Shareholders put pressure on companies to reduce capital spend amid
ongoing economic uncertainty
VANCOUVER, Feb. 7, 2013 /CNW/ - Canadian mining and metals companies are
keeping cost control and project execution top of mind this year as
shareholders become more risk averse, says Ernst & Young.
"High returns in recent years have attracted a different breed of
investor with a different risk appetite to the mining and metals
sector," says Bruce Sprague, Ernst & Young's Canadian Mining and Metals
leader. "These new investors are more sensitive to changes in market
conditions and less comfortable with the longer-term horizon and
These changes in shareholder profile are creating a very different
operating environment for miners.
"Shareholders aren't willing to take as many risks in the year ahead,"
says Sprague. "They're putting pressure on companies to deliver
projects more efficiently and reduce capital spend on new projects and
investments — a much more conservative approach."
Having been very production focused for most of the past decade,
companies are now exercising greater restraint and more consideration
around project execution. Every project must be cost competitive or
risk being stalled or shut down.
"Companies are evaluating their long-term strategies and how they can
achieve growth goals without permission from shareholders to invest,"
explains Sprague. "We're seeing a lot more focus on cost-reduction
strategies, including evaluating capital expenditure opportunities."
Prioritizing investments, enhancing project controls and managing local
community stakeholder relationships are other key areas of attention —
especially as infrastructure development and a skills shortage threaten
to raise costs.
"While we expect the fundamental demand story for mining and metals to
remain strong, there's growing concern around how the current hiatus in
new capital approvals will impact future supply," says Sprague.
"Companies that achieve sustainable, long-term improvements in
productivity and capital project execution will be best positioned to
take advantage of opportunities when new capital investment returns."
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SOURCE: Ernst & Young
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