EY's annual survey of 200 executives across the mining and metals space has flagged 10 issues, including two new areas: uncertain demand due to the global energy transition, and new business models that need to be considered to capture value amid ongoing global volatility.
The issue that is expected to be top of mind in 2022 is a heightened focus on ESG, which has risen from the number four slot over the past 12 months.
EY said it was initially surprised by the ESG focus, but it concluded it's indicative of miners and their stakeholders broadening their perspectives, and realising they will need to demonstrate their contribution to a sustainable future if they are to access the rapidly growing pool of capital available for strong ESG performers.
Decarbonisation has been a dominant issue globally over the past few years, particularly as most global governments have embraced net zero emissions targets on the road to a greener economy, and to minimise climate collapse, and they are integrating net zero roadmaps into their overarching strategies, however EY noted many have set targets without understanding how to reach them.
Companies with achievable goals are likely to gain investor confidence and, potentially, a competitive advantage.
Falling to number three slot for 2022 was LTO, which dominated surveys for the past three years.
EY said it was clear that miners that can demonstrate their societal value will strengthen relationships with stakeholders and be rewarded in the marketplace with cheaper capital and improved market value.
The new areas of concern include shifting patterns of demand.
Government stimulus following the outbreak of the global pandemic, and that has led to a surge in demand in most commodity markets, particularly in the energy transition space.
EY research shows that many of the major commodities required in the energy transition — copper, nickel, cobalt and lithium — will be in deficit by 2025/26, but there are significant supply side issues.
It is estimated US$100 billion will be needed to close the 4.7 million tonne copper supply gap by 2030 and almost $14 billion will be needed to finance new lithium production capacity out to 2025.
In addition to funding requirements, ESG and LTO issues, plus more complex orebodies and overarching geopolitical risks, the uncertainties are also driven by a threat of substitution, such as in the battery space, where moves are underway to change batteries from lithium nickel manganese cobalt oxide to lithium iron phosphate, and in steelmaking, which is looking to reduce its reliance on coal.
EY expects volatility will only increase, and the ability to compete effectively amid ongoing uncertainty is now critical for any resource company.
The pandemic has also required new business models, from a higher prevalence of working from home, to being more agile with a diversified portfolio of commodities and geographies, and new ways of thinking, from adopting a circular business models to create closed material loops to minimise waste and pollution; to vertical integration to capture more value as is increasingly being seen in the battery space; and horizontal market integration, moving mining companies could also move into adjacent businesses.
EY global mining and metals leader Paul Mitchell said while there were fears the COVID-19 pandemic might slow global progress on sustainability measures, the opposite had been true.
EY noted that miners need to think more broadly about the factors they consider, although social impact, water management and biodiversity came through as strong areas of focus for 2022.
Mitchell said progressive closure planning was one way miners can assist with the challenges miners face in an uncertain and shifting environment.
Other areas of concern, which have regularly featured in past surveys include access to capital, a need to innovate in the digital economy, workforce issues, and productivity and costs.
Overall, Mitchell said the study showed the COVID-19 pandemic had focused attention on inequalities, placing pressure on companies to go beyond their regulatory obligations, and those that did were likely to be the winners.
"Miners that do more to help ensure the long-term, sustainable economic and social growth of the regions in which they operate can leave a positive legacy beyond the life of the mine," he said.