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Mining Industry:

Five Leadership Issues Worthy of Board and Executive Attention

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Introduction

Mining companies operate in a complex business environment where they face many challenges in terms of price volatility, access to financing, geopolitics and regulation. At the same time, the effects of technological innovation, changing market conditions and a host of other major risk drivers are contributing to dialogues in boardrooms and executive offices. Most significantly, executives are asking if they have the right leadership talent in light of the challenges they face.

From our conversations with board members and CEOs in the mining industry, the following five issues and their implications on leadership talent have emerged as top of mind for the executives:

ɳ Optimizing assets and operations

ɳ Continuing to earn the “license to operate”

ɳ Leveraging technology and innovation

ɳ Injecting diversity in leadership

ɳ Building a board for a complex business environment

We hope this executive briefing document will serve as a discussion starter for thinking through how to attract and retain the right leadership talent in the face of these challenges.

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Optimizing Assets and Operations

ɳ In the current down cycle, the focus of mining companies is on restructuring asset portfolios and driving productivity improvement programs. The companies with a strong balance sheet are seizing the opportunity to grow through mergers and acquisitions (M&A).

ɳ There is demand for leaders adept at cost discipline, operations improvement, and project development and management, and at the same time for those who can drive strategic and successful M&A and new business model innovations.

KEy pOInts

ɳ Ensure that board members and key executives include people with experience from transitions between mining cycles.

ɳ Take the opportunity to review candidate base and inject talent from industries with similar CapEx requirements and cyclicality such as oil and gas and infrastructure.

ɳ Make sure the high-potential talent remains engaged. This time provides an important learning experience for the next generation of leaders.

COMMODIty pRICEs HAVE DROppED In RECEnt yEARs

Commodity Metals Price Index 1995-2014A

COnsEquEntLy, MInInG InVEstMEnts HAVE DECLInED, EspECIALLy In IROn ORE

Major mining project costs, US$ billionB

FOR COMpAnIEs EnGAGInG In M&A ACtIVIty, tALEnt MAnAGEMEnt sHOuLD BE A KEy pRIORItyD

A LARGE pROpORtIOn OF sEnIOR MInInG LEADERs HAVE stEppED IntO tHEIR ROLEs DuRInG tHE DOWntuRn

Share of executives appointed since 2012C

2012 2013 2014

74

+3%-27%76

Gold

55

125-25%

+17%146

Copper

110-51%

+4%

135 141

Iron ore

69

0

100

200

300

1995 2015201020052000

of CEos of Coos

Talent evaluation

Support from key stakeholderslocked in

Talent assessment (both sides) to ensure smooth integration and allocation of roles

PRE-ACQUISITION:

DURING ACQUISITION:

POST-ACQUISITION:

Leadership andin�uencing skills

Change management skills

Industrial relationshipmanagement skills

Financial acumen andknowledge of capital markets

Driver of productivityand operational efficiency

Strategic mindset to preparefor the next cycle (e.g., M&A)

50%

of Cfos

52% 71%

REquIRED COMpEtEnCIEs FOR EXECutIVEs In tHE DOWntuRnD

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Continuing to Earn the “License to Operate”

ɳ Mining companies need to address a number of issues in their operations. These include navigating regulation and government policies, confronting sustainability concerns from investors and local communities, and managing on-site health, safety and environmental issues.

ɳ An increasing focus on sustainability is fueling the need for more proactive stakeholder management to mitigate the reputational risk and to future proof the business.

KEy pOInts

ɳ Hire diverse and culturally astute board members and executives who have firsthand international working experience.

ɳ Treat stakeholder engagement as a strategic priority and hire experienced professionals. CEOs and CFOs need to engage with stakeholders beyond the numbers.

ɳ Ensure that health, safety and environmental and wellness efforts span the entire organization to improve employee attraction, retention and engagement. Particulary, environmental and wellness efforts should extend to the wider communities in which mining companies operate.

InVEstORs

ɳ Certain types of investors have new governance rules that prohibit investment in non-sustainable assets.

ɳ Some investors are increasingly concerned about the health and livelihood of the mining communities and are introducing sustainability ratings.

