only 8% said preparing

for Transformation was Not Important to their businesses.

In one sense, the leadership group showed a more emphatic outlook on transformation, as determined by a 48% return for Very Important responses compared to a 43% return for Becoming Increasingly Important. The employee grouping, in contrast, showed a marginally less emphatic attitude to transformation, with 45% saying it was Very Important and 47% saying it was Becoming Increasingly Important.

The questioning around long-term planning aimed to see whether industry leaders were focused only on the day’s production rates and the next quarterly report to shareholders or were mindful of the need for future planning to prepare for transformation, as gauged by the frequency of meetings to discuss issues beyond a three-year horizon. These questions were put to only those who identified as part of the leadership group.

On the positive side, more than half of industry leadership teams were meeting at least quarterly to discuss concerns and opportunities likely to pop up

Transformation survey

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What’s driving transformation?

Leadership Employees All respondents

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Digitisation

Increasing regulation

Falling ore grades

Skilled labour shortages

A circular economy

0 1 2 3 4 5 6 7 8

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Executive summary 1

beyond a three-year horizon. Within this, 10% said they were discussing such issues on a weekly basis.

The concern was that a significant minority – 20% – said they did not meet at all to discuss issues beyond a three-year horizon. This result we found breath-taking, as most businesses from any sector should have a three-year vision, let alone companies that operate in an industry where depleting the product you’re selling is the primary objective.

We asked those who identified themselves within the leadership grouping to rate their success in engaging with employees and, separately, asked those who identified within the employee grouping how engaged they felt with the leadership team and its objectives.

We braced ourselves for a significant disparity, however, this was not the case. In fact, the leadership

grouping overall gave itself a lower rating than the employee grouping – leaders rated themselves a 6.4, while employees rated leaders slightly better at 6.5.

This indicates to us that while the industry’s leaders are, on the whole, broadly getting their message

Importance of transformation – leadership vs employees

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All replies

Leadership

Employee

46%

48%

45%

46%

43%

47%

8%

9%

8%

It’s very important

It’s becoming increasingly important

It’s not important to our business

All respondents

6.5

Leadership assessed

6.5

Employee assessed

6.6

Employee engagement with leadership messaging

Scores out of ten

How successful has change programme execution been?

Scores out of ten

0 1 2 3 4 5 6 7 8 9 10

5.7

5.8

5.6

All

Leadership

Employees

Frequency of future planning meetings – leadership group

Never19%

Annually15%

Six monthly9%

Weekly10%

Monthly22%

Quarterly25%

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Executive summary1

We would suggest there is great value in the insight from each individual interview completed and that level of value grows exponentially when responses can be compared and considered across a significant volume of peers, as is possible in this report.

So, while we are able to present the broad trends here that feed into our survey results and help paint

the picture of transformation, we would encourage readers to also spend time reviewing the transcripts at their own leisure – this content will not date and where the value lies will, to some degree, change depending on the individual reading.

Though there was no guidance issued in terms of topics of importance, 71% of executives interviewed spent considerable time discussing the way rapidly emerging technologies are, and will, shape the industry.

Within that subject, around half (48%) the executives interviewed brought up the concept of being ‘fast followers’ – watching developments in other industries closely and even working with tech companies that are developing new tools in order to immediately apply those tools when appropriate. In contrast, only 9% expressed ambitions to be a technology leader by developing patented technology, which would help the company lever into select assets and deliver a separate revenue stream.

Slightly behind in popularity for executive monologues was the concept of stakeholder engagement (66%), though, to clarify, this was dominated by the challenges around community acceptance/support and had less to do with relationships with investors or governments.

Interestingly, 52% of executives cited the need to be more collegiate in addressing the suite of challenges facing the industry but, of those pushing

through to their employees, there is still plenty of work to do on this front – and leaders know this.

As with the engagement question phrasing, we asked leadership teams to assess themselves on their execution of change programmes and employees to also assess the leadership groups for which they worked.

