How miners should confront this year's top business risks

Respondents to a mining survey by consulting firm EY identified ESG, capital and license to operate as the top three business risks, with companies operating in Latin America facing additional complexities regarding community relations.

See the full results in the Documents box in the top-right corner. 

In this interview, BNamericas discusses the details with EY Americas and Canada mining & metals leader Theo Yameogo.

BNamericas: What problems in particular is Latin America’s mining industry grappling with?

Yameogo: Globally, the mining industry faces a range of challenges, including environmental concerns, the need for sustainable practices, fluctuating commodity prices, maintaining safety standards and regulatory pressures. 

Latin American industry must navigate additional complexities such as political instability, social licenses to operate amid indigenous rights and community relations, infrastructure deficits, and often stringent environmental regulations. The region's rich biodiversity and ecologically sensitive areas also place a heightened emphasis on responsible mining practices. 

BNamericas: Which of the 10 mining risks and opportunities that EY identified are key for Latin America?

Yameogo: ESG, operating licenses and climate change. Over half of our survey respondents said water stewardship was one of the top risks, with significant increased scrutiny from investors and a top issue for many governments. For instance, Chile’s 2050 mining policy mandates that continental water make up no more than 10% of total water used in copper production. Other drought-affected regions are likely to adopt similar restrictions.

Regarding capital, inflation is down, but higher costs are impacting margins. Inflationary pressures are now easing sharply around the world and policy rates in the major advanced economies are probably at, or very close to, their peak. 

Amid higher commodity prices, some jurisdictions increased royalty rates to ensure sufficient returns. Chile introduced a new mining royalty that subjects mining operators to an ad valorem component and a mining margin according to their level of sales and the type of minerals. 

In geopolitics, with demand for critical minerals high, countries with resources are moving to optimize their economic returns. Expect to see an increase in government participation in mining, as well as more taxes, royalties and restrictions. In some countries, critical minerals may be nationalized, like in Mexico, which nationalized lithium assets in 2022.

BNamericas: How will China's demand continue to impact the geopolitics of critical minerals?

Yameogo: China is expected to maintain its position as the world's largest consumer of copper, driven by its substantial manufacturing sector and infrastructure development. As the country pursues growth in the electric vehicles and renewable energy sectors, its copper demand is likely to grow due to the metal's essential role in these technologies.

In the geopolitical landscape, countries rich in these resources, such as those in Africa and Latin America, will potentially gain more strategic importance and bargaining power, while nations vie for stable supply chains amidst rising global competition.

BNamericas: Will tensions persist among countries trying to secure critical minerals?

Yameogo: The tension surrounding critical minerals is intensifying as nations recognize these resources are pivotal for their energy transition plans and national security. The strategic moves by countries like the US to secure reliable supplies of vital minerals underscore the urgency and importance of these commodities. 

Such national strategies may lead to increased competition, diplomatic engagements and even potential conflicts over access and control, reflecting the shifting paradigms of power and influence in the modern era where control of critical minerals is synonymous with technological and economic leadership.

BNamericas: And how do US-China tensions impact Latin American mining?

Yameogo: They have significant implications for the Latin American mining industry, as they may lead to diversified sourcing strategies and increased investment in the region from Western nations seeking to reduce reliance on Chinese supply chains.

This situation could result in growth opportunities for Latin American producers, but also bring the potential for heightened geopolitical competition and scrutiny of mining practices and partnerships in the region.

In addition, Latin American countries may opt to expand their influence in the value chain by building more smelting and refining capacity, which would yield more value beyond the shipping of concentrates.

BNamericas: Do growing Chinese mining investments in Latin America represent a risk? 

Yameogo: Investments from third-party countries always carry opportunities and risks. The growth of Chinese investments in Latin American mining can bring capital, employment and infrastructure development. But multilateral investments are preferred most of the time, as they diversify the risks of reliance on one investor. 

