Climate change and price risk are foremost in the minds of Australian miners according to Caron Sugars KPMG Partner and Mining Risk specialist speaking at the launch of the KPMG Mining Risk Forecast 2020/21 report.
Ms Sugars said the Report indicates that mining companies would increasingly look to insulate themselves from potential downside risk of price by focusing on the basics - operational efficiency, productivity and cost containment – in the coming year.
“Price and currency hedging, together with cash flow management practices will be critical business risk management mechanism to curb downside risk of price volatility,” she said.
Ms Sugars noted that when KPMG conducted its 2020 Global Mining Risk Survey in January this year, COVID–19 had not been broadly recognised as the global threat we now know it to be.
“Profound change has occurred since then and responding to the challenges of a global pandemic has driven the mining sector’s immediate planning, decision making, and risk mitigation actions,” said Ms Sugars. “The risks created by the global COVID-19 pandemic have been broad and varied. For Australia, our Mining Risk Forecast shows that most obviously there has been the impact on the physical and mental health of the mining workforce and mining communities. There have also been challenges in managing mining sector supplier and liquidity risk.”
She also highlighted the need to ensure cyber risk was more closely addressed and managed given the increasing numbers of people working remotely. In addition, these factors have been cast against a background of global recessionary risk to commodity prices and ongoing market volatility.
“A key theme of this year’s Australian Mining Risk Forecast is transition: the Australian mining sector now finds itself at a transition point,” said Caron Sugars. “Miners must closely monitor and manage the ongoing health crisis presented by COVID-19 but mining executives must also continue their focus on the medium to long term.”
Looking back to March 2020 in the global context, managing commodity price risk and macroeconomic risks – were the headline findings in KPMG’s Global Mining Risk Report 2020.
Then, KPMG highlighted the pressures on commodity pricing against a backdrop of macroeconomic uncertainty and attracting and accessing capital as two of the key risks for miners.
Four months, and a different world, later, Trevor Hart, KPMG’s Global and Australian mining sector leader says that increased price risk and volatility, digital transformation, new ways of working, and a doubling down on Social Value and the ESG agenda, are taking centre stage as a “New Reality” emerges – both in Australia and globally. He said that by now, many companies have established a “COVID Rhythm” and leaders are increasingly looking forward. Mr Hart emphasised the point that the mining sector is very experienced at adopting new ways of working, and this included attracting the right talent.
“In addition, we believe commodity prices will be volatile for the foreseeable future as COVID and Geopolitical impacts reverberate through global commodity demand and supply,” he said. “COVID-19 has demonstrated the value of operational agility and accurate real time information for leaders. This is also about addressing supply chain risk to ensure security of supply. We have seen that ability in the quick response of miners in managing potential choke points and building optionality across the chain.”
Mr Hart said COVID-19 underlined the criticality of people to the mining industry. Companies with strong safety and COVID response plans have demonstrated resiliency in maintaining operations. Notably, all stakeholders are accelerating their demands of miners on ESG and the industry is challenged to have clear, measurable strategies to execute against.
“COVID-19 rightly demanded immediate risk management priority. However, we emphasise that other risks will continue to persist and even amplify in the medium to long term,” said Ms Sugars.
In 2019, macro financial risks came in first place with 60 percent of respondents naming this as their key mining sector risk for the following year. In 2020, as mining executives looked ahead, the two top risks named were;
Following these concerns the focus was around price risk and regulation:
Technology Disruption: an opportunity – not a threat
Ms Sugars said that one of the strongest messages from the survey was that only 12 percent saw technology disruption as a threat. Innovation was ranked 19 as a risk and 85 percent of respondents indicated that they viewed technological disruption as more of an opportunity than a threat, ranking it the second most important growth strategy after organic growth and before strategic alliances, mergers and acquisitions and attracting and retaining talent
On the regulatory front, while regulatory change is always an uncertainty that organisations pay close attention to, the KPMG Report highlighted an upcoming milestone that could aid regulatory risk management.
“The Commission’s Resources Sector Regulation draft report (issued March 2020) considers how to streamline project approvals and launch new resource projects more efficiently while continuing to focus on managing risks to the environment and communities,” said Ms Sugars.
Looking ahead to the next twelve months for the risk landscape in Australian mining, Ms Sugars said that in spite of the challenges of COVID-19, we must not forget climate change risks and the significance of ESG and social licence in the Australian mining sector.
She suggested that addressing climate change risk was likely to see some commodities, like copper and battery minerals, increase in demand whilst others, like coal, decline however all miners needed to prepare for the uncertainty that climate change represents.
Increasingly mining companies are recognising that taking advantage of opportunities to differentiate, or have competitive advantage, relies on attracting and retaining high potential skilled individuals. Whilst not yet in the top 10 risks (it moved from 17th place to 12th), it was noted as one of the top two strategies for growth in the short term (after organic growth and together with strategic alliances, mergers and acquisitions)
Ms Sugars said: “Fortunately, at the same time that Environmental, Social and Governance (ESG) and other non-financial risks are attracting more focus, technology is rising to the challenge to support organisations and boards in understanding these risks proactively. This must remain true throughout the period of COVID challenges and beyond.”
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