Out of 10, the industry overall rated itself a 5.7, which could be extrapolated out to a 57% success rate on change programme execution. Either way, though better than some other industry studies on this

subject that have recorded success rates of around 25%, this is not a great return.

More encouragingly, we were expecting to see something of a disconnect between the leadership grouping and employee grouping but this was hardly the case. The leadership grouping scored itself a 5.8, while the employee grouping rated its leadership only slightly more harshly at 5.6, which shows leaders have, at least, a realistically view of the challenge ahead.

Full demographic breakdowns, Analysis and Discussion of the survey results are in the full report.

Executive interviews

KEY FIGURE:

76% Leading executives who said employee engagement was good

KEY FIGURES:

71%48%9%

Leading executives who saw technology as a major transformation driver

Leading executives whose companies would be ‘fast followers’ of technology

Leading executives whose companies would be technology leaders

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Executive summary 1

for further collaboration, only 19% could point to any programmes their companies had in place to turn this aspiration into reality. Of those who had something in place, most were looking at collaboration with tech groups or other industries, rather than working with other miners.

Other topics regularly cited as areas for the industry to address when looking to transform itself were human resourcing/attracting new talent (38%) and exploration/addressing the ‘discovery deficit’ (14%).

The execution success for change programmes among the industry’s leading companies was significantly better than for the industry in general as determined by our survey at just over 70% (71%). Most executives expressed satisfaction in one key area of transformation and ongoing challenges in others. The technical issues were generally easier to come to terms with than those that involved cultural change within large organisations.

Most executives (76%) said their leadership group’s engagement with the rest of the organisation was good. Surveys were used by 57% to officially record performance on this metric. Of those who said they

were pleased with engagement, 52% also said they was still room for improvement and, indeed, that it was an ongoing process.

Each executive interview is run over three pages in the full report.

Comfortably the top two most desirable leadership traits in the current environment were Communication at number one and then Vision close behind at two (chart p10). It is difficult to argue against Communication at the top of the heap given its central role throughout any organisation but the placement of Vision, so close to Communication at the top, was, for us, surprising.

Further back in a second grouping were the need to Lead by Example and then to have Mining Industry Experience/Expertise. It is interesting for us to see the need for mining skills sitting relatively low on the priority list given one might have thought industry insight/understanding was more important than the need to set an example and was a prerequisite to having applicable vision.

The greatest threat to the industry was Reputation/Social Licence, followed closely by the Lack of Exploration Success/Budget (chart p11).

The concepts of reputational risk and social licence are, in many ways, more sophisticated descriptions of what was once the broad grouping of Resource nationalism. In this context, Resource nationalism could probably be described as the end result of a failure to manage reputation and social risk.

Leadership

KEY FIGURES:

52%19%

Leading executives calling for more collaboration in mining

Percentage of executives calling for collaboration who are actually collaborating

KEY FIGURE:

71% Success rate of execution programmes reported by executives

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Executive summary1

That respondents identified with more modern terminology is the only reason we could suggest for the placing of Resource Nationalism so far down the rankings.

It is no real surprise that the emergence of reputational and social threats as the leading concern to resources firms has coincided with the advent of social media, which has informed and connected anyone with a smart phone, including those in remote parts of Africa, South America or Asia. This has allowed more collaborative opposition to developments and greater awareness of wealth creation and, therefore, climbing aspiration. Combining with this phenomenon is the cyclical effect of commodity pricing, as higher prices encourage nationalistic policy.

There is, of course, also a cyclical foundation in the

second concern over exploration. The lack of budget for exploration is simply what happens when the discretionary spend for miners is shrunk in line with falling commodity prices and when equity markets lose interest in resources and so cease to back exploration plays.

But there is also a feeling among industry that contemporary exploration techniques have mapped the easy, outcropping deposits of reasonable grade, which in first world jurisdictions have been, or are being, mined out. Even in more challenging jurisdictions these hot spots are largely known and may be mined within a couple decades.

