Click here for the PDF document: Business risks facing mining and metals 2013–2014
Capital allocation and access to capital have rocketed to the top of the business risk list for mining and metals companies globally, up from number eight in 2012, in Ernst & Young’s annual Business risks facing mining and metals 2013-2014 report released today.
Ernst & Young’s Global Mining and Metals Leader Mike Elliott says these “capital dilemmas” threaten the long-term growth prospects of the larger miners at one end of the sector, and the short-term survival of cash-strapped juniors at the other end.
Margin protection and productivity improvement (two, up from number four) and resource nationalism (three, down from one) round out the top three risks, while the threat of substitutes is a new entry in the rankings at number 10.
“The rising business risks that are top of mind with mining and metals CEOs and Boards today are being driven by the need to protect returns and manage the interests of varied and often competing stakeholders. This is in stark contrast to just 12-18 months ago when fast-tracking production was still top of the agenda and capacity constraints defined the key business risks,” says Elliott.
For larger miners, the rapid decline in commodity prices in 2012, rampant cost inflation and falling returns have created a mismatch between miners’ long-term investment horizons and the short-term return horizon of new yield-hungry shareholders in the sector.