MInInG EXECutIVEs ARE OpERAtInG In An InCREAsInGLy COMpLEX pOLItICAL EnVIROnMEnt WHERE stAKEHOLDER MAnAGEMEnt Is CRItICAL

VERy FEW MInInG CEOs HAVE WORKED In GOVERnMEnt OR BEEn In DIpLOMACy tO HOnE tHEIR sKILLs In RELAtIOnsHIp MAnAGEMEntG

REquIRED COMpEtEnCIEs FOR CORpORAtE AFFAIRs LEADERsH

tHE MAjORIty OF InVEstOR RELAtIOnsHIp EXECutIVEs’ AnD CFOs’ InDustRy EXpERIEnCE COMEs FROM MInInGG

INVESTORRELATIONSEXECUTIVES

65%

MINING CFOs73%

FINANCE29%

ENERGY15%

GOVERNMENT9%

LAW9%

Leadership andinfluencingskills Strategic

mindset andcreativity

Communicationsskills, especiallyrelating totransformation

Advocacyand strongrelationshipskills

LatinAmerica� Mexico

introduced a 7.5% tax on mining revenue.C

� Chile announced a tax reform that will see corporate taxes rise to 25%.D

� Bolivia has nationalized mines.E

Asia/Pacific� Indonesia

banned theexport of unprocessedore.A

� Australia saw multiple protests against coal mining.B

AfricaMultiple governments continue totake stakes in mining companies or demand that indigenous groups are given stakes in individual mines.F

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Leveraging technology and Innovation

KEy pOInts

ɳ Assess the technological and digital capabilities of the current board and leadership team.

ɳ Establish a dedicated career path for future innovation leaders, grooming critical competencies from the start such as entrepreneurship, strong drive for results and timely decision making.

ɳ Attract technology leaders from outside the industry (e.g., engineering, procurement and construction; infrastructure; oil and gas; aviation; manufacturing).

ɳ Following more than a decade of sparse adoption of innovative infrastructure, mining companies should evaluate how they best embrace technologies such as automation, mechanization and data analytics. Doing so can significantly improve productivity and will transform the industry’s operating model and redefine what will be required of future leaders.

ɳ Harnessing talent who will successfully drive value-adding technological change across the organization requires considering pools of talent in adjacent sectors. The specific targets depend on the scope and scale of the company’s technological vision.

EXAMpLEs OF tECHnOLOGy ADVAnCEMEnts In MInInGA

tHE MAjORIty OF MInInG EXECutIVEs DO nOt tHInK tHEy HAVE tHE RIGHt tALEnt AnD stRuCtuRE tO suCCEED In DIGItAL tRAnsFORMAtIOnB

Respondents say their company has

REquIRED COMpEtEnCIEs FOR MInInG tECHnOLOGy LEADERsC

Unmanned trains to be used for cargo delivery

Drones to monitor stockpiles, map exploration targets, track equipment and deliver parcels

Robots to replace idlers on conveyor belts to increase efficiency and safety

Telematics systems to remotely monitor fleet activity and identify hidden inefficiencies

Simulation training that provides a safe but realistic environment for employee training and development

LACK OF DIGItAL sKILLs AnD InsuFFICIEnt MAnAGEMEnt BAnDWIDtH ARE KEy BARRIERs

Lack of digital skills and expertise

Insufficient management bandwidth

Digital not seen as important by leadership

Exploration technologies and evaluation of big data analysis that can dramatically reduce CapEx

Automated underground mining processes and remote control centers to supervise operations

3D printing machines to simplify the procurement of replacement parts

off-grid power solutions to potentially reduce the use of diesel generators, bring down electricity costs and minimize carbon footprints

Shiftable conveyor belts rather than off-highway trucks to reduce diesel costs

Motivationalskills and abilityto bring people on board withagenda

Ability to drive technical solutions across projectsand operations

Strong trackrecord of drivingtechnologicalchange

Experience from a CapEx-intensiveindustry

Commercialacumen toensure the value-add fromtechnologicaltransformation

31% 29%

... the right peopleto set a

digital strategy

... the right peopleto execute a

digital strategy

... the right structureto realize digital

opportunities

19%

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Injecting Diversity in Leadership

KEy pOInts

ɳ Increase diversity of gender, ethnicity, generation and industry background in the leadership to instill new behaviors, learning and change in the organization.

