As the commodities supercycle ends, here are three risk management tips from the mining industry, which has traditionally led the way in the discipline
Mining companies have led the way in terms of risk management for decades due to the risky nature of all aspects of their business, but in the next 20 years the need for excellence in risk management will be even greater and wider.
There is no safe mining left in the world. Miners are going deeper than ever before, going to locations never exploited before, and thus facing new socio-political challenges and ever more complex technologies. Major projects and day-to-day operations need even better risk management and this information needs to be integrated and shared across the enterprise.
It’s time to go ‘Back to the Future’, both to return to a focus on mining fundamentals and to make risk management simple and pervasive to support this. Today mining is facing challenges head on that organizations in other sectors will encounter in the coming years.
The last decade has seen massive overall growth in the size and value of mining companies, driven by commodity price increases fuelled by demand from emerging markets. However, with the prices of copper, gold and iron ore down 30-40% since their 2011 highs, analysts now believe the latest commodities supercycle is dead as growth in China slows and economic recovery worldwide is taking longer than expected.
It’s ‘Back to the Future’ to cope with the new reality
The end of the supercycle is hitting the mining community hard. Share prices of the big players have tumbled. As a result of commodity and profits falls, miners will need to adjust their businesses strategies and operations. The next 20 years must see miners returning to their roots as skilled operators, rather than pseudo financial institutions.
The focus will need to be on how to make mining operations as efficient as possible. Inefficiencies will no longer be masked by increasing commodity prices, so there needs to be greater scrutiny of the risks most likely to impact margins. It will be a case of ‘Back to the Future’, back to the fundamentals of being a good miner. Identifying and managing the risks to operational margins, reputation and shareholder value will be key as shareholders continue to demand growth despite falling prices.
Here are three risk management tips to help organizations face an uncertain future:
- Ensure the business has a risk-aware culture and that risk management is in the hands of everyone. Get each and every employee involved in the risk process because the risk that might destroy your business could come from a place you did not expect. Look at all the places where risk could hit your business, not just the obvious ones.
- Provide support for risk management initiatives throughout the organisation – not just a one-off policy announcement. The executive board must embrace risk management and see it as strategic for the business or it will not get off the ground.
- Implement risk management at the start of the planning process – both in terms of strategy and capital projects. Use thorough risk assessments as a tool to help decide which projects to embark on. It might be too late by the time risks begin to materialise.
A longer version of this blog post was originally published as part of Metal Bulletin’s Next 100 series, where industry visionaries look to the future of the Metals & Mining industry. Read the full article here.