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Analysis

Sowing Seeds for the Future

Wed, 10/18/2017 - 11:51

The mining industry is one of Mexico’s most conventional sectors. But sticking to the status quo means it is struggling to keep up with the world’s brand-driven economy. To meet the growing needs of the 21st century, the industry must embrace the future.

In 2017, KPMG released an insight about the top risks to the future of the mining industry, as perceived by mining executives in Canada. At the head of the list lies the ability to access and replace reserves, which is understandable given the fact that exploration activity all but halted in recent years due to a prolonged commodity price downturn. There is now a lack of pipeline projects and operators are examining ways to get the most out of brownfield assets. Sierra Metals has strengths in greenfield exploration but its current strategy is aligned more with development close to its existing properties.

“We are focused on brownfield because we have a lot of untapped potential close to the existing mines,” says Mike McAllister, the company’s Vice President of Corporate Development. “We benefit more from brownfield exploration that is close to mine heads as these projects can generate mines in less than a year.”

But with a desperate need for new mining projects, authorities are now concerned about promoting Mexico on a cut-throat international playing field. “Strong mining jurisdictions in Latin America like Peru and Chile are all fighting for investment from Asia, North America, Australia and Europe,” says Armando Perez, Director General of the Mining Development Trust Fund (FIFOMI). “Like its neighbors to the south, Mexico has a capital deficit and needs foreign investment so we need to ensure that our processes and practices to attract foreign capital are superior to the competition.”

Even though the mining industry is now held to some of the highest environmental and sustainability standards, the public continues to hold a stereotypical image of a miner covered in dirt holding a pickaxe and a lantern. “The global mining industry is going through an identity crisis,” says Andres Robles, President of the Mexico City Chapter of AIMMGM. “A hundred years ago the media created a particular image of the industry and that image has stuck in people’s minds.” To guarantee the future of the industry, miners now know that a project pipeline is needed. And with such stiff competition for all-important exploration investment, the Mexican industry realizes it must clean up its image and seek new methods that ensure longevity and continued investment inflows. In today’s society, perception is everything, and mining is no exception 

MAKING AN IMPRESSION

An increasing amount of the world’s metal demand now comes from tech companies developing the latest smartphones or electric vehicles. But these industry giants 

can afford to be picky about supply-chain standards. In 2016, Amnesty International and media outlets such as the Washington Post and Sky News began releasing controversial reports about the origin of cobalt, a mineral used for lithium-ion batteries in products developed by big tech companies like Apple and Sony, in the Democratic Republic of Congo (DRC). The reports found strong connections between the mineral, child labor and dangerous working conditions. Consequently, Apple, HP, Samsung SDI and Sony joined the Responsible Cobalt Initiative led by a Chinese business group as a pledge to follow OECD guidelines for mining supply chains. Apple even announced that it has stopped buying cobalt from these mines in the DRC until they are able to guarantee adequate worker protection and a ban on child labor.

Companies like Industrias Peñoles are leading the pack by basing the future of the company on sustainable development, human capital and technology. “We have an internal R&D group made up of 35 full-time researchers working at a specialized center in Torreon, and we are always looking for innovative methods that can improve our practices,” says Fernando Alanis, Director General of Industrias Peñoles. “We are fully aware of what is going on in the industry on a global scale and we will never hesitate to invest funds into new technology that can move the mining sector forward.”

Operators in Mexico that align themselves to sustainability and environmental standards are reaping clear benefits. Capstone Mining was ranked number 16 in the top 100 Great Places to Work in Mexico for companies with 500-5,000 employees. It is also the first mine in Mexico to receive a certificate from the National Council for Standardization and Certification of Occupational Competencies. These kinds of actions are important strides toward changing the perception of the industry.

Paying attention to its brand, as noted by PwC, is an efficient way to demonstrate that an industry is deserving of self-regulation and to guarantee demand. The 2016 Label Insight Transparency ROI Study surveyed more than 2,000 consumers about the impact transparency has on their trust and loyalty to brands. According to 56 percent of those surveyed, additional product information inspires more trust in a given brand and 73 percent are willing to pay more for a product that promises total transparency. This is added pressure for the mining industry to clean up its game and share more information with the end user about its processes.

TURNING THE PAGE

Considering the need to take advantage of rising metals prices by mining and selling as much ore as possible, Phillip Hopwood, Global Mining Leader at Deloitte, considers the adequate use of resources to be one of the biggest issues that mining companies face. “Once companies have negotiated with suppliers and cut spending to a minimum, it is crucial for them to focus on innovation,” he says.

This is when branding and public image come most into play, as tech companies and talented youth will always choose to collaborate with industries that are aligned with their core values and goals. “If the sector wants to attract young talent, it has to actively promote sustainability, renewable energy and innovation,” adds Hopwood. “Mining brings jobs to remote communities that have very few employment options but as a sector it has been ineffective at getting the message out into the marketplace in a transparent manner. This needs to change.”

And projects and actions that are being financed through The Mining Fund could go a long way to creating a positive impact when it comes to the perception of the industry. “The Mining Fund’s investments have contributed to improving the image of mining both among the communities where it is carried out and between local governments, which have identified a lower incidence of conflicts,” says Mario Alfonso Cantú, Undersecretary of Mining at the Ministry of Economy.

To survive the waves of uncertainty being created by technological advances and economical and social shifts, a culture of transparency and brand awareness is necessary. The path will not be easy nor quick. But, as Glenn Ives, Americas Mining Leader Deloitte Canada, asks in Tracking the Trends, “Will the next two years be wasted time, where companies fail to learn from the mistakes of the past? Or will these be the years where miners seize the opportunity to transform themselves and create a sustainable industry?”