> Business risks facing mining and metals 2012 - 2013
Business risks facing mining and metals 2012 - 2013
8 Capital management and access
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Non-financial metrics are becoming increasingly important to CFOs - Strongly agree or agree
Base: All (247) ANZ (111) Asia (136)
The DNA of the CFO wheel
“With economic uncertainty continuing to drive volatility and limit availability of finance, it is imperative that capital is allocated with discipline and rigour in order to deliver long term returns for shareholders.”Lee Downham Global Mining & Metals Transactions Leader
Boards in 2012 are facing an extremely complex and uncertain environment within which to undertake capital allocation decisions. The volatility seen on capital markets is raising the risk that funding to the sector could become increasingly limited.
Rising cost inflation and a volatile investment backdrop are challenging the returns expected on major organic growth programs.
And an apparent undervaluation by the markets, amidst increasing pressure for greater return of capital to shareholders, is driving companies to revisit their overarching capital allocation strategies.
The risk of sub-optimal allocation of capital can have a significant and long-lasting impact. Companies are responding to this risk by building in options and flexibility into their capital agendas through:
Opportunistic refinancing
Strategic divestments and reallocation of capital
Innovative approaches to capex discipline
The challenge for mining and metals companies is to remain true to their long-term strategy, while building in flexibility to respond to short/medium term opportunities and risks.
Steps mining and metals companies can take to respond to this risk:
Companies which display best practice approaches to capital allocation, and ultimately deliver greatest returns, are those which demonstrate the following behaviors:
Demonstrate discipline and rigour
Have a clear and agreed understanding of acceptable levels of risk against expected return
Regularly and comprehensively assess risks, project economics and assumptions
Have clear, objective governance — checks in place to manage internal lobbying
Undertake thorough post-investment reviews — performance versus plan
Consider all the scenarios on a consistent basis
Undertake forward-looking scenario testing
Consider investments in context of wider portfolio or capital impact, not in isolation
Regularly review existing projects according to the same criteria as new investments
Build in options
Have flexibility to sequence, prioritise and change the destination of capital outlays
Pursue alternative and innovative funding options to provide optionality
