Despite the loosening of some investors’ purse strings, funding and cash flow lead the list of challenges facing the mining industry, according to Ernst & Young. Here are the top 10 risks, as rated by the firm.
- Mining and metals companies are left scrambling to achieve cost containment following the remarkable drop in commodity prices, which decimated companies’ margins and, in some cases, wiped them out.
- Industry consolidation remains a top risk this year, with a new class of acquirers emerging from the downturn — the miners from rapidly developing economies.
- The global credit squeeze and resulting recession has severely limited access to capital and the ability to fund ongoing operations and new projects.
- There is great pressure on companies to reduce capital and operating costs, making maintaining a social license to operate more difficult. In particular, mine closures or staff reductions can have a negative impact on a community’s and government’s perception of a mining company.
- Climate change concerns are a major issue for the mining and metals sector — a major user of energy and primary user of land. New initiatives to combat climate change are being introduced, and there’s an escalating need for companies to respond to increased regulation of emissions.
- Despite a drop in demand resulting from the global financial crisis, strong longer term fundamentals still make the possibility of a skills shortage very real. An inadequate supply of skilled workers could delay future project development and production.
- Lack of infrastructure access is creating bottlenecks in getting product to market in many countries. If global mining companies don’t push infrastructure development forward now, they may have trouble capitalizing on the recovery when demand returns.
- Mining and metals production is energy intensive and requires reliable, sustainable and efficient energy supplies. Access to secure energy is threatened by underinvestment in critical infrastructure and is putting pressure on the reliability of existing supply.
- Resource nationalism places a large cost burden on mining companies and can influence the stay-or-go debate in times of depressed margins.
- Pipeline shrinkage deals with the fact that a lack of exploration today will limit discoveries tomorrow and production in the years to come. Despite the fact that exploration is the lifeblood of the mining and metals sector, a general decline has been exacerbated by the drought in risk capital.
There is more than enough doom and gloom on the list to make miners wish they were in another industry. Yes, the situation is challenging, but Canadian exploration and mining companies have always faced challenges, and for the most part been world leaders in solving them. I have confidence that our industry will meet these challenges, too.