The long-term future of the industry, therefore, depends on discoveries being made at depth or at least under significant cover, requiring a different approach reliant on greater capital and technology.

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Most desirable leadership skills – leadership vs employees

Leadership Employees All respondents

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Index score

Communication

Vision

Lead by example

Mining industry experience

Commitment

Inspirational

Flexibility

Admin/managerial competence

Other

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Executive summary 1

Lack of Growth was at number three and speaks to the transition being made from the cost-cutting phase of the recovery. Investors are again demanding growth but, like exploration success, the groundwork is not in place to deliver.

Concerns over Attracting New Talent/Closing the Skills Gap was a little further back in fourth position, which to some degree plays into the reputation issue the industry has among idealistic and tech-savvy (read: desirable) Millennials. The shifting financing paradigm is not too far off the pace at five.

At a company level, the clear threat is Lack of Growth. Reputation/Social Licence and the Lack of Exploration Success/Budget were also top-four concerns, though both were slightly further down. Also a high priority was solving the human resourcing issue and this was felt a little more acutely on

the company level compared to the overall Industry.

The leading opportunity (chart p12) for growth as an Industry was comfortably Technology Breakthroughs. Rising Commodity Prices was second followed by More Efficient Mining/Lower Costs. This indicates to us that, again, the culture of cutting costs and improving efficiencies is still very much entrenched.

Further back was Greenfields Exploration Success and then some distance further back again was Government/Community Understanding/Support for Mining. This presents an area of concern set against the rating of Reputation/Social Licence and Lack of Exploration Budget/Success as major threats to the industry. These priorities were consistent across both leadership teams and employees.

Similar to the threats results, the company-

0 1 2 3 4 5 6 7 80 1 2 3 4 5 6 7 8

Greatest threats/risks – to industry vs to company

1 2 3 4 5 6 7 8

2 3 4 5 6 7 8

Threat to industry Threat to company

0 1 2 3 4 5 6 7 8

Reputational/social licence

Lack of exploration budget/success

Lack of growth

Attracting new talent/closing the skills gap

Attracting finance/adapting to new financing models

Shareholder activism

Resource nationalisation

Adapting to digitisation

Energy availability

Other

Index score

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Executive summary1

perspective responses showed more of a tendency to shirk large, industry-wide problems and focus on easy, corporate-scale wins for future growth. This was seen in the placement of Rising Commodity Prices at the top of the opportunities hierarchy, followed closely by Expanding Existing Operations. Technology, by comparison, was further down

against the industry perspective and completed a tight top-three grouping.

Greenfields Exploration Success was mid-table as with the Industry-perspective, though Government/Community Understanding/Support for Mining was further down and significantly adrift of the higher groupings.

The lowly ranking of Government/Community Understanding/Support for Mining could be interpreted either as companies associating little value uplift in improving their relationships with stakeholders or attributing value but not seeing improved relationships as a realistic opportunity. We would suggest it is the latter, which in turn means miners have little confidence in their abilities to solve this dilemma despite several years grappling with the problem as it has escalated.

0 225 450 675 900 1125 1350 1575 1800

Greatest opportunities – for industry vs for company

Industry Company

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Technology breakthroughs

Rising commodity prices

More efficient mining/lower costs

Greenfield exploration success

Government/community mining support

Expanding existing operations

Digitisation

Other

“The company-perspective responses showed more of a tendency to shirk large, industry-wide problems and focus on easy, corporate-scale wins for future growth”

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Executive summary 1

Breaking down the leadership and employee groupings and it is clear industry leaders have a much more positive view on tackling some of the bigger challenges in search of growth than their employees. The leadership grouping had Greenfields Exploration Success at the top of its opportunities hierarchy and Government/Community Understanding/Support for Mining slightly higher than the overall grouping, while Expanding Existing Operations was further down. Employees, meanwhile, had Expanding Existing Operations at the top and had exploration further down.

