Volatility and How to Build Resilience


Since the start of the Covid-19 pandemic, volatility has been one of the common denominators that has reverberated through the global economy and multiple industries.

The global mining industry has witnessed this volatility firsthand over the last 18months with certain commodities seeing incredible swings in pricing.

What commodity prices has seen extreme volatility?
Let’s take iron ore as an example. In February 2020, the spot price was sitting around the USD$85/tonne mark. Fast forward 18 months, the spot price reached a record USD$230/tonne – an increase of over 170%!

One would assume that with the world grappling with lockdowns, job losses and jarring productivity, demand and price for this raw material would still be sitting at its initial price levels of last year.

So why then this volatility?
Well, there’s a few reasons. Firstly, and as we have seen, the Covid-19 crisis has afflicted large populations of some nation's workforces. Brazil and South Africa for instance, who account for over 22% of global iron ore exports, experienced Covid waves, prolonged lockdowns and sector wide shutdowns which stifled production and therefore shortened global supply chains.

Secondly, demand for the steel making commodity didn’t really waver. The US announced a monumental USD$2 trillion infrastructure plan whilst China’s long standing infrastructure and building boom barely lost momentum during the pandemic meaning iron ore was essential, perhaps more than ever.

One can argue that this volatility has been exceptional for miners like BHP and Rio who were able to jump on this supply chain squeeze and price rise through the success of their mining operations in Australia which have been relatively unaffected by the impact of Covid-19.

Volatility has reared its head yet again with iron ore prices plummeting over the last several weeks to around USD$109/tonne. How then can miners adjust to volatilities like this for other resources, like gold, uranium and lithium say, and build a resilience in order to avoid being impacted negatively?

How resilience can be achieved
The World Economic Forum (WEF) has devised a great initiative, along with 30 mining and mineral companies, which they’ve collectively coined The Great Reset.

The Great Reset’s primary goal (see below) is to encourage companies to collaborate with each other and their surrounding ecosystems in order to manage the aftershocks of the coronavirus whilst also building towards a resilient future.
thegreatasset.pngImage Credit: World Economic Forum

5 Ways to Build Resilience for the Future of Mining

What actions then can mining companies take to build resilience within their business?
 
1. Collective Industry Action
One of the major calls to action from the WEF is for improved collaboration throughout the industry in initiatives such as cybersecurity, digital technology deployment for efficiency & flexibility, automation and mechanisms for adjusting production capacity to meet demand.

These are hugely critical efforts that will drive internal improvements but also have far reaching positive impacts throughout the industry.

2. Connect Value Chains
As we saw with the iron ore example, value chains are an important factor to consider when planning for a more resilient future. Companies across the value chain, whether they be miners, suppliers or downstream customers, need to collectively respond better to inevitable changes. This can be achieved in two ways; firstly, working together to build demand-sensing capabilities using technologies like machine learning and AI that can predict and provide earlier insight into changing demand.

Secondly, mining companies can be notorious for rigid operational practices. By increasing operational flexibility, companies can become hyper-agile when market demands shift.

3. Company Purpose
The mining industry has received a strong focus over the last few years from the eyes of environmentalists and sustainable advocates. Purpose is fast becoming a crucial aspect for mining companies to consider as more and more customers want to see an enhanced responsibility in areas such as decarbonization, environmental impact prevention and general sustainability practices that will minimize climate change.

By creating a solid framework of ‘purpose’, companies with sound ESG policies can generate trust among valuable stakeholders which further strengthens one’s stability for future opportunities or challenges.

4. Prepare For Anything
Now that we have witnessed the ramifications of a global pandemic, preparing for literally anything should be a fundamental necessity for all mining and metal companies. The better prepared, the more adaptable one is in its decision-making process and facing adversity.

To improve their preparedness mining companies can invest in technologies including mining enterprise resource planning (ERP) and mine maintenance software that promote agility and resiliency.

5. Look After Your Workforce
It’s no secret that a well looked after workforce will be hugely beneficial to the success of a business. From a resilience standpoint however, building this into a workforce and improving its adaptability is a whole new aspect to consider.

What is key is ensuring that the recruitment and retainment of quality employees is ingrained into the business. Scenario planning and training these employees for what the future may hold is another important aspect as proper preparation means agility and pivotal ease.

The last 18 months has been an extremely volatile time for the mining sector and other associated sectors. If there is a positive to take out of this period it should be this. The industry has seen extraordinary growth and profitability that was unpredictable during the early stages of the pandemic, which was a time of panic, fear and for some, a day of reckoning.

With many mining companies now flush with cash and paying handsome dividends to shareholders, complacency should be the last thing these companies succumb to. Instead, preparing for and building a resilient business for what could be tough times ahead would be the more prudent course of action.

07 Oct