采矿及金属行业2022年十大业务风险与机遇-44正式版

Top10business

risksand

opportunities

forminingand

metalsin2022

ExecutiveSummary

Opportunitieswillcontinuetooutweighrisksin2022,asongoingsocialdisruptionbecamethecleardriverofchangeinourindustry.WhiletherewerefearsthattheCOVID-19pandemicmayslowglobalprogressonsustainabilitymeasures,theoppositehasbeentrue.Itisclearfromoursurveyresultsthatpurpose,long-termvalueandsustainabilityare

nolongeradd-onstobusinessasusual—theyarebusinessasusual.Externalinfluenceswillkeepdrivingrisksandopportunitiesasstakeholderandcapitalmarketpressurecontinuestoholdminersaccountable.

It’snotsurprisingthenthatthetopthreerisksandopportunitiesthisyearfortheminingandmetalssectorare:environmentandsocial;decarbonization;andlicensetooperate(LTO).

1 Environmentandsocial

Whilemanyconversationsinthemarketarecurrentlyfocusedaroundtheenergytransitionandroadtodecarbonization,25%ofoursurveyrespondentssawenvironmentalandsocialissuesasthenumberonerisk.Whilethiswas

initiallysurprising,webelieveitisindicativeofminersandstakeholdersbroadeningtheirperspectives.Minersneedtobeabletodemonstratetheircontributiontoasustainablefutureiftheyaretoaccesstherapidlygrowingpoolofcapitalavailableforstrongenvironmental,socialandgovernance(ESG)performers.

2 Decarbonization

Decarbonizationhasbecomeamajordisrupterinthesector,dominatingmanydiscussionsandpresentingbothrisksand

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Aboutthesurvey

Wesurveyedglobalminingandmetalsexecutives,betweenJuneandSeptember2021withthemajorityofrespondentsbeingfromtheC-suite.

opportunities.Oursurveyrespondentshaveelevatedtherisktosecondplacefor2022,upfromfourthlastyear.Decarbonizationneedstointegrateintoacompany’soverarchingstrategy,ratherthanbeaddressedasaseparateordistinctpath,delegatedtoadiscreteteam.Almostallminingandmetalscompanieshavesetdecarbonizationtargetsbut,withoutunderstandinghowtoreachthem,arecommittingtopotentiallyunrealisticgoals.Companiesthatsharetheirroadmaptonetzeroandtheirsuccessesalongthewaycangaininvestorconfidenceand,potentially,competitiveadvantage.

3 Licensetooperate(LTO)

LTOhaslostthetopspotithasheldforthepastthreeyearsbutisstillseenasatopthreerisk.Minersthatcandemonstratetheirsocietalvaluewillstrengthenrelationshipswithstakeholdersandberewardedinthemarketplace

withlowercostsofcapital,betterhumancapitalengagementand,inthelongrun,improvedmarketvalue.

Sectordisruptionhascreatedalargenumberofopportunitiesforthosethatcancapitalizeonthem.Companiesthatcandemonstratetheyareoperatinginthebestinterestsofabroadgroupofstakeholderscangainacompetitiveedgeinthefightforcapitalandnewresources.Takingactionnowwillenableasustainablefutureforthesector.

Inthefaceofgenerallypositivefuturedemand,bothas

aresultofgovernmentstimulusandtheenergytransition,itiscriticalthatminingandmetalcompanieshavetheabilitytocompeteeffectively,particularlywithnewentrantsintothesectorasdownstreamplayersinvesttosecuresupply.Thismeansconsideringnewbusinessmodels,astrongfocusonscenarioplanningandthenoptimizingportfoliosthatallowforflexibilityinthefaceofincreasingchange.

DocumenttitleAdditionaltext| 3

Environmentandsocial

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Minersthatmanagetheirimpactontheenvironmentandcommunitiescanbuildapositivelegacy

Overthepastyear,miningandmetalscompaniesfocusedondecarbonizingoperationsasexternalpressuresincreased.Forthenext12months,weexpectstakeholderexpectationstobroadenaroundissuessuchasbiodiversity,socialimpactandwatermanagement.MinersarebeginningtointegrateESGfactorsintocorporatestrategies,decision-makingandstakeholderreporting,astheissuebecomesapriorityforshareholdersandinvestors.¹EYresearchhasfoundthat91%ofinvestorsnowviewnonfinancialperformanceas“pivotal”intheirinvestmentdecisions.²

Forminingandmetalscompanies,navigatingESGisincreasinglychallenging,giventhebreadthofissuesthesectorfaces,aswellasthemyriadofreportingstandardstowhichtheyneedtoadhere.Twenty-fivepercentofoursurveyrespondentssaybothenvironmentalandsocialissuesarethenumberonekeyriskandopportunity,butourfindingsindicatethatgovernanceisnotyetseenasanissue,butthiswillchangeasthefocusonsocialissuesincreases.