ɳ Develop internal candidates for future CEO pipeline and inject talent from other companies and industries, especially into functional positions.

ɳ Identify and hire senior leaders with a vision and understanding of the market evolution and business model changes, as opposed to overly operational leaders.

ɳ Given the cyclical nature of the mining business, there is demand for leadership talent with a long-term perspective and, for certain roles, a track record in the industry.

ɳ However, the mining industry has become very insular and would benefit of more leadership diversity in terms of gender, ethnicity, generation and industry experiences to tackle the future challenges.

CEOs OF MInInG COMpAnIEs ARE EVEn LEss LIKELy tO BE EXtERnAL AppOIntMEnts tHAn OIL AnD GAs CEOsA

88% 12%

Previous role of internally appointed

CEOs

Previous role of externally appointed

CEOs

Presidentor

chairman17%

DivisionalCEO20%

Internal

82%External

18%

CFO13%

Senior vicepresident

27%

COO23%

Divisional CEO25%

CEO ofanother company

75%

Oil and gas CEO appointmentsB

Internally appointed CEOs have stayed withthe same organization, on average, for 15 years

Internallyappointed

Externallyrecruited

... WHEREAs CFOs ARE A LIttLE MORE DIVERsE

21% of CFOs

are female

70% of CFOs are of these five nationalities

COOs MIRROR tHE LACK OF DIVERsIty FOunD AMOnG CEOs

0% of COOs

are female

80% of COOs are of these five nationalities

tHERE Is LIttLE DIVERsIty AMOnG tHE CEOs

0% of CEOs

are female

74% of CEOs are of these five nationalities

COOs ARE MOstLy IntERnAL AppOIntMEnts, WHEREAs just OVER HALF OF CFOs COME FROM OutsIDEA

80% of COOs are internal

appointments

52% of CFOs are

external appointments

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Building a Board for a Complex Business Environment

KEy pOInts ɳ Conduct regular director and board evaluations—this will help ensure that director performance is

aligned with the company’s strategic objectives. ɳ Prepare for changes in the composition of mining boards both in terms of improving gender and national

diversity and bringing in board members who can ask questions around risk and governance. ɳ Monitor all advance warning signals. Assess and address vulnerabilities and maintain an effective,

ongoing shareholder outreach program.

ɳ Mining boards should include a diverse and multi-disciplinary roster of professionals to help solve issues in an increasingly complex business environment.

ɳ Apart from key tasks such as CEO succession planning and remuneration, boards need to respond to challenges like regulation, price volatility and productivity, shareholder activism, technological advancements, M&A and cyber security.

MInInG BOARD MEMBERs tEnD tO BE MEn FROM tHE DEVELOpED WORLDA

Currently only

19% of mining board members are women.

MInInG BOARDs FAVOR FInAnCE, GOVERnMEnt, MInInG AnD EnERGy EXpERIEnCEA

MInInG BOARDs Must ADDREss MAny CHALLEnGEsB

� Regulation � Geopolitics � Operations and

productivity � Cyber security � Shareholder activism � M&A activities

� Local community issues and activism

� Technology advancements

� Risk management � CEO succession

planning

LIttLE nAtIOnAL DIVERsIty

59% of board members’ nationalities are the same as the country of the company’s main operations.

tHE VAst MAjORIty OF BOARD MEMBERs ARE FROM DEVELOpED MARKEts, tHOuGH MInInG sItEs MOstLy REsIDE In EMERGInG MARKEts

nEARLy A tHIRD OF tHE MInInG BOARD sEAts COuLD BE CHAnGInG In tHE nEXt FEW yEARs, COMpARED WItH ALMOst A quARtER AMOnG FORtunE 500 COMpAnIEsA

68 and aboveAge

56-67 46-55 45 and younger

MINING BOARDS FORTUNE 500 BOARDS

32%

42%

6% 3%24%

53%

20%20%

Of the board members with mining experience, 44% have held a CEO position, and 15% have been in an operational position.

