EY has disclosed that limited pricing and demand visibility as a result of ongoing market volatility is challenging mining and metals companies as they plan for the future.
This statement was part of the EY 2016-2017 Top 10 business risks in the global mining and metals sector which are:
- Cash optimisation
- Capital access
- Social license to operate
- Switch to growth
- Access to energy
- Joint ventures
Wickus Botha, EY Mining & Metals Sector Leader for Africa, says: “Due to on-going market volatility in the mining industry, moderate global growth, and a dampened demand for commodities, cash generation and preservation will remain a key focus for mining and metals companies for the medium term.”
Whilst this will enable mining companies to maintain stronger balance sheets for the long term, there should also be continuous investment in innovation, technology, as well as research and development (R&D).
“Delaying such investments will make it difficult to change budget allocations at a later stage,” he notes.
“To fund all this productivity and innovation spend, companies will have to implement strong financial and capital discipline to free up savings.”
Capital access moves to second in risks ranking
Traditional forms of debt and equity aren’t readily available in today’s mining and metals market.
Capital raised in the sector was down globally by 5% quarter-over-quarter in Q2, 2016 and 28% year-over-year to US$60 billion in Q2, 2016.
However, in the short term, access to capital will remain difficult.
Botha says: “With limited access to capital, companies will look to alternative sources of funding as the appetite for growth remains subdued in the mining and metals sector.”
Productivity remains a top operational challenge
Productivity declined significantly during the sector boom as companies adopted a “volume-at- any-cost” mindset.
This approach resulted in a singular focus on the mine and created an integration gap between the mine and production plant, maintenance and supply chain.
Botha says that productivity is undoubtedly the greatest operational challenge in the sector, with many struggling to make an impact, but it’s also one of the biggest opportunities.
“Mining companies should focus on optimising its business operations through a holistic approach,” says Botha.
“There are many learning that can be gained from adjacent industries, such as manufacturing industry for example. Adopting a process model and digital approach will be key enablers to addressing the productivity risk,” he concludes.