Mining and metals companies contend with supply constraints, volatility
VANCOUVER, Sept. 13, 2011 /CNW/ - Resource nationalism tops the mining
and metals risks list while supply capacity issues like skills
shortage, capital allocation and infrastructure access continue to
dominate the business agenda, according to Ernst & Young's annual
report Business risks facing mining and metals 2011-2012.
"This year we're seeing resource nationalism take the form of greater
controls on foreign investment, mandated beneficiation,
use-it-or-lose-it demands and authorized government participation,"
says Tom Whelan, Leader of Ernst & Young's national mining and metals
practice. "What originally began as a way for mineral-rich countries to
repair and replace lost revenue from the downturn has become a way for
governments to manage the effects of a two-speed economy."
In the past 12-18 months, approximately 25 countries have increased or
announced intentions to increase their government take through taxes or
royalties. South Africa's new royalty regime, Ghana's plans to double
royalties and the Australian government's proposed minerals resource
rent tax are just a few examples of upcoming legislation that could
impact investor decisions.
"In addition to supply capacity constraints putting commodity prices and
cost profiles at risk, mining companies will have to contend with a
variety of new up-and-coming threats on their radar this year," says
The 2011 top strategic business risks in the mining and metals sector:
Resource nationalism (4 in 2010)
Skills shortage (2)
Infrastructure access (6)
Social license to operate (5)
Capital project execution (new)
Price and currency volatility (9)
Capital allocation (1)
Cost management (3)
Interruptions to supply (new)
Fraud and corruption (new)
Capital project execution is just one risk making its debut this year as
new mining projects, expansions and restarts create new competition for
resources and escalate costs.
"Without properly managing this risk, companies could suffer the costs
of project delays and overruns," says Whelan. "But by taking a holistic
approach to capital project execution and measuring project progress to
make informed decisions, from concept to operations, companies can get
the most value out of their project."
At the same time, mining companies entering frontier markets on their
quest for growth should prepare to encounter fraud and corruption
risks, particularly threats to security of tenure, and changes in
mining, tax and royalty regimes.
"Addressing this year's risks head on will not only deliver superior
returns, it will attract new investment," says Whelan. "By working
through scenarios and impact analysis, companies can discover
opportunities to preserve and enhance shareholder value and tighten
processes and controls."
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