46% have a finance background

27% have worked for a government

22% have worked in energy

83%

Share ofboard membersfrom developedmarkets

17%

Share of boardmembers from

emergingmarkets

26% have mining in their background

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OptIMIZInG AssEts AnD OpERAtIOns

A Commodity Metals Price Index 1995-2015, Index Mundi, 2015; Indices of Primary Commodity Prices, 2005-2015, International Monetary Fund, 2015

B “E&MJ’s Annual Survey of Global Metal-Mining Investment,” Engineering & Mining Journal, 2014; “E&MJ’s Annual Survey of Global Mining Investment,” Engineering & Mining Journal, 2013; “Pulling Back Across the Board: Project Survey 2015,” Engineering & Mining Journal, 2015

C Proprietary analysis of executives from leading mining companies, Russell Reynolds Associates, 2015D Proprietary research, Russell Reynolds Associates, 2015

COntInuInG tO EARn tHE “LICEnsE tO OpERAtE”

A “Indonesia Holding Firm on Iron Ore Ban amid More Investments,” Bloomberg, 2014B “Top five unusual mining protests,” Mining Australia, 2014C “Mexico’s senate approves reforms, including 7.5% mining tax,” BNAmericas, 2013D “Chile enacts tax reform,” Ernst & Young, 2014E “Bolivia’s Morales nationalizes zinc and tin mines licensed to Swiss group,” MercoPress, 2012F “African Governments Tussle With Mining Firms,” The Wall Street Journal, 2014G Proprietary analysis of executives from leading mining companies, Russell Reynolds Associates, 2015H Proprietary research, Russell Reynolds Associates, 2015

LEVERAGInG tECHnOLOGy AnD InnOVAtIOn

A “Tracking the trends 2015,” Deloitte, 2015; “Business risks facing mining and metals 2014-2015”; Ernst & Young, 2014; Engineering & Mining Journal, 2014-2015; Mining.com, 2014-2015

B Digital Pulse Survey, Russell Reynolds Associates, 2015C Proprietary research, Russell Reynolds Associates, 2015

InjECtInG DIVERsIty In LEADERsHIp

A Proprietary analysis of executives from leading mining companies, Russell Reynolds Associates, 2015B Proprietary analysis of integrated exploration and production oil and gas CEOs, Russell Reynolds Associates,

2015

BuILDInG A BOARD FOR A COMpLEX BusInEss EnVIROnMEnt

A Proprietary analysis of boards of leading mining companies, Russell Reynolds Associates, 2015B “Tracking the trends 2015,” Deloitte, 2015; “Business risks facing mining and metals 2014-2015,” Ernst & Young,

2014; Proprietary research, Russell Reynolds Associates, 2015

Endnotes

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Global offices

asia/Pacific ɳ Beijing ɳ Hong Kong ɳ Melbourne ɳ Mumbai ɳ New Delhi ɳ Seoul ɳ Shanghai ɳ Singapore ɳ Sydney ɳ Tokyo

eMea ɳ Amsterdam ɳ Barcelona ɳ Brussels ɳ Copenhagen ɳ Dubai ɳ Frankfurt ɳ Hamburg ɳ Helsinki ɳ Istanbul ɳ London ɳ Madrid ɳ Milan ɳ Munich ɳ Oslo ɳ Paris ɳ Stockholm ɳ Warsaw ɳ Zurich

americas ɳ Atlanta ɳ Boston ɳ Buenos Aires ɳ Calgary ɳ Chicago ɳ Dallas ɳ Houston ɳ Los Angeles ɳ Mexico City ɳ Minneapolis/St. Paul ɳ New York ɳ Palo Alto ɳ San Francisco ɳ São Paulo ɳ Stamford ɳ Toronto ɳ Washington, D.C.

© Copyright 2015, Russell Reynolds Associates. All rights reserved.

Russell Reynolds Associates is a global leader in assessment, recruitment and succession planning for boards of directors, chief executive officers and key roles within the C-suite. With more than 300 consultants in 45 offices around the world, we work closely with both public and private organizations across all industries and regions. We help our clients build boards and executive teams that can meet the challenges and opportunities presented by the digital, economic, environmental and political trends that are reshaping the global business environment. www.russellreynolds.com. Follow us on Twitter: @RRAonLeadership

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RussellReynolds.com

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