Managingsocialimpactandensuringa“just”transition

TheCOVID-19pandemichasfocusedattentiononsocialinequalities,placingpressureoncompaniestogobeyondtheirregulatoryobligationsandtakeresponsibilityfordrivingsocialequalityintheregionsinwhichtheyoperate.Manyminesareinremote,underdevelopedpartsoftheworldwithlocalcommunitiesthatrelyonminingforeconomicgrowth.Minershavearoletoplayinensuringthelong-term,sustainableeconomicgrowthandsocialprogressoftheseregionsbyworkingwithgovernments,nongovernmentorganizationsandcommunitiestoleaveapositivelegacybothduringandbeyondlifeofmine.

Thisisanissuethatwillincreasinglycometotheforeastheenergytransitionaccelerates,andminersmoveawayfromfossilfuels.Maintainingintegrityand,ultimately,LTOwillrequirecompaniestomanagethischangewithcare

andlimitnegativeimpactsoncoal-dependingeconomiesandcommunities,includingwomen,youngpeopleandIndigenousgroups.

Transparentsupplychainscandemonstratehumanrightscommitments

Aknock-oneffectoftheCOVID-19pandemichasbeenariseintheuseofchildlaborandinviolenceagainstwomen.AsmorefinancialinstitutionsadopttheEquatorPrinciples(EP)riskmanagementframeworkaroundsocialrisk,minerswillneedtodemonstratetheircommitmenttohumanrights.Inparticular,EP4mandateshumanrightsassessmentsbeperformedbeforeprojectfundingisawarded.WeexpecttoseemoreminingcompaniesadopthumanrightsbestpracticeacrosstheirsupplychaintomeetexpectationsandretainLTO.

Progressiveplanningforclosureshouldbeadoptedacrosslifeofmine

Manyminingcompaniesaremissingrehabilitationperformancemeasuresandtargets.ThosethatareleadingthewayhaveputacommitmenttosustainabilityfirmlyontheCEOagendaandperformancemeasures,whichthencascadesdownthroughthebusiness.Thisoverarchingvisioniscriticalconsideringthecomplexityoftheissue—minersmustnavigatedifferentpolitical,socialrequirements,aswellaswhat’sbestforcommunitiesintermsofleavingalegacybeyondlifeofmine.Progressiverehabilitationplanswillhelpminerstoavoidthepotentialblowoutsthatwehaveseenacrosstheindustryinthepast,butthisneedstostartwithmineplanning.

BiodiversityhasyettoreceivethesameattentionasotherESGtopics,suchasclimatechangeorgenderdiversity.Butmomentumonthesubjectisbuildingasmorebusinessesrealizethatthebenefitsofprotectingnaturalcapitalcanoutweighthecosts.

Withfutureminessettobecarbonneutralandsustainable,themajorityofthesector’senvironmentalriskandliabilitywilllieinclosedlegacyassets.Tailingdamsandcontaminationaretwosignificantrisksrequiringongoingmonitoring.Digitaltoolscanhelpwiththis.

“Theroleofwaterinmining’ssustainabilityjourney,”Aquatech,4November2020,via

/news/industrial-water/mining-

giants-tackling-water-use-with-tech/.

“ANZtostoplendingtoAustralia’sbiggestcoalportoveritsexposuretofossilfuels,”TheGuardian,9February2021,via

/

australia-news/2021/feb/09/anz-to-stop-lending-to-australias-biggest-coal-port-over-its-exposure-to-fossil-fuels

Top10businessrisksandopportunitiesforminingandmetalsin2022| 5

Managingthewater-energynexus

Thewater-energynexusrelatestohowmuchwaterisusedtogenerateenergyandhowmuchenergyisusedtocollect,distributeanddisposeofwater.WatermanagementislikelytobeoneoftheESGissuesmostscrutinizedbyinvestorsin2022,accordingtooursurveyrespondentswhorankeditthenumbertwoESGissueoninvestors’minds.

