Heightened risk and heightened opportunity: the Australian Mining Risk Report

The risks to Australia’s miners are a story with two key themes: significant challenges on one hand but strong and evolving opportunities triggered in some part by COVID-19.

Commodity price risk was again in first place as the top risk with social license to operate jumping from sixth place to second. The global pandemic is a new contender in the top 3.

  1. Commodity Prices

In line with their global counterparts, surging commodity prices on the one hand have thrown opportunity to the Australian mining sector. It may be surprising to see commodity price risk reclaim top spot on the list, but industry veterans will be very aware of the cost blowouts and inefficiency that can creep into systems and practices during upswings. The risk here is that it leaves companies vulnerable when commodity price momentum shifts direction.

  1. Social license to operate

In this year’s report, social license to operate made a significant jump from sixth place to second. In our global report it was still only in fifth place. This is not a surprise given the increased focus on cultural heritage being seen in Australia. Significantly an overwhelming majority – 92 per cent – of those surveyed indicated that ‘the ability for mining companies to achieve success in the long run is also becoming increasingly dependent upon their ability to define success in a broader term than financial, and look more holistically at all stakeholder returns including government and communities”.

Maintaining a social license to operate looms as an ever more complex problem for executives to deal with. This is further complicated by the increased risk related to the need for diligent management of sites with cultural heritage significance and the fact that community groups, activists and investors have also joined the push for mining companies to take greater responsibility for the land and the people impacted by their operations.

Eighty eight percent agreed it was important for mining companies to have a clear and measurable ESG statement. However, adding ambiguity for the sector is that 64 percent noted that investor ESG expectations and measures are not clearly understood, nor consistent across the market.

The challenge for the mining industry will be to ensure the contribution it makes to people’s lives and the significant efforts it is making to drive the net zero agenda. A challenge it is indeed but we also see opportunity in this space and intensified commitment to shareholders on the part of many miners in an intensified focus on ESG.

  1. Global pandemic risk/ global trade war

A new entrant is the risk that global pandemic has brought. The COVID-19 pandemic that came upon the market suddenly in the first quarter of 2020 also brought with it an opportunity to reassess traditional established practices and norms in the Australian mining sector. Australian mining executives are aware of the changes facing the sector, but also optimistic about the ability of their company and their industry to respond.

On the challenge side the mining industry had faced a range of COVID-19 pandemic issues leading to intensified risk and governance focus in the boardrooms of miners. These have included shortage of workers, ensuring wellbeing of people, supplier and liquidity risk. We would also call out a broadening of risk in the technology space with higher levels of cyber risk – particularly given the surge in digitisation.

While the new Biden-era has diffused much of the geopolitical heat around a trade war between China and the US in Australia, the relationship with China has reached a low point. Trade barriers, tariffs and restrictions on key Australian exports to China remain a very real concern. While this latest report doesn’t identify supply chain as a key risk this year, we also see that and the availability of key componentry as an emerging risk for the sector in the coming twelve months.

Overall, this year’s survey finds Australian mining executives in a relatively buoyant mood, wary of the changes facing the sector but optimistic about their company’s and the industry’s capacity to respond.

Read the full report: Australian Mining Risk Forecast 2021/2022

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