News from Diggers & Dealers: keep your eyes open to risk factors in mini commodity mining boom
There’s been an upbeat vibe at 2019 Diggers & Dealers conference which kicked off on Monday in Kalgoorlie. I saw all the leading mining and exploration companies there and attended a round of presentations on everything from production and investment reports to the newest mining technology. Perhaps the most encouraging messages centred on the drive for more exploration as well as challenging the quality of that exploration and efforts to develop new technologies capable of unearthing deposits hidden under cover.
There was also focus on nickel as a major battery mineral component, currently experiencing solid market prices and increasing attention for miners – but the majority of the talk came back to the shiny yellow metal. With gold prices reaching record highs, conversations centred on the opportunities for Aussie miners abroad, particularly North America with both exploration and M&A Kalgoorlie (derived from the Wangai word Karlkurla or Kulgooluh, meaning place of the silky pears) is an appropriate venue for this gathering. Situated about 600 kilometres east north-east of Perth, the town dates back to 1889 but really burst into life in 1893 during the Coolgardie gold rush on Western Australia’s Golden Mile.
Today, Australia mining is currently the beneficiary of a ‘mini boom’ – driven by strong prices for key commodities and increasing investment. While this is by no means anything like the heady days of the boom of the late 2000s there is some spark evident in the sector and more bullish forecasts on the outlook for mining both globally and in Australia.
Let’s not forget, though, that mining is a complicated and difficult business at the best of times and today’s miners have an increasingly full agenda to manage. In boom times and in downturns, risk must always be at the forefront of strategy.
The Australian Government has signalled it expects commodity export earnings to peak at a new high in 2020 – some twelve months later and higher in value than originally thought. The revised prediction is the result of a swing in the global iron ore and gold prices, coupled with a favourable Australian dollar. That’s good news for the mining sector and the positive vibe was evident amongst the exhibitor stands at the conference.
Another upbeat sign is that for the June Quarter of 2019, the Department of Industry, Innovation and Science revised its export estimate upward by $12.9 billion for current financial year (FY2020) to $285 billion. Iron ore is expected to deliver $79 billion of this value alone!
But this is not just a story about higher prices on larger production volumes. It is also accompanied by increasing investment in mining projects in Australia, together with global expansion in exploration activity.
So let’s think of what’s happening not as ‘Mining Boom Mark Two’ but more about the key driver of capital flowing into the mining sector.
How is that quantified? The Australian Bureau of Statistics cites investment in Australian mining projects up year on year for 2020 with A$32 billion estimated – representing a nearly 30 percent increase over 2019 levels. There is anticipated expansion across many commodities, however the lion’s share is in iron ore, lithium and gold projects. Importantly, this should reverse a trend of reducing investment since the boom of 2012/13.
Global exploration budgets are also increasing. S&P Global estimates that 2019 spend will continue to grow beyond $US 10.5 billion. This will bring three consecutive years of growth after dipping to $US7.5 billion in 2016 with all miners recognising the criticality of replacing reserves.
Not surprisingly, there is a lot of talk in Australia about the opportunity potential new exploration technologies might bring to identifying large ore bodies hidden under cover. This represents just one of the technology imperatives for the sector.
I believe that the drive to optimise assets and maintain a focus on costs and productivity must remain critical. Increasingly miners are catching up to other sectors on the use of technology to achieve this across the mine to market supply chain, with a focus on ‘day in/day out’ consistency and reliability.
At KPMG, we see companies researching and deploying technologies across digitalised in pit shovel operation, sensors installed on major equipment to better predict wear, autonomy of heavy equipment and rail to increase productivity safely. These examples are just some of the opportunities that exist right across the production chain. And then there’s what I call the collaboration imperative.
Increasingly the benefits of collaboration are being considered in mining. Whether it is between miners and the suppliers to install digital sensors, the electrification and automation of equipment or with other miners on safety initiatives or the reduction of water usage in processing, the scale and number of opportunities will increasingly encourage the majors particularly, working together.
The geopolitical outlook remains volatile and that means miners need to focus on risk management. In the context of the ongoing trade discussion between China and the US, global uncertainty will remain in the short term at least. Added to that, with the International Monetary Fund downgrading its global growth forecast to 2.7 percent and governments searching for ways to stimulate slowing economies there are mixed messages at a macro level on the health of the drivers for demand for commodities.
In March this year, KPMG released its Mining Risk Report highlighting the importance of ongoing risk management in mining as a success driver. I believe the eyes of many Australian mining houses are now on risk to add deeper value.
Active risk management must help protect the strategy against risks such as demand volatility, disruption and competition – as well as mitigate the threats of poor culture, conduct and cyber risk.
Miners should be mindful that heightened local and global investor expectations combined with further regulatory scrutiny will also result in risk coming under fire if it fails to evolve and keep pace with business and environmental changes. That’s a key message in a ‘boom and bust’ sector such as mining.