The industry as a whole has a strong grasp on the need for transformation and this is led by those at the helm of the largest companies. The chief agents for change – digitisation/technology and increasing regulation/social licence – have been clearly identified and these views are held consistently across leadership teams and employees, and again across regions, age brackets and sub-sectors.

Similarly, the need for communication and vision as core attributes among leaders to tackle current challenges is aligned across the industry and, though engagement between leaders and employees could have been better, the need for that improvement was acknowledged.

However, there were some key areas where the industry was not aligned. Though there was a clear identification of drivers for transformation, which generally overlapped with threats to the industry, these did not marry up with the threats as seen from a company perspective, or the opportunities.

It looks to us as though mining professionals recognise there is serious work to do in both improving the image of the industry among stakeholders and in finding the next generation of world-class deposits but cannot see a path forward to solving these problems and, as individual companies, prefer to look to ‘idle

opportunities’ such as higher commodity prices; technology developers from outside the industry delivering game-changing breakthroughs; and expanding existing operations to move the industry forward.

This is not the only area where the recognition of a problem does not necessarily result in appropriate action. As noted, the need for collaboration referenced by leading executives has not meant wholesale collaborative programmes have commenced; and as our research partner Swann Global notes in the Leadership Discussion of the full report, the identification of communication as the core skill for leaders has not meant executives are receiving greater training in this area or that these and other prioritised ‘soft skills’ are recognised in salary-linked key performance indicators.

It is perhaps this lack of intent at a company level that is responsible for the poor execution rate for change programmes across the industry.

However, much as the first step to overcoming addiction is acknowledging the presence of said addiction, we should take heart that, at the very least, the industry has realised it can no longer rely on old thinking and old techniques but must transform the way it operates.

Now for the hard part: changing.

Conclusions

Processing facility at MMG’s Kinsevere copper mine in the Democratic Republic of the Congo

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Transformation2

There is a perfect storm in the mining industry. Just about everyone has experienced it and that exact description has, in fact, been used by another partner on this report to head a separate leader article.

From a leadership perspective, the combination of a retiring workforce with an old management model, the slow input of a new workforce that doesn’t want to be managed the old way, as well as changing skill requirements and dwindling numbers coming into the industry, is causing a skills shortage.

Add to this shiny new technology, the absolute need to be safe, the volatility of the commodity cycle and unforgiving shareholders requiring both continuous innovation and hard results, today, and the only constant the mining sector can rely on is that of a disruptive world.

It is perhaps my bias as a management consultant, or maybe just as a human, but I feel strongly that a fundamental shift in the ‘people equation’ is at the centre of this challenge. There is a need to have a living breathing, ever-evolving solution; one that requires not only humans at its heart but humans who are:

Capable of reimaging leadership at every level, enabling and engaging a new workforce profile through a new management profile; it’s so much more than empowerment

Capable of thinking digitally, exercising fact-based judgement, and demonstrating new technical skills; it’s not about job losses but skill improvement

Capable of creating a culture that not only delivers the day job but promotes a lab-like approach to business; ever experimenting, prototyping and launching new ways of working in real-time, where the work gets done.

The equation used to be one that focused on safely working within the mine gate and enabling companies to earn their social license beyond the gate. That is, traditional improvement initiatives and a view to innovating the workplace and therefore, hopefully, increasing technical innovations.

But we all know hope is not a strategy.

Today, the equation is one of innovating

“It is perhaps my bias as a management consultant, or maybe just as a human, but I feel strongly that a fundamental shift in the ‘people equation’ is at the centre of this challenge”

Leader: A new people equationTransformation is necessary and we can develop the skills to make the process successful

Author: Pamela Hackett, CEO, Proudfoot

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Transformation 2

management models first as the driver of that improvement and innovation to achieve the necessary multipliers the industry needs to increase the speed and scale of change.

Ultimately, the challenge miners face has many facets, but it is wrapped up in a single word: transformation.

