Top 10 mining trends for 2014

Canadian mining companies need to change the way they do business to weather ongoing market volatility and remain viable, according to a Deloitte report.

Here are the top 10 issues for the mining sector in 2014:

1. Mining productivity hits new lows: Despite commodity price weakness, input and production costs remain stubbornly high. To reduce costs sustainably, miners must improve their overall productivity, strengthen their management and reporting systems, use analytics to uncover their underlying cost drivers, and rationalize their supply chains.

Read: Workers needed as mining sector ramps up

2. Market imbalances wreak commodity price havoc: Ongoing global economic weakness and the short-term decline of demand out of China have pushed down commodity prices, resulting in industry performance dips. However, long-term demand indicators remain robust. Rather than mothballing projects, miners should find ways to weather current supply/demand imbalances.

3. Exploring the innovation imperative: Genuine performance improvement comes only when companies revise their underlying systems. Miners should innovate by adopting technologies to enable mine design and planning, energy supply, as well as adoption of emerging technologies.

4. Debt up, deals down, and juniors fight for survival: Weak shareholder returns and industry impairments have shut off equity markets. Traditional lenders also are pulling back from the mining sector. Although major diversified companies responded by issuing bonds, juniors have been hard hit. This may represent an acquisition opportunity for mining companies with large cash holdings.

5. The project pipeline stutters: record impairments call capital allocation practices into question: In response to demands from investors and analysts, mining companies developed massive project pipelines. Investment in marginal projects, however, has led to record asset impairments. To turn the tide, miners need more robust project scoping processes, governance systems, and risk control mechanisms.

6. Local community demands ramp up: Social media trends and attention from monitoring and standard-setting bodies put corporate reputations and market valuations at risk. Miners should take a nuanced approach to stakeholder relations, including developing local supply bases, improving communications, sharing infrastructure among various economic clusters, and sourcing local labor.

Read: Gold prices to sparkle again soon

7. Resource nationalism spreads: Governments demand contributions from the mining sector in the form of taxes, royalties, and other concessions. Mining companies must improve government relations and governments need to foster greater regulatory stability. Miners should open a dialogue by forming policy development lobbies, coordinate local infrastructure projects, engage citizens, and negotiate with all levels of government.

8. A zero tolerance regulatory environment complicates compliance: To improve compliance, mining companies should adopt appropriate internal controls and policies, engage in compliance audits and risk assessments, and upgrade their systems to support sufficient reporting detail.

9. Changing the safety equation: Fatalities in the mining industry remain high. Mining companies need a more sophisticated approach to safety analytics. Companies should model high-risk events, re-examine their workplace practices and break down the data silos that prevent them from accurately identifying safety incident patterns.

10. The talent gap slinks into executive suites: Talent shortages remain an issue in the mining industry, even in executive positions, and will widen as the workforce ages. Closing the gap requires the adoption of new talent management strategies. Miners should standardize systems, embrace new training environments, and take the steps necessary to attract both skilled management and sector-savvy directors.

Read: Investors cautious on mining stocks

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.