The DNA of the CFO wheel
The risks facing the sector have become more extreme and more complex over the past 12 months
On the surface, the top ten risks don’t look all that different from last year, but there has been an absolute shift that has made them significantly different. The risks facing the sector have become more extreme and more complex over the past 12 months due to the fast changing investment and operational environment.
Resource nationalism retains the number one risk ranking.
Many governments are seeking a greater take from the sector. That is seen through a wave of new requirements, such as mandated beneficiation, export levies and limits on foreign ownership. Projects around the world have been deferred or delayed because of the degraded risk / reward equation.
The uncertainty and destruction of value caused by such sudden changes in policy cannot be understated. This risk continues to grow and we don’t expect a slowing in this trend.
“The bottom line is that if returns start to wane, then there is a greater imperative for organizations to tightly and effectively manage their risks to maintain an adequate risk/reward balance.”
Michael Elliot, Global Mining and Metals Leader, Ernst & Young
Global skills shortage and infrastructure access retained second and third spots on the risk rankings this year. Both these risks are more acute in more locations now than they were 12 months ago, highlighting the supply capacity constraints that have hampered the sector for some time.
Sharing the benefits makes its debut at number nine this year. Stakeholders ranging from the government to employees, the local community and suppliers, feel they are entitled to a greater proportion of company profits.
Rounding out the top 10 risks are cost inflation, capital project execution, social license to operate, price and currency volatility, capital management and access, and fraud and corruption.
Although we haven’t seen large changes in risks year on year, the bigger swings are evident over the medium term.
Five of the risks have consistently remained crucial risks over this period, while the remaining five have fallen out of the top 10 table altogether.
While the demand outlook remains strong, the price peaks have passed and so there is a much greater imperative for mining and metals companies to remain nimble and sure-footed in how they manage these fast-changing risks.
The top 10 business risks for mining and metals
1. Resource nationalism
2. Skills shortage
3. Infrastructure access
4. Cost inflation
5. Capital project execution
6. Social license to operate
7. Price and currency volatility
8. Capital management and access
9. Sharing the benefits
10. Fraud and corruption