Risks and opportunities for mining: new strategies for a changing landscape in 2020
The bushfires that raged through Australia in early 2020 have helped push climate change and natural disasters to the top of the list of key concerns of mining executives in Australia. Commodity price risks are also highlighted with miners looking to insulate themselves from the potential downside risk of price by focusing on the basics – operational efficiency, productivity and cost containment – in the coming year.
COVID-19 saw many risks triggered and, like the global financial crisis, has emphasised the need for organisations to understand how risks interconnect as well as emerging risks. Whilst the survey data used in the Australia Mining Risk Forecast 2020/2021, was collected prior to COVID-19 landing on Australian shores, the report does address the profound change that has since occurred and how responding to the challenges of a global pandemic has driven the mining sector’s immediate planning, decision making, and risk mitigation actions. The risks created by the global COVID-19 pandemic have been broad and varied. For Australia, there has been the impact on the physical and mental health of the mining workforce and mining communities. There have also been challenges in managing mining sector supplier and liquidity risk.
Commodity prices will be volatile for the foreseeable future as COVID and Geopolitical impacts reverberate through global commodity demand and supply. COVID-19 has demonstrated the value of operational agility and accurate real time information. This is also about addressing supply chain risk to ensure security of supply.
Supply chains will certainly be affected as major suppliers, like China have been adversely affected by COVID. Miners may need to rethink the cheapest option and a ‘just in time’ supply chain amidst global uncertainty may no longer be optimal. The previously proven equilibrium between working capital management and availability of inventory and spares may need to be reset to reduce the risk of delayed production.
The mining sector has historically been highly resilient and adept at managing cyclical shocks. The industry permanently operates with crisis management response plans in place, so companies were not starting with a blank sheet of paper. Further, the underlying assets of mining companies don’t typically deteriorate.
Climate, environment and community dominate risk considerations. These risks consider both the climate change impact on assets and operations (significant weather events, asset degradation) as well as the uncertainty surrounding society and government’s response to climate change. Whilst in previous years environmental risk has been captured in social licence to operate risk, the survey outcomes indicate that addressing climate change risk is now viewed, by Australian based miners, as a far broader imperative. This differs to the global response where climate change was not listed in the top 10 risks.
Australian industry leaders are also aware that short-term profits are not the only measure of success and that demonstrating sustainable value for all stakeholders must be a priority. Indeed, ‘holistic’ is a term used with greater frequency today in discussing what success really means for mining companies.
An emerging risk is community sentiment, potentially exacerbated by global civil rights protests. This may have greater implications for diversity in employment; traditional owner acknowledgement and heritage protection, where community expectation may be broader than what regulation requires.
Top Risks for Australian Miners 2020/21
In 2019, macro financial risks came in first place with 60 percent of respondents naming this as their key mining sector risk for the following year. In 2020, as mining executives looked ahead, the two top risks named were;
- Climate change and natural disasters (named by 46 percent of respondents)
- Commodity price risk (also named by 46 percent of respondents)
Following these concerns the focus was around price risk and regulation:
- Price risk – Global trade war (named by 38 percent of respondents)
- Price Risk – Economic downturn (named by 35 percent of respondents)
- Regulation – Regulatory and compliance change burden (named by 35 percent of respondents)
COVID-19 rightly demanded immediate risk management priority. However, we emphasise that other risks will continue to persist and even amplify in the medium to long term.