Managing risk

The global mining sector has experienced dramatic changes over the past five years. A sustained period of high commodity prices has been followed by falling industrial demand for raw material inputs, recent sharp corrections in all commodity prices, constraints on access to capital and the subsequent need for reassessment of corporate strategies.

This correction has followed a period of unprecedented global merger and acquisition activity. The previous high commodity prices, buoyant market capitalisations and optimism about the industry's long-term growth and profitability had previously seen mining companies embarking on ambitious long-term growth strategies. Consolidation through acquisition has been increasingly viewed as a way for mining companies to overcome record high exploration costs, achieve production synergies through scale, circumvent protracted exploration and greenfield mining regulatory processes, and address specific mining skills shortages. Major capital investment decisions are being made in this increasingly volatile operating and price environment, where future returns on the capital invested are increasingly uncertain.

Given these attributes of their operating environment, global mining companies are placing increasingly higher priority on the need for effective corporate risk management.

How PwC can help you

Risk is about uncertainty around expected business outcomes e.g. the potential impact of a diverse array of events that may enhance or impede an organisation’s ability to achieve its identified business objectives. Risk can also be viewed as a hazard (the threat of adverse business outcomes) but also as opportunity (the possibility that opportunity is not adequately leveraged).

Shareholder value will be assessed by management sustained performance across a number of strategic and operational KPI’s:

  • Identifying and execution of ‘net-present value (NPV) positive’ mining investments i.e. growing the global reserve base
  • Meeting industry operational benchmarks in ore extraction, processing, asset management, logistics, etc.
  • Growing overall mining revenues
  • Managing variable and fixed cost bases
  • Managing tax exposure
  • Ensuring a safe working environment
  • Managing increasing tougher environmental and emissions regulatory requirements
  • Accessing capital and managing cashflow and liquidity requirements
  • Identifying and managing global political instability

It is managing potential variance to “expected” or “projected” outcomes in these operational targets that is the core focus of risk management. Risk management in its many manifestations, is ultimately about building the appropriate culture, processes and infrastructure for effective risk identification, measurement, mitigation and monitoring to optimise business outcomes.

Rather than being reactive, risk management should be proactive and focused on optimising risk driven opportunities, growth and returns as opposed to just avoiding risk. PwC’s approach to risk management focuses on all of these dimensions of risk.

Whether key risks are strategic, commercial, financial (market, credit, liquidity) or operational (multiple dimensions), investment or business segment specific, PwC risk specialists can work with you to identify nature of risk exposures, quantify risk impact and establish an appropriate operating risk management framework. We focus on how risk management can be effectively integrated with existing core business functions (e.g. commercial operations, planning, budgeting, reporting) to protect and enhance shareholder value.