Business risks in mining and metals 2013-2014
Under the radar
We would view these risks as the horizon-watchers. While they are not as critical at the moment, they need to be monitored and mitigated by mining and metals companies as risk profiles can change very rapidly in a volatile market.
There are two newcomers to this section:
- Fraud and corruption, which has slipped one place from above to below the radar. While this is still an important risk, it has been widely addressed by the industry following the introduction of the Dodd-Frank Act and the UK Bribery Act.
- Cyber hacking, which has moved into the radar, as this risk can be vicious, well-organized and undertaken by highly-skilled operators. The effects can be very damaging to an organization or operation, so investing in the prevention of such an attack will be less costly than the downtime, loss of IP and time spent fighting such an attack.
Other important risks below the radar include:
- Access to water and energy - rising affluence in the developing world is putting greater strain on existing water and energy resources. Although mining or metals conversion is often the highest economic value use of water and energy, it is competing with other uses such as agricultural and residential demand that most times has far more political support.
- Competing demands for land use - miners, farmers, indigenous groups and local governing bodies are competing for land use, with increasing environmental and food security issues also raising concerns about the best use of land.
- Pipeline shrinkage -lower metal prices and uncertain macroeconomic factors have seen investor interest in exploration programs decrease. This doesn’t auger well for junior explorers and for the mining and metal sector in general, the long-term sustainability of which is dependent on investment in making new discoveries.
- Climate change concerns - the mining and metals sector is increasingly portrayed as a significant contributor to greenhouse gas emissions rather than part of the solution. This is providing more grounds for community opposition to new or expanded mining and metals projects.
- Increased regulation - the barrage of new legislation around resource nationalism, employment and migration, and environmental compliance, and an increase in reporting requirements mean that the costs and risks associated with compliance have increased.
- Aligning objectives with partners - partnering as a business model to manage costs and risk is increasing in a climate of low returns. However, evaluating and understanding the risks and complexities associated with the business operating model, business processes, information systems, corporate culture, structure and governance is critical.
- New technologies - the costs and challenges associated with automation in the mining and metals sector are substantial, but it seems the only way for resource companies to maintain their long-term competitiveness against a backdrop of depleting reserves, higher input costs and restricted access to skills.
- New communication vehicles for community activism - social networking, cloud computing and smart mobility have emerged as the new form of social activism which is highly effective, with deep penetration irrespective of geographic location or time zone.