There are signs of a turnaround in transactions, but the downward trend in deal volumes continues. What are the key trends for the mining and metals industry?
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Mining & Metals
Mining the opportunities
“Africa is a mineral rich continent with untapped value to be unlocked. Mining and metals remains one of the best performing sectors despite economic uncertainty – it is one of the industries that continues to attract investment and drive economic growth in most African countries.” - Wickus Botha, Mining & Metals Leader
With a strong but volatile outlook for the sector, the global mining and metals industry is focused on future growth through expanded production, without losing sight of operational efficiency and cost optimization. The sector is also faced with the increased challenges of changing expectations in the maintenance of its social license to operate, skills shortages, effectively executing capital projects and meeting government revenue expectations.
Ernst & Young’s Global Mining & Metals Center brings together a worldwide team of professionals to help you achieve your potential. Based in Sydney, our team is dedicated to offering industry insight and coordinating a network of more than 2,000 mining and metals professionals in 144 countries, who will develop practical alternatives and provide tailored solutions to the issues you face.
Key issues in today’s mining and metals environment include:
- Understanding the investment environment
As Africa embarks on its growth trajectory, the value that lies beneath can only be unlocked by investors who understand the mining and investment environment in each country. Any mining investor in Africa will be advised to understand what infrastructure needs a country has and even be prepared at times to contribute to these infrastructure needs.
- Resource nationalism
Resource nationalism has been widely reported on and committment to current as well as future projects is dependent on two key points:
- The securing the tenure/ownership of their mineral rights
- The cost of doing business/rate of return
Although the debate about nationalising the mines, is not topical anymore, the issue of resource nationalism is very much topical. Resource nationalism, the term used to describe situations where governments assert increased control over the natural resources located in their territories, places a large cost burden on mining and metals companies and increases the risk of achieving long term project profitability. It can influence an entity's decision about whether to invest in a particular country - this comes in the form of increased taxes, increased royalties, resource rents, multi party participation in projects and so forth.
- Natural Resource Management
Managing natural resources remains crucial to economic and environmental sustainability of several countries across the continent. Some of the most successful mining-based economies have balanced the involvement of private enterprise and the state.
High up on mining companies agendas is securing skills - mining skills as well as other specialised skills such as finance, HR and IT remains challenging.
- Competitive landscape
Africa needs to improve the competitiveness of its mining industry, while ensuring a more equitable distribution of the benefits flowing from the industry to the majority of its residents. While mining creates jobs and boosts tax revenues, its benefits are sometimes overshadowed by two themes:
- Criticism that the industry does not sufficiently address its environmental impact.
- Increasing calls for beneficiation.
We are however seeing evidence of countries changing their their operating models to overcome these issues. Going forward we will see this trend will only increase.
- Our credentials
- Recently appointed as the outsourced internal audit function for one of the largest African headquartered mining companies. The client requirements include a risk based internal audit function that is aligned to their strategic intent and objectives, whilst maintaining the appropriate coverage for its core financial and operational risks, with the flexibility to grow as they expand their geographic footprint and further diversify.
- Accounting, compliance and tax support, including the preparation and submission financial statements, tax returns and compliance submissions across Africa, ensuring these are prepared in a manner that is compliant with the local country / jurisdictions laws and regulations and submission of the these documents to the relevant authorities.
- Assistance with specialist skills in corporate transactions clients are pursuing, including merger, acquisitions and disposal support and advice, as well as post acquisition integration support services.
- Secondment of specialist resources to operating divisions at clients to assist with staff shortages in critical aspects of the business.
Mining & Metals Leader
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View our series which examines the unique issues faced by mining and metals companies applying IFRS.