Obtain a copy of the report: For a more detailed discussion of each of the top ten issues that Deloitte’s global network of mining professionals believe will influence the mining sector most in the coming year, read the full report. Tracking the Trends 2011
Toronto, December 1, 2010—As emerging economies around the globe continue their rapid industrialization, demand for commodities is skyrocketing. Yet at the same time, numerous countries are taking steps to safeguard their own supply by curbing the export of natural resources and shutting down some traditional supply markets. According to a new report released by Deloitte today, this is doing more than affecting commodity prices. It is changing the way mining companies do business.
“With the combination of surging commodity prices, labour shortages, and more demand than supply, one can almost imagine that we are back in the heyday of the mining boom,” says Glenn Ives, North American Mining Leader and Chair of Deloitte Canada. “But today’s demand drivers are significantly different than they were in the past and mining companies need to change the way they pursue growth if they hope to keep pace.”
Over the past 18 months, the axis of the world has shifted according to Deloitte’s third annual global mining report, “Tracking the Trends 2011: The top 10 issues mining companies face in the coming year.” As demand grows from emerging economies, the flow of commodities is increasingly moving to non-Organization for Economic Co-operation and Development (OECD) nations. The report explains, however, that although the developing economies’ strong appetite for commodities is sending demand signals to the mining industry, these are being muffled by the difficulties of obtaining permits for new mines and finding skilled labour.
“Market forces today are far from typical,” says Philip Hopwood, Global Mining Leader, Deloitte. “Increased governmental intervention in the form of mining industry nationalization or new tax and royalty regimes, coupled with inadequate infrastructure and a dearth of skilled talent, have made it exceptionally difficult for companies to build new mines or expand existing ones to boost available supplies.”These trends are creating a supply shortage that challenges mining companies to rethink their operational strategies.”
China’s voracious appetite for commodities causes spike in new deals
While much of the world was hunkered down, waiting for recent economic storms to pass, Chinese acquirers were looking at foreign mining targets. As the report explains, in 2009 alone, the country entered a record-breaking 33 deals, with a combined value of US$9.2 billion in 2009 alone; almost three-quarters (73%) of Chinese companies, meanwhile, expect the pace of deal-making to continue. Currently, as the report explains, though mining companies continue to face difficulty attracting financing, the gap is now being plugged by Chinese and other international investors, fuelling a much more active transactional market than last year.
“China is the 800-pound gorilla in the room. Thanks to its ability to influence demand and control the market, the country is beginning to influence global commodity prices,” explains Jeremy South, Global Mining M&A Leader, Deloitte. “For many mining companies, this ongoing trend dictates a growing imperative to understand their underlying value drivers so they can be positioned to attract fair value should the Chinese, or other acquirers, come calling.”
Business priorities and challenges have dramatically changed over the last 12 months
While a number of industry fundamentals have remained unchanged, the relative ranking and focus of key trends presented by Deloitte in 2010 have shifted. For instance, last year companies were most concerned with securing supply, managing commodity price volatility, and ramping back up in response to rising demand. This year, top priorities are attracting financing, finding new supply markets, and engaging local stakeholders in an effort to secure a license to operate. The report also highlights that government intervention around the world has increased in the past year and is currently on the rise in the form of new taxes and royalties, more stringent anti-corruption legislation, and rising expectations related to environmental protection.
The top 10 issues mining companies will face in the coming year
To help organizations take a forward-looking approach to their business planning in the face of these new market realities, Deloitte’s global network of mining professionals have identified ten of the top issues they believe will influence the global mining sector most in the coming year, presented in order of priority:
-The fickle face of financing: International investment fuels the sector
-When supply can’t match demand: Volatility is the new normal
-Securing a social license: Engaging stakeholders takes centre stage
-New taxes, new regulations and new governments: Political agendas take centre stage
-How to invest more strategically: Hint, you’ll need a long-term plan
-The lost generation: The war for talent rages on
-At the end of the rainbow: Maintaining the search for that elusive pot of gold
-A tough environment: Climate change disclosure and adaptation are getting harder
-Working with no backbone: Inadequate infrastructure hampers growth
-Rethinking industry fundamentals: Exploring new revenue opportunities
Deloitte, one of Canada’s leading professional services firms, provides audit, tax, consulting, and financial advisory services through more than 7,700 people in 58 offices. Deloitte operates in Québec as Samson Bélair/Deloitte & Touche s.e.n.c.r.l. Deloitte & Touche LLP, an Ontario Limited Liability Partnership, is the Canadian member firm of Deloitte Touche Tohmatsu Limited.
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