Miners must transform on all those fronts while delivering day-to-day operating needs – they need one foot in the present and one foot in the future, concurrently. They need to be comfortable with ambiguity. This, by definition, requires mining leaders to be transformative.

The challenge of transformation is also its greatest strength.

Transformation on the scale needed to address the new people equation is big. It can bring sweeping changes including massive cultural change and, to those who master it, can bring great rewards. On the flip side, when led poorly and executed inappropriately, it can be damaging, draining people and profits in an already stretched environment.

Thriving in the perfect storm

How can miners address the new people equation, one that requires leadership teams to develop soft skills that deliver hard results; that needs technical skills to enable work to be done more effectively and deliver target operating results, safely; and, that

requires leaders to redefine the very fabric of their management model?

And how do you then underpin that by not just improving but reinventing the target operating model to continuously drive down costs safely and concurrently bring much needed capacity to the workforce; to, ultimately, create the time to think and, more importantly, the time to innovate?

In the mining industry, new technology is still the shiny new toy rather than a routine development and an outcome of built-in, grassroots innovation. And the skills shortage and competition for talent remains fierce and will only deepen. Unless addressed, the old management model of ‘hire-retire-replace’ in a ‘command and control’ world – and without developing and marketing the new skills required in the new world – management will stifle the ability to attract and retain the new talent force that is out there but not entering the mining sector.

Never has the adage of “Change is great, you go first” been more pressing to change. Leadership needs an overhaul if miners are to reap the rewards of a

“In the mining industry, new technology is still the shiny new toy rather than a routine development”

Proudfoot was shortlisted for an award in January 2018 for its work with Rio Tinto supporting the creation of the world’s largest underground mine at Oyu Tolgoi, Mongolia

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Transformation2

fundamentally different world; one where people are at the centre of the operating model, powering up the business and bridging the divide between technology and humanity.

This is not a straight-forward concept to bend one’s mind around. It’s exhausting just reading about it. Doing it is a far greater challenge, still. But mining’s leadership must work to master it – the world will keep spinning and executives can’t jump off.

At Proudfoot, we call the management model solution ‘lean-forward leadership’: leadership at every level that is comfortable with the many spinning plates of today’s workplace and knows how they fit together to drive the results for tomorrow’s marketplace; leaders who understand their personal transformation will be at the root of organisational transformation efforts.

What does that look like?

We’ve synthesised three distinct shifts in leadership capability development:

The need to change our management model into one that is fit for humans today and flexes for tomorrows emerging needs. There needs to be a fundamental change in how we attract, retain, motivate, connect, collaborate, define our strategies, develop our objectives, and make our decisions, at every level. That change must bring many voices to the table to solve today’s most pressing needs but also tomorrow’s emerging needs by engaging and enabling our human assets differently. This requires leadership to change and develop new thinking and capability; something one might term ‘pop-up management’. That is, the power of ‘checking in’ not ‘checking up’, based on the conclusions leaders draw from what people and data are telling them. It also requires people’s capabilities to change: they need to bring their critical

thinking skills to work; they need to know how to make a contribution; they need to know how to work across and within teams to get results.

The need to develop a target operating model not just fit for purpose but fit for the future, and the future of work. Flexing to create an environment where clean processes, the right tools, equipment and technology, and safe work practices are just the start as you transform. The operating model must allow the entire value chain, including beyond the gate, to work to one plan with everyone understanding their specific role in executing and to constantly evolve. This brings about safe, productive, predictable operations fit for the business and humans. Each day leaders minimise the challenges of poor performance, provides capacity to think about point three: the future.

The need to create a work environment powered by a living-lab, populated with people continuously looking for the next step change, where the work gets done. Gone are the days of improvement teams running project management, remote from the workplace and in separate meetings, generating initiative overload and stalling rather than powering the leadership group’s transformation efforts. Grassroots improvement and innovation must be in the DNA of the site along with strong embedded governance that generates new outcomes routinely as the goal, not just new initiatives. This must be built into the day-to-day management model and processes (how work gets done).

