Miners need to balance financial discipline and growth to deliver value: Deloitte

Intensifying the focus on shareholder value has been identified as a key trend for mining companies in Deloitte’s latest Tracking the Trends industry report.

The report identifies a mood of cautious optimism in the mining industry, with commodity prices on the rise, shallow growth returning to different end markets, and most mining companies in better cost positions than in the recent past.

“The focus on shareholder value in the mining industry is sharper than ever before, with return on invested capital a key metric,” Deloitte Australia national mining leader Nicki Ivory explained.

“While companies are starting to focus on growth again, this is being carefully balanced with the need to maintain financial discipline. Growth strategies are no longer about significant M&A deals and major new capital projects, but focused on portfolio optimisation through a combination of brownfield expansions, strategic acquisitions and/or divestments and productivity improvements.”

The report uses BHP Billiton’s current strategy as an example of how a mining company is redefining shareholder value.

Deloitte outlines that, as part of BHP’s strategic roadmap, it plans to “free up latent capacity and pursue low capital intensity growth, with some investment to boost production, particularly in copper and petroleum.”

Rather than buying producing copper or petroleum assets, the company’s focus is on expanding exploration, squeezing more value from existing assets and driving further productivity gains across all its commodity businesses, the report states.

While optimism is increasing, the industry is still at a pivotal point as it confronts challenges from cyber security threats, technological disruption and environmental issues, according to Deloitte. Mining companies now face key choices about where to invest and how to position themselves in the coming years.

“Miners willing to engage in substantive change, by rethinking strategy and embracing the digital revolution to help unlock productivity and improve sustainability, will likely be best positioned to succeed,” said Ivory.

“But these companies will require strong leadership, greater collaboration and adoption of a long-term view to propel the industry forward.”

Other trends identified by Deloitte include: Operating in an ecosystem; Digital revolution; Mapping the threat landscape; Creating a shared vision for the sector; Re-earning the social license to operate; Supporting strategic priorities; Creating healthy and inclusive workforces; and, Adopting an integrated approach to reporting.

View the full Deloitte 2017 Tracking the Trends report

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