Mining Executives may be starting to look toward the future even though external business conditions such the global economy, commodity prices and equity markets remain volatile, writes KPMG’s Head of Mining in South Africa, Jacques Erasmus.
After the Mining Executive Forum in South Africa, KPMG conducted the same survey at KPMG Canada’s 11th annual Mining Executive Forum in North America. Comparisons between the South African and North American survey results show how different perceptions can be between regions in a global industry and how much the stability of the local economy impacts the risks which executives focus on. While six of the top ten risks overlapped between the two regions, they appeared in different orders of priority. For example, number two and three issues for
North Americans (access to new projects and permitting risk) ranked 10th and 19th for South Africans. These issues rose from number ten and six respectively in KPMG Canada’s 2014 risk survey conducted with executives who attended their 10th annual Mining Executive Forum.
These results suggest to us that North American mining companies may be ready to broaden their singular focus on financial survival, and start preparing for growth in the future. It is also possible that North American mining companies see a declining production profile as an emerging risk due to reduced spending on resource development in recent years. In any case, efforts by companies to control costs, rationalize their asset portfolios, and strengthen their balance sheets have shown results. This is a contrasting position to South African mining companies who still face significant local challenges which needs to be addressed to ensure that mining companies can survive the current commodities slump.
It is most interesting that North American companies could be lifting their gaze to the future-oriented issues at a time when trends in economic growth, commodity prices and the equity markets do not lend any certainty to the outlook for growth in their businesses. This may herald a future period of stability in the industry, allowing companies to position themselves for an eventual upturn in global economic growth and commodity prices.
Clearly, labour issues are a current hot button for South African miners. Many companies have recently experienced lengthy and challenging union negotiations, some of which, unfortunately, resulted in violent strikes and protests.
Why the differences? Both regions shared major concerns about commodity prices and economic slowdown, two factors that are essentially beyond management control. However, when considering specific strategic and operating challenges, it seems that risk is in the eye of the beholder. South African executives were more focused on immediate challenges related to labour demands and scarce inputs, while North American executives placed more emphasis on permitting risk and access to new projects—suggesting they are beginning to divide their attention between immediate and future challenges. In both regions, the survey results reinforce the importance of having a robust enterprise risk management process that identifies emerging risks, in order to deal with a complex web of issues at the company level.