Together, a management model powered by a ‘lean-forward leadership’ capability, along with a target operating model and the living-lab approach, enables transformation to become part of the life blood of the business and not an event. It also enables transformation programmes to ride out the perfect storm with a view to being successful.

This creates an environment that triggers the levels of engagement needed for businesses to transform and prosper. It determines, in the mind of employees, the underlying way a business is run – how leadership enables work to be performed and, therefore, how attractive the work place is. This dictates not just how long people stay but if they enter a particular workplace at all.

“This is not a straight-forward concept to bend one’s mind around. It’s exhausting just reading about it”

Achieve safe, productive operations across your value chain, your asset life, and throughout your price cycle?

What if you could compress your ramp-up time by 40%? …and safely deliver full production, on budget, meeting target ounces all at the same time?

What if you could achieve over 2 million man hours LTI free? …and achieve record operational results, globally lead project safety, while increasing the capability of your rapidly expanding local workforce?

What if you could decrease energy usage by 40% while increasing tonnes processed and plant recoveries? …and rapidly change the culture of your organization and engagement of your people to achieve error free – safe operations?

What if you could increase availability and utilization of equipment to achieve a 30% increase in safe production tonnes? …and align your entire site - suppliers, partners, contractors, departments, functions and people to one plan; execute as one team and inspire the culture you seek?

What if you could speed up transition to local management by 50%? …and increase shareholder value by engaging your people in positive transformation, all while safely achieving record production?

With Proudfoot you can

What if you could…

naturalresources@proudfoot.com | www.proudfoot.com

Proudfoot designs, implements, and accelerates operational and digital transformation through people. Realizing tomorrow’s results, today.

16 2018 edition

Executive interviews3

The spread of challenges facing the mining community is huge. The list is growing in number as it is in complexity to the point it has comfortably eclipsed the breadth and severity of change present at any other time in mining’s past.

It feels now is the appropriate and necessary time to pause and at least assemble a summary list so that

the mining industry can see what lies ahead and plan a course of action to deal with these issues.

My position with Swann Global allows me to view the mining industry across the broad spectrum of all world regions and just about every commodity. Most of these dealings take place with the upper levels of mining companies solving human-resourcing challenges for the executive suite, technical team and board.

From this perspective, the current state of play can be broken down into the following broad issues: faster technological developments; growing populations (especially in the emerging countries); shifting geopolitical influences; the impact of millennials; the transparency and immediacy of social media; and the needs of governments of all persuasions for money to balance societal demands (see table).

Though several of the challenges highlighted centre on technology-related developments (and opportunities), the lion’s share can be grouped under the broad heading of ‘stakeholder engagement’, whether that engagement is focused on governments, investors or society as a whole. It is here I would like to focus my immediate attention.

Reputational risk and attracting talent

One of the fundamental points one should understand when considering engagement with the mining sector is that pretty well everything that humans use or consume has to be mined or grown.

Unfortunately, this fundamental fact is not well understood or even acknowledged by a whole generation that has been influenced by an increasingly powerful media, which presents a broadly negative voice towards mining. On top of that, various NGO campaigns advocate against mining as a socially irresponsible industry. These groups are, as a rule, far more adept than the mining industry at channelling their messages through that media.

Making this conflict worse is the point that the

“Now is the appropriate and necessary time to pause and at least assemble a summary list so that the mining industry can see what lies ahead”

Leader: Mining’s ‘perfect storm’Current predicament requires recognition and then targeted actions to improve mining’s lot

Author: John Murray, managing director, Swann Global

172018 edition

Executive interviews 3

mining industry does not have an enduring compact with society, nor is it effectively fighting to reverse the status quo.

The emergence of social media within the wider media spectrum has accelerated the need for mining to better arm itself for this battle, which will be increasingly fought on Facebook, Twitter or any number of other contemporary digital platforms.

