[ read full article   (footnotes and figures omitted)]

by David Humphreys

This paper will be included in the projected book International and Comparative Mineral Law and Policy: Trends and Prospects, edited by Elizabeth Bastida, Thomas Wälde and Janeth Warden and to be published by Kluwer Law International in 2003.

Executive Summary

Corporate strategies are the means by which companies adapt to new demands from their environment and the means by which they seek to shape that environment.  Since the mid 1990s, mining companies have faced intensifying pressures from economic globalisation, a process accelerated by rapid advances in information and communications technologies (ICTs).  The apparent dynamism of other economic sectors during these years also served to highlight the poor returns which the mining sector had been delivering to its shareholders over a long period.  Adding to the challenges facing the industry, the emerging order of the post-Cold War world has been characterised by growing pressures for political devolution and a revival of nationalist sentiment.

Central to the mining industry's response to these changing conditions has been significant corporate consolidation.  In order to make more effective use of the assets already available to the industry and to better scale themselves to world markets, mining companies engaged in a wave of merger and acquisition activity through the late 1990s and early 2000s, at the same time cutting back on their exploration activity.  This process of consolidation was facilitated by developments in ICTs which equipped global companies with new ‘network' economies.  Pressures for consolidation also flowed stock markets which wanted to see fewer and larger mining companies with a sufficient level of product diversification to provide returns to shareholders throughout the economic cycle.

Another issue of strategic importance for the mining industry to emerge during this period was that of sustainable development.  This partly reflected a need for companies to respond to growing demands from local communities to be more actively involved in the management of the long term effects of major mining activities.  It was also recognition of the fact that in a more transparent world demanding greater corporate accountability, managing existing business risks and ensuring that they can get access to new mineral and financial resources in future requires companies to bring the consideration of social and environment issues right to the heart of their decision-making processes.  This requirement overlaps with the trend to consolidation in so far as it appears probable that large, well-financed companies with a reputation to protect will generally be better able to absorb the rising social and environmental costs of mining and to provide assurances to host governments that they will be able to honour commitments entered into at the time a project is permitted.

keywords: Mining, strategy, consolidation, e-technologies, sustainable development

David Humphreys
Chief Economist
Rio Tinto, London
(added 07 October 2002)

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