We know that Chinese mining investments in some parts of Africa have not gone as expected. The potential for geopolitical tension can also increase, as countries in the region may find themselves at the center of strategic competition between China and the G7 powers seeking access to critical resources.

It's important for Latin America to balance the economic benefits with potential long-term implications for sovereignty and sustainable development.

BNamericas: How should miners approach capital and cost management in a time of greater environmental and social demands, and increased frequency of weather events due to climate change?

Yameogo: Capital has moved up in the ranking to number two, as the sector competes for investment and incentives to accelerate exploration and development of minerals and metals for the energy transition. We’re seeing a shift from a short-term focus on returns to a long-term view of value, encouraged by recognition that longer-term investment horizons are required to meet 2050 net-zero goals.

Mining companies should adopt a multifaceted approach to capital and cost management, emphasizing agility and resilience in their operations. This involves investing in sustainable technologies and practices to meet environmental and social legislative requirements proactively, enhancing their risk management strategies to cope with the increasing frequency of climate events, and optimizing their supply chains for efficiency. 

Companies must also foster strong community relations and transparent communication to secure the social license to operate, while innovating and adopting measures that can mitigate operational disruptions caused by global warming.

BNamericas: How can supply be increased without harming the environment?

Yameogo: To manage an increase in supply, companies should continue to refine and implement strategies such as using state-of-the-art technologies for efficient resource extraction, renewable energy sources and engaging in comprehensive land rehabilitation post-extraction.

Collaborative efforts with stakeholders and adherence to rigorous environmental regulations will continue to play a crucial role in aligning increased mineral production with ecological conservation and sustainable development goals.

BNamericas: How will rising costs and inflation impact the sector?

Yameogo: Rising costs and inflation are expected to continue impacting by squeezing profit margins, increasing the cost of operations and putting pressure on the capital expenditures for exploration, development and the maintenance of equipment and infrastructure.

These economic factors may lead to a reassessment of project viability and could result in delayed investment decisions, a focus on cost optimization and potential scaling back of less profitable or higher-cost projects, as companies strive to preserve financial stability and shareholder value in an inflationary environment.

BNamericas: Why is the workforce still a key issue for the mining industry?

Yameogo: Workforce was ranked No. 10 on this year’s [list]. Finding talent continues to be a major challenge. In an increasingly competitive labor market, the sector’s poor brand and perceptions around the license to operate are deterring workers, especially younger ones, with some being attracted to energy transition projects instead.

At the same time, existing workforces are aging, and the potential of automation and technology to relieve talent pressures has not been realized, according to human resources officers we surveyed. Most are now rethinking recruitment and retention strategies. 

Finding the right talent remains a problem for mid-tier miners who are turning to service providers to help deliver digital transformation. And across the sector, miners are questioning whether they need a specialized digital team or transversal skills in engineers. We are seeing both approaches. Bigger companies tend to have a digital team and digital leaders, while mid-tiers tend to take the transversal skills approach, teaching people what they need to know to get the work done.

BNamericas: What do you think of the national lithium strategy in Chile and its opening to the private sector?

Yameogo: Chile has some of the best lithium grades in the world. Chile's national lithium strategy and its recent opening to the private sector represent a significant shift aimed at capitalizing on the country's vast lithium reserves amid surging global demand for this critical mineral used in electric vehicle batteries and high-tech applications. 

This move could attract substantial foreign investment, spur technological and infrastructural advancements and position Chile as a key player in the global energy transition. To maintain a prime lithium position, decision-makers need to take a global perspective and account for competition for investments in neighboring countries.

BNamericas: Canadian companies are key investors in Chile's mining sector. How will this relationship continue in the coming years?

Yameogo: Canadian companies share the same belief as Chile when it comes to responsible mining for the environment, communities and the host country. The relationship has been mutually beneficial, and we would expect that it will continue to mature in the coming years. Sharing lessons learned and collaborating will help strengthen both sides.

Nonetheless, it’s fair to say that both countries share common wisdom of responsible mining, energy transition, environmental protection and human rights.