Currently,thesectortendstowardsettingblankettargetsaroundwaterusage,buttheseoftendonotacknowledgethetrade-offs,whichwilllikelycometotheforeasESGmeasuresandreportingstandardsimprove.Forexample,sometechnologiesthatsavewatercanalsobeenergyintensive.

De-wateringoftailingsdamsisessentialtoavoidthe

tailingsfailuresthathavebeeninthespotlightinrecentyears.Newtechnologytorecovercoarseparticlescanimprovebothenergy

efficienciesandwatersavingsbyabout30%,andde-wateringthemeliminatestheriskofwettailings.³

Embracingthecirculareconomy

Inthecirculareconomy,miningandmetalscompaniesfaceanumberofrisks,butcanalsocapturetheopportunityforrecoveryandrecycling,throughtoproduct-as-a-service.Recyclingratescurrentlyvaryforallmineralsandgeographiesduetocostsandtechnicalissues,butastechnologyimproves,opportunitiestoadoptcirculareconomypracticestorepurposeandregeneratewillonlyincrease.Thecapitalmarketsarebeginningtoplayaroleinacceleratingtheshifttoacirculareconomy.BlackRock,forexample,hasformedapartnershipwiththeEllenMacArthurFoundationtodriveinvestmentincompaniescontributingto,orbenefitingfrom,circulareconomyactivities.Companies

Whicharethetopenvironmentalandsocialissuesonwhichtheminingandmetalssectorwillfacethemostscrutinyfrominvestors?

Localcommunityimpact

6.52

Watermanagement

6.26

Greenproduction

5.08

Diversity

3.28

Biodiversity

3.15

Source:Top10businessrisksandopportunitiesinminingandmetalsfor2022surveyrespondents.

“EUproposesworld’sfirstcarbonbordertaxforsomeimports,”Reuters,15July2021,via

/business/sustainable-business/eu-

proposes-worlds-first-carbon-border-tax-some-imports-2021-07-14/

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thathesitatetoadoptnewcircularmodelsmaynotonlymissoutonopportunitiestocreatevaluebutfindtheirabilitytooperatetheircorebusinessimpacted.

SettingadirectiononESGreportingstandards

Therehaslongbeenconcernaboutwhatbecameknownasthe“alphabetsoup”ofESGmeasurementandreportingstandards,whicharemultipleandsometimesduplicativetofollow,makingithardforminerstoquantifyanddemonstratevaluefromanESGperspective.

Theaggregationofstandardsissomethingthatwouldbenefitminers,aswellasinvestorswhoarekeentohavealevelplayingfielduponwhichtoassesshowcompaniesareperformingversustheirpeers.

TheIFRSFoundation4hasaddedanincreasedurgencytothesearchforcommonstandards,andthereisadegreeofoptimisminthesectorthatasolutionisinsight.WewouldanticipatethatwiththeemergenceofthesecommonstandardswillcomepressurefromshareholderstolinkESGperformancetoseniormanagementpay,toholdleadershipaccountableforthecompany’sactions.

CarbonPricesnowApplytoOveraFifthofGlobalGreenhouseGases().

Keyquestions

forconsideration

Asminingandmetalscompaniesintegrate

environmentandsocialrisksandopportunities

intotheirstrategies,thefollowingquestions

canhelp:

DoyouunderstandwhatESGmeasuresaremostimportanttoyourstakeholders?

Howareyoumeasuring,monitoringandcommunicatingperformanceagainstthesetargets?

Howareyouplanningforclosuretocreateasustainablelegacybeyondlifeofmine?

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Decarbonization

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Practical,flexibleabatementstrategiescanachievenetzero—andcompetitiveadvantage

Thepastyearhasseenminersandinvestorsaccelerateconversationsandactionsarounddecarbonization,whichisnowamajordisrupterinthesector,presentingbothrisksandopportunities.It’snotsurprisingthenthatdecarbonizationtakesthenumbertwospotof2022’sranking,upfromfourlastyear.

Financialinstitutions,includingbanks,pensionfundsandinsurancecompanies,havebeendecliningtofinancethermalcoal-relatedinvestmentssinceasearlyas2013.Butthistrendhasgainedmomentumandevenbroadenedoverthelast

12months,culminatingintheG7announcementtoendallgovernmentfundingofthermalcoalbytheendof2021.

