August 2015

By Chris Hardy

Energy & Resources Practice Group

From prehistoric times, man has endeavoured to wrest minerals from the earth to fashion utensils, jewellery, weapons and construction materials. From its early beginning until today, mining has never been an easy business. Mining companies face myriad external challenges, including political and regulatory uncertainty, collapsing commodity prices, demanding local communities and environmental lobbies, and a scarcity of investment finance. In addition, the actual business of mining remains difficult in the extreme: fickle seams, uneven ore bodies, dangerous falls of ground – these are just some of the challenges faced on a daily basis.

Mining occurs all over the globe, and has done so in some parts for thousands of years. It is difficult, however, to form one global view of mining trends because, while industry best practices tend to harmonise, individual countries experience conditions that are unique to them.

To illustrate this point, one can look at the different approaches to mining royalties taken by Australia, where a socialist government attempted to legislate royalties at rent-seeking levels, and the largest mining houses threatened to reduce investment in the country. That government was voted out of power, and the contemplated changes to royalties were shelved. In Zambia, a populist leader raised mining royalties to unsustainable levels. Before they had a chance to damage the mining industry, the leader died and his replacement repealed most of the new legislation.

Or, consider the compensation regime in Canada (50% higher) versus that of South Africa, and their respective rates of productivity, where Canada’s is far higher than South Africa’s due to its highly skilled, highly productive workers, operating in a highly automated mining environment. Conversely, South African mining productivity is low, due to a shortage of skills, expensive labour, static output and difficult, uneconomic resource bodies.

Against this background, the Deloitte ‘Tracking the Trends 2015’ report is illuminating. Its recommendations include:

– shedding conservative tendencies and embedding innovation into corporate DNA

– protecting sources of finance by pooling resources and attracting private equity

– becoming more effective at recruiting talent that is in high demand

As mentioned, the heterogeneous nature of each country’s mining environment makes it difficult to identify a set of trends that are shared by all. However, one trend that is universally shared is the difficulty mining companies currently experience while ensuring that effective talent management is taking place within their organisations. The Deloitte report suggests that, to attract new skills to the sector, companies will need to commit to diversity, explore new talent management systems, get better at recruiting talent in high demand, and invest in more targeted training.

Those companies with effective talent management strategies are well-positioned to drive the improvements in productivity and capital allocation that are critical for ensuring survival in the current environment. Executives need to calm investors who are starting to head for the exits by formulating and executing strategies for cost reduction, capital allocation and productivity enhancement. Managers need to be innovative and strategic when optimising production, manpower planning and cost reduction, while displaying strong leadership in building healthy organisational cultures. These cultures must reflect a universal buy-in to the new strategy by all employees, from highly-skilled mining engineers to rock-drill operators.

It will be important for mining company directors to accept their central role when setting the vision and guiding a talent management strategy that results in the timely acquisition and successful retention of executives, managers and skilled employees who are capable of executing the strategy. Whether these high-performance individuals are identified inside or outside of the company, they must be able to interpret the new business realities, and work to ensure that all stakeholders are aligned behind the new strategy.

As this article goes to press, the global mining sector, along with the entire resources sector, is in retreat. With few exceptions, mineral, metal, oil and gas prices are at multi-decade lows. Large mining houses with strong balance sheets have continued to increase production, with the aim of lowering unit-costs, while smaller, less resourced companies are reducing workforces and closing mines in an attempt to survive. Many economists believe that the super-cycles of the 1970s and 2000s will not be repeated anytime soon, and the mining industry will have to transform itself to remain relevant.

While driven by commodity prices, the mining industry, like any other, also depends on wise decision-making by its stakeholders: top management, employees, society and government. Mining companies have control over the first two stakeholders, but can only seek to influence the others. While plunging commodity prices will inevitably play a major role in strategic decision-making, top management must decide whether to lead their organisations along the high road of transformation, innovation and higher productivity, or to take the low road of mass lay-offs, myopic capital allocation and high-cost production.

Those executive leaders choosing the high road can only do so if they have implemented talent management best practices, and have created an organisational culture that reflects a company-wide alignment behind the new strategy.