Beware: the not-so-obvious risks in mining and metals

A switch to growth mode, productivity improvement and access to capital are all critical risks for mining companies around the world. The three rank as the top business risks in EY’s Business Risks in Mining and Metals 2015-2016 Report. Most in the sector will understand why these particular risks top our list; but it’s the new and under-the-radar risks that have many going back to the drawing board, and asking critical questions about where to focus their efforts in the coming years.

Cybersecurity appears on our top 10 risks list for the first time this year, as cyber-hacking in the sector has become more widespread and sophisticated. In fact, in our Global Information Security Survey 2014, 65% of mining and metals companies said that they had experienced an increase in cyber threats over the past 12 months – a number that is likely understated as many incidences go unreported.

A big reason why cybersecurity is a growing risk is because of the increased connection between operational technology (OT) and information technology (IT) networks. In the past, IT security risk was not such a mainstream issue. However, many mining and metals companies have been investing heavily in new technology to manage and run their networks centrally, in a bid to improve production and operations, automate their supply chain, reduce costs, improve maintenance and streamline data flow.

At the same time, mining and metals companies have historically underinvested in security, and security budgets are often static, despite increasing cyber threats. This means the likelihood of compromised cyber security is on the rise. That’s a problem, because a cyber-attack can cost a company millions of dollars in lost production, threaten worker safety and even cause massive reputational damage, if confidential or stakeholder sensitive information is leaked. Applying greater levels of security and control around IT to OT is critical in order to maintain cybersecurity in this integrated technology environment.

Meanwhile, Canadian companies are facing some particular risks they can’t afford to let fly under their radar. Increased transparency requirements – such as the Extractive Sector Transparency Measures Act which came into effect on June 1 – and a looming skills shortage are issues that should be top-of-mind for companies in here.

As I mentioned in a previous column in Canadian Mining Journal, as new transparency requirements become the norm in many countries, there’s a risk that publishing unexplained tax figures may result in misconceptions about a company’s tax profile – particularly around the reasons for low effective tax rates. For that reason, mining and metals companies ought to be proactive about implementing processes and strategies that will allow them to mitigate this risk.

When it comes to labour in Canada, an estimated 40% of the workforce in resource extraction sector is at least 50 years old, and around 33% of those are expected to retire by 2022. These retirements will impact operational continuity and lead to a great loss of organizational know-how and operational experience for mining companies. It’s a big issue that companies must address. Strong talent management programs that focus on retaining the right people for today’s challenges will be as critical to the future success of mining companies as investment in exploration.

The top 10 business risks for mining and metals companies today, compared to the top 10 in EY’s 2008 report at the peak of the super-cycle, provides a stark contrast to the issues faced now and then, and underlines the cyclical nature of the sector. Just three of the top 10 risks from 2008 rank in the top 10 this year. That’s a clear message that the nature of this business is fundamentally changing. What works today won’t be what will help companies thrive in the future. Companies must embed a culture of curiosity and innovation in everything they do – from IT to operations to human resources, and beyond.  CMJ

Bruce Sprague is a Partner and EY’s Canadian Mining & Metals Leader. He is based in Vancouver. For more information visit ey.com/ca/mining.