Non-financial metrics are becoming increasingly important to CFOs - Strongly agree or agree
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The DNA of the CFO wheel
“Cost inflation is a risk that keeps growing, and continues to threaten profit margins and the viability of projects.”Paul Mitchell
Global Mining & Metals Advisory Leader, Ernst & Young
Cost inflation in the sector is expected to intensify over the next several years, due to a number of factors, including labor, energy, ore grades, currencies, supplier constraints and taxes.
In the prevailing environment of global economic uncertainty, softening commodity prices, higher input costs, and strengthening local currencies in many mining and metals jurisdictions are increasing the pressure on company margins.
Companies are revisiting their capital expenditure plans as spiralling capital costs threaten the viability of new projects.
Furthermore, high crude oil prices, wage inflation and increasing complexity are driving operating costs.
In response, mining and metals companies are reviewing their portfolios to identify underperforming assets, with plans to shut down or divest high cost and non-core assets.
Industry consolidation, automation technology, owner-operated mines and investment in energy assets are some of the steps that companies are taking to lessen the impact of rising costs.
Steps mining and metals companies can take to respond to this risk:
- Focus on sustainable cost reduction programs
- Divestment in non-core assets
- Review of capital tied up in high levels of pre-stripping, advance development and stockpiles
- Consideration of the use of contract mining vs. sale or leaseback
- Review of supplier contracts
- Creation of strategic joint ventures to optimize economies of scale
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