Carbonpricingsettoincrease

Investors’moveawayfromcoalcomesasclimateregulationsandexpectationsincrease.TheEUrecentlyproposedtheworld’sfirstcarbonbordertax,5effectivelytaxingcarbonemittedduringsteelandaluminiumproductionincountrieswithoutacarbontax,whentheendproductarrivesintheEU.Thiswillhaveasignificantimpactontheimportofsteelandaluminium,andisanotherexampleofcountriescomingtogethertoactinconcert,inturninfluencingotherstodothesame.

Actionssuchasthese,intandemwithothercarbonreductionregulations,arelikelytohaveasignificantimpactonnetexporters,andmayevenpushthosecountrieswhereproductiontakesplacetoreactwiththeirownpriceoncarbon.And,withmanyoftheworld’sgovernmentstryingtoraiserevenueafterspendingmorethanUS$30tgloballyonCOVID-19-relatedstimulus,weseeariskthatsimilartaxesandpolicieswillberolledoutmorewidely.Currentlyonlyone-fifthoftheworld’sgreenhousegasesarecoveredbycarbonpricinginstruments,butthisislikelytoincrease.6Navigatingtheseemergingregulationswillbeachallengeforminers,bothintermsofmanagingdecarbonizationeffortsandreportingagainsttargets.

Butevenasminersfacethechallengesofdecarbonization,andthemajorityhavecommittedtonetzeroby2050,fewhavemadethenecessaryinvestmenttoachievethis.Wesuspectthisisbecausemanyminersarestillworkingthroughwhatnetzeromeansforthem,andwillwaitforanswersbeforeallocatingcapital.

Buildingaflexibledecarbonizationstrategywithpracticalpathways

Decarbonizationisasectordisrupterand,assuch,needstobetreatedlikeanyotherstrategicrisk—dealtwithataboardandexecutivelevel,andmanagedaspartoftheoverarchingbusinessstrategy,ratherthanaddressedasaseparateclimatestrategydelegatedtoadiscreteteam.

Doingthissuccessfullyrequiresminerstoconsider:

Scenarioplanningthedifferentpathwaystonetzero,tocreateaflexible,agiledecarbonizationstrategy

Aligningorganizationdesignandculturebyincentivizingbehaviorthathelpsachievetargets

Incorporatingnet-zeroachievementintocapitalallocationmethods

Determiningwhichtools,technologyandinnovationtoinvestin,andwhotocollaboratewith

Decidingwhentosellexposedassets,orwhethertotransitiontonewenergyeconomymetals

Assessingotherpotentialopportunities,includingrecycling,renewablesandcarbon-reducedproducts

Reviewingfundingandcapitalmodels,includingfundingsources,theroleofgovernmentandinternalallocation,andhowtomakebestuseoftaxbreaksandincentives

Determininghowoffsetsandotherfinancialinstrumentscanbeusedtohelpachievenetzero

“GlobalinvestorsengagetopminingcompaniesonIndigenouscommunityrights&sociallicence,”ChurchofEngland,28October2020,via

/news-and-media/news-and-statements/global-investors-engage-top-mining-companies-indigenous

“BenWyatttojoinRioTintoBoard,”RioTintoMediaRelease,4June2021,via

/news/releases/2021/Ben-Wyatt-

to-join-Rio-Tinto-Board

Top10businessrisksandopportunitiesforminingandmetalsin2022| 9

Whatareyourtargets(intermsoftime)toreduceyourcarbonemissionsandattainnetzero?

Notargetssetyet

23%

20%

2025

26%

3%

2030–40

41%

27%

10%

2041–50

49%

Scope1and2

Scope3

Source:Top10businessrisksandopportunitiesinminingandmetalsfor2022surveyrespondents.

Thelowhangingfruit–scope1and2abatement

Abatingscope1and2emissionsshouldbehighontheagendaforminersand,ideally,alreadyinprogress.Itwassurprisingtoseethatmorethan20%ofoursurveyrespondentsstillhadnotargetstoachievenet-zeroscope1and2emissions,evenwithcapitalmarketpressureonthesector.Minersneedtoactnow,toavoidbecominglessattractivetocustomersandcapitalmarketsthantheirpeers.

Weseeseveralopportunitiesforminerstoreduceemissionson-site:

Aswellasprovidingareductioninamine’scarbonemissions,switchingtorenewablesisasmartuseofthelandthatsurroundsthemine.Fleetelectrificationandreplacingdieselwithzero-carbonfueloptionsacrossthevaluechainofferopportunitiestodecreaseon-siteemissions.Renewableenergyisthemostcost-effectiveabatementinitiativeandcanreduceemissionssignificantlydependingonsiteconditionsandlocation.

