Miners’ number one risk: governments taking over mines

While miners still struggle to find staff and gain access to infrastructure, the number one worry keeping up miners is seeing their project or mine nationalized, according to an Ernst & Young study.

The authors of the report, Business risks facing mining and metals 2012 – 2013 released today, say the risk of resource nationalism has grown over the last 12 months.

“The uncertainty and destruction of value caused by sudden changes in policy by the governments of resource-rich nations cannot be understated,” said Mike Elliott, Ernst & Young Global Mining & Metals Leader.

Projects have been delayed because of nationalization, and financing has been withdrawn from others because of geopolitical worries.

“Resource nationalism retains the number one risk ranking with many governments around the world going beyond taxation in seeking a greater take from the sector, with a wave of requirements introduced around mandated beneficiation such as bans on the export of unprocessed raw materials, as well as export levies and limits on foreign ownership.”

The study reports on a growing feeling amongst government and locals that they are entitled to a growing stake of resources that reside in their jurisdictions. The global economic slowdown and fiscal pressures are also contributing.

“Mining and metals companies are forced to balance the expectations and needs of their many stakeholders. When they fail to meet expectations or fully understand needs, it can result in strikes, supply disruptions, shareholder activism, community unrest and governments using their power through resource nationalism.”

Risk number two on the Ernst & Young list was finding qualified, specialized staff, and coming up number three was access to adequate infrastructure.

One of the biggest movers on the list was the risk of cost inflation, moving up from eighth spot to fourth.

The 2012 top strategic business risks in the global mining and metals sector are the following. Last year’s ranking are in parentheses:

1. Resource nationalism (1 in 2011)
2. Skills shortage (2)
3. Infrastructure access (6)
4. Cost inflation (8)
5. Capital project execution (5)
6. Social licence to operate (4)
7. Price and currency volatility (6)
8. Capital management and access (7)
9. Sharing the benefits (new)
10. Fraud and corruption (10)