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Business risks facing mining and metals 2011 - 2012 - 9. Interruptions to supply - EY - Global

Business risks facing mining and metals 2011 - 2012

9. Interruptions to supply

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“In 2010 and 2011 numerous natural and climate disasters have taken place around the world. For many businesses, the consequences of these catastrophes have extended beyond individual projects, right across the supply chain, with far-reaching implications for prices, future supply and investment decisions.”Michael Rundus, Partner, Advisory, EY

Summary: The recent occurrence of natural and environmental catastrophes, including the Japanese earthquake and tsunami, as well as the Australian, Colombian and Indonesian floods, have brought the risk of large-scale disaster, and its impact on supply, into the top 10 for 2011 and 2012.

The risk of interruptions to supply joins our top 10 this year, largely due to the spate of natural and environmental disasters that have taken place globally over the last 12 months. All of these disasters have highlighted the risk of a major catastrophe to global supply, as well as the potential knock-on effects. Understanding and preparing for the occurrence of catastrophic risk is both challenging and essential.

The consequences extend beyond individual projects, right along the supply chain, with wider-reaching implications for prices, future supply and investment decisions. For instance, the 2011 floods in Queensland have resulted in US$2.3b of lost sales and a 25-50% reduction in production.

Key infrastructure was also seriously impacted, with ports not receiving coal supplies for shipment, which in turn led to critical depletion of stockpiles. Planning for the risk of interruptions to supply, and the ongoing evaluation of management’s ability to respond to and recover from this risk, has never been more vital.

Steps mining and metals companies can take to respond to this risk:
  • Undertaking worst-case scenario planning — develop a range of operational responses and contingency plans
  • Developing a disaster response and recovery strategy — how confident are you that you have the controls and mechanisms in place to respond quickly?
  • Evaluating the effectiveness of your internal controls and warning systems

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