Butthesemeasuresalonewillnotfullydecarbonizeamine.Emissionsfromprocessing,ventilation,heatingandcoolingandbackuppowergenerationremainsignificant.Carboncaptureandstoragewillbeneededtoachieveanet-zerotarget,potentiallyalongsideotherformsofcarbonoffsets.

Renewableenergy

Scope1&

2emissions Fleetelectrification/

zeroemissionvehicles

Efficientequipment

Offsets/credits

Carboncapture

andstorage

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Whyswitchtorenewables?

Incentivesorgrantsmaybeavailabletoearlymovers,and,ifcarbonistaxed,financialbenefitsareonoffer—ifnot,capitalmarketswillstillrewardthemove.Theinfrastructurethatgetspowertositeenablesminestosenditbacktogrid,andcombiningpowergenerationwithcarboncaptureandstoragecanreduceemissionsfurther.Whenminesclose,theearlyinvestmentinrenewableswillgeneraterevenue—beyondlifeofmine.

Capturethepremiumorsomeoneelsewill—scope3abatement

Abatingscope3willbetherealgamechangerinminers’questforlong-termsustainabilityandperformance.Ourmessagetocompaniesstillhesitatingovertheissueissimple:unlessyoucancontroltheseemissions,yourisklosingvalueandcompetitiveadvantage.Butabatingscope3emissionsrequiresminingandmetalscompaniestomakebigchangesinhowtheyoperate,collaboratemorewithclientstodecarbonizethewholevaluechainandarticulatethevaluetostakeholders.Thislastmileofdecarbonizationishard,anddatacollaborationposespotentiallimitations

totheaccuracyandcompletenessofdataneededtosupporttargets.Forminers,thekeychallengewillbetoencourageandempowerpartiesacrossthevaluechaintobecarbonneutral.

Communicatingfortransparencyandvalue

Amiduncertaintyaroundemergingcarbonlegislation,minersneedtorespondappropriatelytoshareholderpressuretomeetclimatetargets,andavoidcommittingtopotentiallyunrealisticgoals.Sharingtheirroadmap

tonetzeroandtheirsuccessesalongthewaywillbekeytogaininginvestorconfidenceand,potentially,competitiveadvantage.

Keyquestions

forconsideration

Asminersbuildaproactiveplantodecarbonize,

keyquestionscanshapetheirlong-termstrategy:

Howdowedeliverandoperategenerationassets?

Arewemakingthebestuseoftaxbreaks,incentivesandfinancestructuresavailable?

Whatarethefundingandcapitalmodelsavailabletous?

Doweknowwhichtechnologyshouldbeusedtoscaleupandacceleratedecarbonization?

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Licensetooperate

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Creatinglong-termvalueforallstakeholderscansecuremining’sfuture

LTOisanevolvingandcomplexissueforminingandmetalscompanies.Shareholderexpectationsarechangingfastaroundmyriadsectorchallenges,includingmining’scontributiontocommunities,economies,protectionofheritagesitesandengagementwithIndigenousandFirstNationspeople,aswellastheindustry’sroleinethicalsupplychainsandtheclimatecrisis.Resourcenationalismisalsoontheriseasdiscussedwithinournumberfourrisk,geopolitics.Tailingsdamsafetyisalsoafocusofinvestors,whoaredemandingminersdomoretoeliminatethefailuresthatcandevastatelocalcommunitiesandtheenvironment.TheChurchofEnglandPensionsBoard(CEPB)DirectorofEthicsandEngagement,AdamMatthewssaidtheissueoftailingsdamsafety“hasexposedasystemicissueacrosstheminingsector.Oneachoccasion,theminingsectorfurthererodesthetrustinitssociallicensetooperate.”7

Takingaproactiveapproachtomanagingtheseissuesremainscritical,asweseeincreasinglinksbetweenacompany’sabilitytoaccessdebtcapitalandtheirsocialandenvironmentalimpact.Minersthattaketheopportunitytobetterdemonstratetheirpositivecontributiontocommunitiesandbuildtheirbrandcanenhancetheirabilitytoaccessnewresources,capitalanddebt.

BroaderconsultationwithTraditionalOwnerscanimprovedecision-making

Over40%ofoursurveyrespondentssaythatcommunityengagementwillbethefocusofinvestorscrutinyofminingandmetalsin2022.

Muchofthefocuswillbearoundminers’engagementwithFirstNationspeopleandotherstakeholders.