What does a sustainable world actually look like, and what are the implications for the mining and metals industry? The World Economic Forum’s scoping paper, Mining and Metals in a Sustainable World, explores this question in some detail, using the Vision 2050 scenario from the World Business Council for Sustainable Development as a guide for imagining the future.
In a sustainable world, strong demand for metals and mineral resources will continue to make these materials critical to supporting the energy, social and urban needs of a larger, wealthier global population of 9 billion people. Consumption will no longer be perceived as an indicator of wealth; instead, the concerted focus will be on consuming as little as possible while enjoying higher living standards. Investors will give preference to companies that have successfully integrated social and environmental considerations into the way they operate.
The transition to a sustainable world has already started. There is an increased focus on developing robust stakeholder partnerships to deliver shared value and not only shareholder value. New customers, governments and communities are holding companies accountable to higher social and environmental standards. This blog post, extracted from the scoping paper, considers the future of financing and ownership in the industry.
Mineral rights and ownership, and associated discussions on resource nationalism and the appropriate allocation of resource rents has dominated the mining and metals agenda for decades. In the transition to a sustainable world, the debate will become more constructive, and mining and metals companies will adopt a commitment to shared value creation rather than cyclical profitability.
No single perfect ownership model or financing arrangement exists for mining and metals companies in a sustainable world, but seven elements should be considered:
- Project development: Mining and metals companies act as project developers rather than mineral-rights owners. This management shift enables mining and metals companies to focus on their strengths – for example, building and operating projects – while offering governments and communities the option of owning the mineral assets and utilizing resource rents to meet the region’s social and economic objectives
- Long-term value: Ownership models are designed to mitigate the risk of commodity price fluctuations and support corporate and economic diversification. Resource rents are managed to effectively balance current versus future investment requirements and to drive economic diversification for the region. Environmental and social stewardship is a key determinant of the overall value proposition.
- Equitable division of profits: Profits are distributed based on pre-agreed, reasonable levels to a wider variety of stakeholders, including governments, communities and investors. Payments may be made on commodity value at the point of extraction/production; or, commodity owners can elect to receive a portion of the commodity to use or sell at their discretion. The understanding that all stakeholders are equally exposed to operational performance and commodity price volatility is critical for this approach.
- Inclusivity: All players, including miners from artisanal and small-scale mining (ASM), junior players and multinational organizations, are held accountable to the same standards and policies, creating a consistent, level playing field for the sector. This drives convergence and fosters greater collaboration and partnership among the players, with a potential scenario in which ASM miners work under the auspices of larger mining companies.
- Shared knowledge: Public-private bodies are created to develop geological knowledge that facilitates exploration and operation of mining and metals projects. Mining and metals companies share geological data to support wider mineral development and provide opportunities to effectively work together to rapidly deliver value.
- Leasing minerals: Notwithstanding the clear difficulties facing the enterprise, some companies and governments implement models to trace the use of mineral commodities throughout the value chain and lease, rather than sell, materials to customers. This requires sophisticated tracing mechanisms; for example, companies receive a credit note against a future purchase for the reuse of mineral commodities. Under these arrangements, customers compensate companies for performance rather than for commodities ownership.
- Service contract mining: Commodity owners contract out production responsibility to the most effective and efficient service provider, even if it is not a traditional mining company. The transition from miner to service provider encourages competition, drives cost efficiencies and rewards organizations with the best performance standards.
The project life cycle for mining and metals companies can easily exceed 50 years. The industry should consider the crossroads it is at now as the next step in the Global Mining Initiative, when it came together and defined its contribution to sustainable development. The decisions they make today will influence their role and contribution to a sustainable world.
Find out more about the future of mining and metals in the World Economic Forum’s scoping paper: Mining and Metals in a Sustainable World
Author: Michael Tost is the head of the Mining & Metals team at the World Economic Forum.
Image: A stack reclaimer with a pile of iron ore at a mine in the Pilbara region of West Australia REUTERS/Handout