GLOBE-Net, October 17, 2012 - Resource
nationalism remains the number one risk for mining and metals
companies around the world, according to Ernst &
In its annual
Business risks facing mining and metals 2012-2013 report,
released earlier this year, the company notes that at a time when
the risks facing the sector have become increasingly complex and
critical, resource nationalism is a bigger challenge now more than
Notes the report, on the surface, the top ten risks don't look
all that different from earlier years, but below the surface an
absolute shift that has made them significantly different. The
risks facing the sector have become more extreme and more complex
due in part to:
1. Softening commodity prices which
have seen mining and metals companies taking on more risk relative
to the short term returns; and
2. Capacity changes in terms of
skills and infrastructure which have affected organizations' short
term commitment to capital projects with life of mine of at least
Mining executives must be particularly careful in assessing and
managing these risks and in understanding changing risk/reward
equations, warns Ernst & Young.
"The uncertainty and destruction of
value caused by sudden changes in policy by the governments of
resource-rich nations cannot be understated." Ernst & Young
Global Mining & Metals Leader Mike Elliott.
"Resource nationalism retains the number one risk ranking with
many governments around the world going beyond taxation in seeking
a greater take from the sector, with a wave of requirements
introduced around mandated beneficiation such as bans on the export
of unprocessed raw materials, as well as export levies and limits
on foreign ownership," says Ernst & Young Global Mining &
Metals Leader Mike Elliott.
"There is no doubt projects around the world have been deferred
and delayed, and in some cases investment withdrawn altogether
because of the degraded risk/reward equation," he added.
"Miners must continue to engage with governments to foster
a greater understanding of the value a project brings to the host
government, country and community, and be better able to negotiate
appropriate trade-offs that preserve the value to miners,
governments and other stakeholders," says Elliot.
Risks now more complex, more critical
According to Ernst & Young, almost all of the
top 10 risks are more complex and more critical for miners now than
they were even 12 months ago and while the demand outlook remains
strong for the longer term, miners are no longer able to rely on
increasing prices to balance increased risk.
In order of priority, the company lists the 2012 top strategic
business risks in the sector are as follows:
- Resource nationalism
- Skills shortage
- Infrastructure access
- Cost inflation
- Capital project execution
- Social licence to operate
- Price and currency volatility
- Capital management and access
- Sharing the benefits
- Fraud and corruption
Global skills shortage and infrastructure access stand second
and third in this year's ranking as more and more countries
experience these constraints. Rapidly escalating costs have pushed
cost inflation up from number eight to four.
Elliott says the acute skills shortage seen in Australia and
Canada has spread to more places during the past year, with
projects in countries such as Indonesia, Mongolia, Brazil, Chile,
Peru and Mozambique all plagued by this challenge.
"Strong commodity prices and confidence in the long-term sector
fundamentals have created a record level of new developments and
mine expansions." This level of investment is driving demand
for skilled workers around the world and drawing on the same global
pool of talent to build and operate these projects.
Sharing the benefits
The relative prosperity of the mining and metals sector at a
time when many other sectors in the global economy are struggling
has seen a new risk for miners - sharing the benefits, notes the
report. "Stakeholders ranging from governments, to workers,
investor, local communities and suppliers feel they are entitled to
a greater proportion of the value created by mining and metals
"Mining and metals companies are forced to balance the
expectations and needs of their many stakeholders. When they fail
to meet expectations or fully understand needs, it can result in
strikes, supply disruptions, shareholder activism, community unrest
and governments using their power through resource
"While the demand outlook remains strong, the price peaks have
passed and so there is a much greater imperative for mining and
metals companies to remain nimble and sure-footed in how they
manage these fast-changing risks," concludes Ernst & Young.
The full report "Business risks facing mining and metals 2012
- 2013" is available for download here.