H2, 2019 saw advisory, assurance, tax and transaction services company EY release its findings on the top 10 business risks facing mining and metals in 2020.
While the report is pertinent to the entire mining sector, two points in particular hold significant relevance for the junior industry which must now consider more than just the ‘typical’ risks in their mining project development preparations.
Compiled by LAURA CORNISH.
According to EY’s report, there have been significant fluctuations in mining risks, as well as new risks coming into the top 10 – for the third year in a row.
“The fluctuations in the risks, as well as new risks highlight the ongoing disruption in the sector,” the report notes, adding further that, “It’s worth noting that there are always opportunities in time of change.”
The themes of license to operate and disruption run through EY’s 2020 risks, as social responsibility and broader stakeholder demands intensify alongside the need for digital transformation, greater risk taking and innovation.
On the plus side
Identified as trend No.8, EY reveals that there could be a significant supply crunch in the next 10 to 15 years.
This article first appeared in Mining Review Africa Issue 2, 2020
“Exploration technologies have already made significant advances as miners explore new digital technologies, [but] lower exploration budgets, fewer major discoveries and declining grades in existing deposits are particularly concerning when you consider that the outlook is for growing mineral demand as a result of the global growth and the demands of new world infrastructure,” EY’s report reveals.
This bodes well for the junior sector considering the majors are the likely cause for a drop in exploration spend.
As supply deficits materialise, commodity prices will increase and fuel greater exploration spend. This is a major plus for juniors.
But there are many challenges to overcome, some unchanged over the decades, some relatively new – such as digital technologies – and some that are familiar but have become more prominent considerations, particularly for the junior mining sector.
This speaks to the issue of sustainability.
License to operate
License to operate (LTO) is EY’s Number. 1 risk for the second year in a row – a theme which runs through this year’s risks, as social responsibility and broader stakeholder demands intensify.
“44% of our business risks survey respondentsputting it at the top of the list. The extended period of elections and resultant government changes has brought uncertainty to the political environment which has created volatility in the commodity markets.
“In addition, the sector is facing greater scrutiny from end consumers, demanding a transparent ethical supply chain as well as a lower carbon footprint. Shareholder activists are also driving many miners, particularly those with coal assets, to reshape their portfolios by either reconfiguring existing operations or executing divestments,” EY highlights.
This is undeniably a potential added strain for the junior sector, which must continue prioritising its core focus – advancing a project up the value chain through the correct technical processes, in order to secure finance. Incorporating the must-have LTO requires another box is ticked – before the mine is even built.
Pressure on miners to reduce impact in carbon emissions and energy use
Another consideration for juniors which was not a top priority a few years back speakers to sustainability on a broader level – reducing carbon footprints – identified as EY’s No.4 business risk.
“The transition to a low-carbon economy is well underway and the pressure to accelerate this transition seems to grow every day. Leading mining companies are recognising the importance of reducing their carbon emissions,” says EY.
For the junior sector, it makes investable sense to consider these options upfront and incorporate them into the mine strategies.
“The clean energy transition is [however] going to be mineral intensive, providing an enormous opportunity for mining companies. There are significant opportunities for lithium, cobalt, copper, aluminium, nickel and many other minerals,” EY notes – opening the exploration door for the junior industry.
- Source: EY survey over 130+ execs from the EY Global Mining & Metals sector.
- Corporate Exploration Strategies: Overview of exploration trends, S&P Market Intelligence, 6 November 2018, accessed on 20 August 2019.