Preparing for the New Year with robust risk management
Over the last year we’ve been talking about a variety of business issues facing the mining and metals sector in Canada and abroad. As we prepare to ring in another New Year we’re taking a closer look at some of the top risks facing companies. Productivity, capital decisions and social license to operate earned the top three spots on EY’s Business risks facing mining and metals 2014-2015 top 10 list.
Productivity is continuing its downward decline in the sector and executives must act quickly to regain efficiencies lost in the last super cycle. That means developing a broad business transformation program that creates enhanced shareholder value, improved margins, improved competitive positioning and increases companies’ ability to pursue strategic investments.
Capital decisions fell from the top spot on last year’s risks list to the second spot this year, reflecting progress made by companies to address this challenge. Majors have improved their focus on capital management and optimization following a spate of asset write-downs in 2013. And that capital discipline is expected to continue.
Social license climbed the risk list as more companies witness the ability of community to stop, slow and even end projects — no matter how exemplary the company’s track record with social engagement. The number of projects experiencing delays or stops due to activists continues to rise and organizations cannot assume that acceptance by any stakeholders will be long lasting. Social license to operate isn’t a one-off. It’s continuous and ongoing engagement with community.
Resource nationalism, capital projects, price and currency volatility, infrastructure access, sharing the benefits and balancing talent needs populate the mid-section of our top 10 risks list and show minor movement from last year’s ranking. Our tenth risk, however, is a new entrant this year.
Access to water and energy is the only new entrant to this risk list. Sufficient water and energy is an essential part of mining and metals operations but is becoming more difficult to source. Burgeoning energy costs and competing water demands in many regions, particularly Chile, Peru, South Africa and Mongolia are starting to have a bigger impact on costs and companies’ ability to operate. Mining companies spent US$11.9 billion on water infrastructure globally last year alone — a 250% increase over 2009. And global energy prices have leapt 260% since 2000.
Managing costs around water and energy sustainably is growing in importance — especially as mining and metals companies increase their reliance on renewable energy sources. Companies must assess their dependence on water and future supplies, and develop robust plans to cope with increased prices and possible shortages.
Risks in the mining and metals sector continue to shift in ranking but they all remain key priorities. Understanding these risks and their impact is crucial to remaining competitive. Only then can companies develop strategies for proactively addressing them. And when risk management is done right, confidence increases and growth returns to the boardroom agenda.