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13 July 2012 | Kamalpreet Badasha
‘Resource nationalism’ is the number one risk facing the mining and metals industry, according to a report by Ernst & Young.
Business risks facing mining and metals 2012–2013 found many governments are restricting foreign trade through the imposition of export levies and limits on foreign ownership.
The report details how governments of resource-rich nations are liable to make sudden changes to policies, causing delays and deferment of projects. It recommends companies engage with governments making them aware of the value that projects bring to the host government.
The top 10 risks in the report listed for 2012 are:
1. Resource nationalism
2. Skills shortage
3. Infrastructure access
4. Cost inflation
5. Capital project execution
6. Maintaining a licence to operate
7. Price and currency volatility
8. Capital management and access
9. Sharing the benefits
10. Fraud and corruption
The sector has been facing supply capacity constraints, which are exacerbated in locations affected by skills shortages and infrastructure access problems. Skills shortages had previously only been an issue in Australia and Canada but are now affecting operations in Indonesia, Mongolia, Brazil, Chile, Peru and Mozambique. The associated risks of this include increased labour costs, project delays and impact on production.
Infrastructure access problems have been occurring as a result of governments’ inability to finance infrastructure projects due to budgetary constraints. “Changing market conditions will force resource producers to amend infrastructure development plans,” said Neal Johnston, infrastructure advisory partner at Ernst & Young Oceania. The report recommended companies look to other stakeholders to develop a solution with shared benefits.
Sharing benefits is new to the ranking and looks at how stakeholders feel they are more entitled to company profits and are placing pressures on mining and metals companies, such as governments insisting on local employment and procurement and suppliers charging higher premiums for goods and services which companies are having to pay to increase output.