Commodity price risk the top concern for global mining leaders with pandemic risk a new contender.
When mining executives responded to the 2020 Global Outlook Survey, no one had heard of COVID-19. At the time a global pandemic was a hypothetical disaster scenario far from front-of-mind.
Twelve months later, unprecedented disruption has swept the world – and the mining industry.
This year’s KPMG Global Mining Risk Report lists commodity price risk as the top concern for global mining leaders with a new addition – pandemic risk – coming in second. Economic downturn and uncertainty rounded out the top three, reflecting the significant volatility the sector faced in 2020.
The pandemic may have increased the risk associated with political instability and economic downturns but at the same time it has prompted enormous stimulus spending in most major jurisdictions, driving demand for commodities.
We’ve seen not just a spike in prices for iron ore but more broadly government stimulus and supply interruptions caused by COVID-19 have been driving up prices for commodities. Volatility in global markets has also seen investors flock to safe havens, driving strong precious metal prices, such as gold. This is not just a commodities story.
COVID-19 also seems to have accelerated the focus on climate change and efforts to decarbonise. In line with investor expectations, ESG has jumped two places to fifth place. Overwhelmingly, the surveyed mining companies agreed they now need to have a clear, measurable ESG strategy. Yet around a third of respondents noted investor expectations are still not well understood or consistent across the market. The days of considering ESG factors as ‘soft’ secondary risks are long gone; recent years have taught the mining sector that mistakes can carry very hard consequences.
This year’s survey also highlights a growing emphasis on environmental risks, including new regulations, and sustainability. Notably, 91 percent agreed today’s mining companies need to have a clear and measurable ESG strategy, whilst 37 percent of larger company respondents agreed social licence was the biggest risk facing the industry.
Climate change remains a defining issue. It is no longer just about operating responsibly; the adoption of carbon neutral goals will see business models change and portfolios readjust. Last year, our report looked at climate change in the context of carbon. Since then, the race to decarbonise mining has only intensified and technology and innovation are helping speed the change. On that theme, an overwhelming majority (82 percent) of survey respondents identified technological disruption as an opportunity rather than a threat.
Like other industries, mining operations were forced to scramble to respond to the pandemic, to ensure the safety of employees, the communities in which they operate, and the security of supply chains. But while the ongoing impact of the pandemic will continue, the mining industry appears to be rapidly recalibrating. And our survey suggests mining companies are in a strong position to capitalise on fresh opportunities.
This survey reveals an optimistic sector confidently dealing with new challenges in 2021. Stakeholder expectations are higher than ever but as the world recovers from COVID and accelerates to carbon neutrality – so are the opportunities
KPMG Global Mining Risks 2021 – the Top Five
- Commodity price risk (No 1 2020) concerns reflect ongoing volatility
- Global pandemic risk (unplaced 2020)
- Economic downturn/uncertainty (No 6 2020)
- Community relations and social licence to operate – (No 4 2020) strengthening in ESG agendas
- Environmental risks, including new regulations (No 7 2020)