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The top challenges facing mining businesses in 2018

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Throughout 2017 we’ve seen a general uptick in the mining market, with volatility easing off across a number of key commodities and balance sheets reaching an improved position.

But with 2017 drawing to a close it’s time for mining leaders to turn their thoughts to the challenges of 2018. 

But what are these challenges?

A new report from EY has highlighted the top 10 challenges and business risks that mining businesses should prepare for in 2018.
A new report from EY has highlighted the top 10 challenges facing mining businesses in 2018.
Let’s examine these challenges, what they mean for your business, and how you should respond:

Digital effectiveness

Mining companies are seeking to use new digital technologies to support their efforts to improve productivity and increase margins. However, the adoption of these new technologies poses a number of serious challenges- the foremost being their effective integration into the operational aspects of the business. As EY’s report highlights, companies should focus on using digital tech to solve the most urgent business problems first, before looking to roll such tech out on a wider basis.

Competitive shareholder returns

With poor shareholder returns making headlines in recent years, the mining industry will be challenged to redress the balance in 2018. Expect to see mining companies prioritising shareholder returns through the allocation of capital to dividends and share repurchases over and above reinvestments in longer-term growth projects. As always, mining companies will have to play the balancing act between short-term shareholder returns and long-term growth value. But it’s clear that throughout 2018 shareholder returns will have to be the priority.

Cyber security

As the mining industry adopts digital technology on an ever larger scale, the risk of cyber-attacks becomes exponentially greater too. The industry is using digital solutions to achieve greater productivity and higher margins, but if cyber-security is not addressed these gains could be wiped out in an instant. EY’s report sums up the problem succinctly: “the world is experiencing an unprecedented number of cyber-attacks every year, and the sector has not been immune to data breaches and lost revenue as a result.” Ensuring that you have the appropriate cyber-security talent in place within your business will be crucial to mitigating this risk next year.
The mining industry will have to play the balancing between shareholder returns and investment in long term growth projects throughout 2018.
New world commodities

Mining companies will need to ensure that they maintain the right mix of new and old world commodities in their portfolios throughout 2018. As consumer attitudes and technology mixes change, mining companies will have to adjust the composition of their commodity portfolios to match. A particularly pertinent example within the report, which highlights the dilemma facing mining companies, goes as follows: “almost half of all platinum produced globally is used in catalytic converters to minimise diesel pollution. Some estimates suggest that the adoption of EVs will result in a 7.5% decline in platinum demand by 2025.” Mining companies need to be careful that they don’t end up holding commodities within their portfolios for which there is zero or negligible demand in 2018.

Regulatory risk

Governments, and their regulatory bodies, are increasingly adopting a stance of ‘resource nationalism’ as they seek to generate a greater return from (and oversight of) their natural resources. This is a trend that is only set to increase through 2018. EY’s report suggests that mining companies mitigate the risks that this development brings by “keeping abreast of proposed regulatory changes and maintaining open and transparent communications with all levels of government and their regulatory bodies.”

Cash optimisation

The cost cutting exercises and efficiency gains achieved by many mining companies in recent years means that now commodity prices have recovered, companies are achieving higher margins and have significantly improved cash generation. As a result, a key challenge throughout 2018 will be ‘cash optimisation’. Or in other words, how best should companies make use of their newly found cash? How best should capital be allocated between shareholders and growth projects? The answer is relatively ambiguous, but does offer contain some even-handed advice. Companies will need to “prioritise effectively their cash commitments, but also continuously improve their cost structures to cushion themselves from adverse price movements and anticipated extra expenditure.”
The way in which mining companies invest to achieve a social licence to operate will need to be rethought in 2018 and beyond.
Social licence to operate (SLTO)

Mining companies have spent the past decade investing millions in sustainability and community initiatives to garner a ‘social licence to operate’ in their strategic locations. But 2018 will require operators to change the way in which they go about achieving a social licence to operate. Rather than the reactive and compensatory approach that has characterised the industry to date, operators are encouraged to take a strategic and collaborative approach instead. In other words, companies shouldn’t be investing in community initiatives as an afterthought, but should be proactively engaging with communities to achieve buy-in well-ahead of proposed project kick-offs. After all, environmental accidents, employee strikes and worker fatalities result in collateral damage for the industry’s reputation as a whole- something which can’t be ameliorated via compensatory actions.

Resource replacement

When the commodities markets crashed, one of the first areas of expenditure to be curtailed in a big way was exploration. Unfortunately, capex on exploration has not yet been replaced despite the recovery of commodity values. Therefore, a key challenge facing mining businesses in 2018 will be finding the capital to invest in exploration activity. Other potential solutions include the creation of partnerships as a means of expanding resource bases and investing in new technologies and software applications to achieve higher exploration success rates.

Access to and optimisation of energy

Mining operations have traditionally been very energy hungry; and it’s unlikely that this situation is going to change any time soon. With the cost of energy increasing for many mining operators, the effective optimisation of energy could reap significant cost savings. 2018 could be the year in which remote mining sites compliment their traditional diesel power sources with renewable sources and microgrids to improve access to, and optimisation of, power. Aluminium and Copper producers are mentioned in the EY report as being particularly innovative when it comes to power sources. ‘Aluminium and Copper producers are highlighting their use of solar and hydro energy to both maintain their reputation as a ‘green’ metal but also to obtain a premium with industrial customers wishing to reduce their carbon footprint.” 
Mining companies are only as good as the people that run them. Speak to Fircroft today to find out how we can help you develop an industry-leading workforce.
Managing Joint Ventures (JVs)

Joint Ventures (JVs) are widely utilised across the mining industry as they can deliver a plethora of business benefits such as capital intensity, risk mitigation, supply chain optimisation and much else besides. However, if JVs ‘go bad’ then the fallout can be extremely disruptive to projects. According to EY’s report, JV partners should ensure that they have mitigation strategies in place to protect their investments, assets and projects throughout 2018.

Looking forward to 2018

As the mining industry continues to recover on the back of improving commodity prices, now is the time to look forward to 2018.

Mining companies are only as good as the people that run them. In order to meet the challenges of 2018 you need experienced, expert talent within your business. Speak to Fircroft today and find out how we can help you to develop an industry-leading workforce.
Recent Comments
I am Managing Director of Lao Mining Development,State Enterprise. Our company has been set up 2018 on behalf of Lao GOL. We are looking forward to Develop our Mining sector as well,but due to many risk and challenges in recent year.I try to send my first exchange and share my experiences to,because in previous Mining projects has not successfully for our Country. There for if any organization in Mining business can help us it's will be greater full. Looking forward your good cooperation BOUNLATH VILAYSOUK
Bounlath VILAYSOUK, 18 February 2019
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The top challenges facing mining businesses in 2018 - Time to read 6 min
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