Don’t play it safe, Deloitte tells mining firms – by Bertrand Marotte (Globe and Mail – November 29, 2012)

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Faced with rising costs, falling commodity prices and other challenges in these volatile times, mining companies should avoid the urge to retreat and play it safe, says a new Deloitte report.

“For the second year in a row, mounting costs tops the list of the key issues affecting the mining industry,” says Glenn Ives, Americas mining leader at Deloitte Canada.

“This is expected to worsen in the short term as commodity prices continue to dip, workers demand higher wages and regulatory costs rise. But rather than halting production in the face of shareholder demands for more immediate returns, miners should be making investments today to meet the expected long-term demand for commodities.”

The report, Tracking the Trends 2013, lists the top 10 challenges for the mining sector in 2013:

1. Higher costs

Currency volatility, high operating costs and lower grades are influencing strategic decisions regarding production, expansions and the delinking of corporate equity from commodity prices. For better cost-control, companies need to pinpoint their cost drivers, automate, improve asset efficiency with more analytics and streamline the supply chain.

2. Demand uncertainty

Flagging demand from China is hurting commodity prices and having an impact on investment decisions. Mining companies should think twice before halting production and risking an inability to meet future demand, and consider applying game theory to scenario planning as a guide to capital project decisions.

3. Capital project deceleration

Companies should focus on making disciplined investment decisions rather than caving in to pressure to pay shareholder dividends or automatically freezing projects.

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