For the third consecutive year, advisory and professional services firm Ernst and Young’s (EY’s) ‘Mining Risks and Opportunities Study’ has revealed that, although environmental, social and corporate governance (ESG) factors pose the biggest risk for miners, it also represents their biggest opportunity to drive differentiation and improvements that will create long-term value for all stakeholders, says EY Africa strategy and transactions leader Quintin Hobbs.

With mining companies’ social licence to operate being a key consideration in African mining, the sector can positively impact on communities, create jobs and contribute to the development of economies, he says.

With increasing emphasis on a global energy transition and decarbonisation efforts, Hobbs argues that the mining industry has a critical role to play regarding the ESG credentials of the wider economy, with critical, technology and energy-transition minerals being key enablers.

The surge in early-stage development projects is expected to drive an unprecedented increase in the development of new mining operations.

Hobbs notes that data and technology company S&P Global’s capital cost announcement of $1-billion from 2020 to 2023 reveals the prospect of significant capital investment in greenfield copper, gold, lithium and nickel project development over the next decade.

He explains that three-quarters of these projects are at the prefeasibility or feasibility stage, with final investment decisions yet to be made.

New developments will enable sponsors to demonstrate excellence in ESG in various areas, including tailings and waste management, the concept of a carbon-neutral mine, water stewardship and using technology to ensure safer working conditions.

Other areas of ESG include protecting the rights of workers and indigenous peoples, positive community development, a net-positive impact on biodiversity and mine closure as an opportunity to create a legacy of value.

However, Hobbs notes that global mining companies face challenges regarding logistics and supply chains; local ownership requirements; skills and attracting talent; the availability of cost-effective, reliable and low-carbon electricity; and balancing growth and economic returns with the need to invest in decarbonisation, sustainability and broader ESG issues.

He adds that major mining houses are, therefore, reassessing business models to better address capital risks and opportunities, noting that companies’ continued capital discipline is “reaping rewards” for shareholders and broader stakeholders.

“As the energy transition accelerates, future shortfalls in several key commodities, including copper, lithium and nickel, are becoming apparent. Investment in mining and metals is increasing to meet the need for more exploration and development, but the sector will need access to more capital if we have any chance of meeting these shortfalls,” says Hobbs.

Hence, the issue of capital raising is attracting more attention, with capital markets recognising the key role critical minerals will play in the energy transition.

“We see mining as a catalyst for improving the world and our role is to enable and support our mining clients in doing this by assisting them with capital allocation, enabling trust in financial information and through the capital market.”

EY aims to continue helping its clients to optimise and transform their operations and attract capital into African mining.

The firm will present its yearly ‘Mining Risks and Opportunities Study’, as a means of sharing insight into the key issues top executives should focus on, at this year’s Investing in African Mining Indaba – to be held at the Cape Town International Convention Centre, from February 5 to 8.