Mining companies need to innovate to survive: Deloitte report says

OTTAWA – Mining companies need to innovate and consider structural changes to deal with volatile commodity markets, a report suggests.

The report by audit and consulting firm Deloitte, to be released Tuesday, says mining companies are facing a seismic shift in the industry.

Jurgen Beier, a national mining practice leader at Deloitte, says mining companies need to think in new ways as they face tighter margins.

“There are a number of proven technologies and things that are out there today that radically change the way ore is extracted and change the way mining occurs.

“We think this is the opportunity to embrace that innovation, to get to that point of sustainability.”

Beier says it is about more than just bringing in more technology, but also re-examining the underlying process.

Mining companies have struggled through a difficult year with volatile commodity prices. As China’s pace of economic growth has slowed from its breakneck pace, producers have been hit hard.

The difficulties have meant major cost cutting by many companies and, in some cases, the suspension of projects under development.

In October, Barrick Gold (TSX:ABX) suspended much of the work on its massive Pascua-Lama mine in South America as the gold miner moved to cut costs.

The annual Deloitte report, which tracks trends in the mining industry, noted companies are facing record writedowns; rising debt; increased demands from local communities; and hostile government relations.

The report noted that mining companies that made bad capital allocation decisions during the boom, in the belief that strong commodity prices would compensate, are now paying the price.

Beier said unclear demand has been a driving force in the industry and companies need to adapt to what he called the “new normal.”

“Mining companies really need to be much more nimble than they have been historically,” he said.

“While we do think the long-term demand picture is good, I think the mining companies are going to have to learn to survive with smaller margins.”

Mines are becoming more remote and harder to build, ore grades are lower and it is becoming more difficult to find workers, Beier said.

“It is becoming much more difficult to mine and extract minerals out of the ground.”