Given the uncertainties facing the mining sector, mining companies will have to adopt sufficiently flexible planning strategies to accommodate a range of potential scenarios – a single vision cannot encompass the almost endless variation of challenges they may face in 2010. Deloitte’s global mining team put together the following ten trends that mining companies will face in 2010:

Securing local supply of resources for the local population

In 2009 countries sought to secure their supply of natural resources by investing and buying off-shore assets. For instance, although China’s overseas direct investment was down 60% year-on-year as of October 2009, Chinese investors still completed 30 outbound mining deals for the year with a total disclosed deal value of US$ 5.2 billion.

Some experts believe that this drove up short-term demand artificially and that this stockpiling may not be sustainable in 2010. Others point to the deep inherent demand of China, India and other emerging economy nations to modernise and industrialise. Mining companies need the strategic feasibility to adapt to either one, as well as the range of other potential outcomes they may face this year.

Continuing fluctuation of commodity prices, currencies and costs

This rollercoaster ride continues as commodity prices drop and rebound again. The base metals, copper, gold and silver have demonstrated buoyancy after their drop. Industry stakeholders are watching with bated breath to determine if mining companies have learnt their lesson from this rollercoaster. As demand fundamentals pick up, organisations must take heed to expand with caution. Rather than reigniting a cycle of spiralling costs, companies will need to manage their risks more effectively.

The need for flexible long-term planning and back-up strategies

The trouble with reacting to commodity price fluctuations is the need to always look over your shoulder instead of facing ahead. In 2009 the mining sector fell prey to this mentality as they shut down locations, put exploration on hold and froze new projects. “Mining companies need to  understand what’s driving demand, to be able to think ahead of the curve, planning exploration and development investments and differentiating themselves in the global commodities marketplace”, says Tony Zoghby, Global Mining Leader at Deloitte South Africa.

Embracing sustainability

Corporate Social Responsibility is not new to the mining sector, but is often relegated to the communications office and not seen as integral to their business operations. In the face of heightened regulations and an increase in vocal investor activism and consumer expectations, this is no longer a feasible stance. Mining companies, for instance those with limited access to energy, infrastructure and water, will need to collaborate more effectively with communities and NGOs to protect corporate and local citizen interests. This can be seen as earning a social license to operate if an integrated approach is undertaken.

Funding from the credit markets still difficult to access

Mining is a very capital-intensive industry regardless of how much you cut it. When the debt markets shut down and equity deals started falling through last year, many companies were forced to put a hard stop to operations and junior companies. Even major companies and state-owned enterprises had greater difficulty in accessing capital, although they were sufficiently cash-rich to continue financing existing production from internal cash-flow. Mining companies now turn to private equity players and alternative options, but either way they must remain laser-focused on capital efficiency if they hope to weather the current downturn and position themselves for sustainable growth in the future.

Contending with a changing climate

Climate change moves to the mainstream operational agenda as a changing climate could potentially hamper productivity due to unpredictable droughts or flooding. The climate change issue poses hindrances to the mining industry in general. These include regulatory risks; physical operations risks; financial risks; market risks; strategic risks; supply chain risks and litigation risks. Heavy carbon-emitters will need to take steps to reduce their emissions, to better measure and report their output and to engage in carbon offset trading

Exploring extreme mining- the next big thing

The pace of exploration has slowed due to a tough economic climate but as the demand begins to pick up mining companies will face an endemic industry challenge of finding quality assets. Now that mining companies have picked the easy to access deposits they have to now consider exploring the extreme and harsher mining locations.

Endless mergers

The need to merge still exists in mining but the desire to merge does not. Many companies are taking advantage to get their financial houses in order in advance of the next wave of mergers. Organisations that have prepared for alternative scenarios (as both buyers and sellers) will be better placed to act decisively in the face of built-up pressure for consolidation in the sector.

No end to government intervention

Tensions between mining industry and national governments are commonplace. There is nevertheless the need for improved collaboration between national governments and the mining industry. With many mining companies looking into extreme mining, with the associated risks companies can expect strict regulations, more permits and complex tax issues. This is bound to result in more government interventions and companies will need to learn how to walk a tough political high wire.

Infrastructure to remain the biggest stumbling block

The mining sector has long relied on access to adequate infrastructure for production and distribution – from power generators and transmission lines to ports and railways. As they move into more remote regions however, the lack of infrastructure threatens to endanger operations. Companies are forced to bear the costs of infrastructure development and enter into public-private partnerships. If this trend continues, mining companies may find themselves investing in and managing an entirely new class of assets.