Business risks in mining 2014 – 2015
- Productivity improvement.
- Capital dilemmas – Allocation and access.
- Social License to Operate (SLTO).
- Resource nationalism.
- Capital projects.
- Price and currency volatility.
- Infrastructure access.
- Sharing the benefits.
- Balancing talent needs
- Access to water and energy.
Boards and CEOs are now realising that regaining lost productivity and gaining new ground is critical for long-term profitability and achieving adequate return on capital employed, and required a whole-of-business response. This broad transformational approach is essential and is yet to be applied effectively by any one sector participant. This huge step change is why this risk is top of the ranking.
Moving up into the top 10 this year is access to water and energy, which is becoming an increasing issue as demand rise, costs increase and availability diminishes.
The capital allocation dilemmas have fallen from last year’s top spot, reflecting progress made during the year in addressing this challenge.
However, at the other end of the sector, little has changed in the past 12 months for many juniors and explorers and they remain cash-starved and focused on survival.This risk has climbed to third position because the influence of a community to stop or slow projects is powerful and can end a project, no matter how exemplary a company’s track record is with social engagement, EY highlights.
On the one hand, some countries have changed mining tax policies to become more attractive to mining investment in a lower investment environment. At the same time, other countries have introduced mandated beneficiation, invoked use-it-or-lose-it and increased state ownership.
While the public capital markets still do not have an appetite for investment in new supply, companies are beginning to quietly prepare for the inevitable investment as reserves need replacing and the cycle changes.
Access to water and energy
With global demand for energy expected to increase 36% by 2025, and with falling ore grades, this risk is compounding year by year, with the sector facing higher energy prices and volatility. Similarly, water scarcity is an issue demanding strategic and practical response.
Adapted from a report by Emma McAleavey.
Published on 19/02/2015
- Source: EY