The deficiency in communicating with those who choose social media as a primary source of information is a direct failing to engage communities in developing nations, whose people may not own a television, though they may have smart phones.

It also neglects the very bracket of society that defines the next generation of potential natural-resources sector workers and, likely, the most recent workers we have been lucky enough to attract to our sector – Millennials.

All this is especially relevant as an overview suggests there is a decreasing supply of mining-industry talent, yet there is a need to deal with increased governance and increased complexity of mining procedures.

Government

Recent, high-profile conflicts between miners and governments across the world demonstrate a need to review and implement significant updates to original contracts and agreements with government bodies in various countries, some of which were established 20 or more years ago. Most likely, these contracts and agreements will be ‘out-of-sync’ with societies that have evolved.

There is also ample evidence that innovative technology could substantially extend mine lives, which will add additional pressure to update these agreements.

All societies – often led by governments – see mining as a source of money and the thought of increasing mining taxes and royalties is high on the agenda. A proper balance must be achieved between extraction of a country’s resources and retention of wealth by that country.

How that is managed will no doubt be a key consideration for mining companies when deciding whether to invest in a particular country or region.

Money

As a result of the above scenario, it is fair to add that if the mining industry does not successfully communicate a more positive message to

“All societies – often led by governments – see mining as a source of money and the thought of increasing mining taxes and royalties is high on the agenda”

Challenges facing the global mining industry

The mining industry does not have an enduring connection with society

The changing face and shape of money needs consideration

It is cheaper to extend mine life than create new mines

Evolving technology will change the workplace

Rising nationalism in both first and third world countries

The transparency of social media

Recycling

Dematerialisation

The decreasing supply of mining talent

Community engagement is a key challenge for miners today. Photo: Rio Tinto

18 2018 edition

Executive interviews3

stakeholders, it will be harder for traditional lenders (typically the banks) to provide financing packages. We are seeing big banks withdrawing from financing coal projects, despite the development of clean coal-fired power stations.

But it is not only traditional debt providers that will distance themselves. Private equity, royalty and streaming firms and, in some cases, crowd funding, will also be increasingly selective in the projects they back, which will be biased toward those able to manage their stakeholder relationships best.

Lenders, in general, have varying levels of risk appetite and will react to risks both real and perceived. There are enough hurdles to investment in our industry, either out of our control or historically legitimate – geopolitical dangers and the ‘burnt fingers’ from losses over the previous cycle, for a start – that mining cannot afford to put up barriers to finance that could be sidestepped through concerted communication.

What now?

Industry leaders must encourage thought and discussion around these challenges, and then bring together key industry figures to discuss the scope and broad planning for action. Following that, a pen-picture of concepts, timelines and summary of the subsequent steps can be scoped for implementation.

It is a task that needs to have a worldwide spread and a diversity of people to ensure a constructive and positive outcome.

“We are seeing big banks withdrawing from financing coal projects, despite the development of clean coal-fired power stations”

Attracting personnel with the right skills is something that the industry will need to address in coming years. Photo: Anglo American

I would like to acknowledge the support of others, in particular Anglo American technical director Tony O’Neill, for contributions to this document.

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Global Leadership ReportMining is facing an unprecedented level of flux as technology improvements present both challenges and opportunities; regulators increase requirements; and communities demand more sophisticated relationships with companies. We ask whether the industry is ready for this transformation through a series of C-suite interviews with the world’s largest companies and an

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A review of the financing environment based on commodity pricing and equityperformances. The report includes a market outlook detailing the likely trendsaccording to various experts within the finance and investment sectors, a reviewof where capital is likely to flow from in 2018, and results of Mining Journal’s extensive Investor Survey.

This report includes Mining Journal’s Investment Risk Index, a robust system for rating jurisdictions across multiplemetrics covering Legal, Governance, Social, Fiscal and Infrastructure risks.It is weighted toward hard, established risk-related indices but also includes perceived risk, which comes from the findings of a refocused World Risk Survey.