22 October Key risks for the industry in 2021 October 22, 2020 By Sally Parker Industry, Mining COVID-19, Risk, Industry, Mining 0 As 2020 draws to a close, industry is looking to the year ahead. EY's 2021 report on the risks in mining and metals reflects the turbulent changes of the past year. Volatility is new to the list, while the COVID-19 pandemic continues to inform the way industry leaders are approaching established risks around climate and license to operate. Likewise, the KMPG Mining Risk Forecast 2020/21 Report identifies commodity price volatility as the key risk for 2021, with trade/geopolitical risk and climate change close behind. Volatility The KMPG report was conducted prior to the COVID-19 pandemic, which has, if anything, heightened the risk of volatility. Shutdowns have disrupted supply chains and production. With drastic reductions in air travel and other transport, demand has tumbled for oil and other commodities. Slowdowns in other types of production have also weakened demand for metals and energy resources. The Western Australian Department of Mines, Industry Regulation and Safety (DMIRS) anticipates “considerable uncertainty” for commodity prices in 2021, with alumina, nickel, lithium and base metals impacted by supply chain disruptions. Meanwhile, Chinese demand for iron ore stays strong, and gold and silver are performing well due to their status as safe havens. Long term forecasts remain uncertain. The pandemic might usher in long term changes in behaviour, like remote working, or it might be a temporary shock with a return to business as usual. This makes it difficult for mining companies to make sustainable decisions about future investment and operations. Climate change Climate change, as an industry risk, is more prominent every year. The mining and energy sector has to navigate an increasingly complex set of stakeholder and social demands. There is pressure to reduce greenhouse gas emissions and align with the Paris Agreement. Moreover, the effects of climate change are already creating extra risk for the mining sector as they increase operational costs. Water shortages, and resulting regulations around water usage, impact where and how miners can operate. The bushfires that ravaged Australia in the 2019-20 summer impacted New South Wales mines and forced companies including BHP to suspend operations due to poor air quality. License to operate The EY report also indicates that license to operate (LTO) is still regarded as the key risk for miners. This risk has been increasing over time, with changing community expectations around how miners respect indigenous rights and native title. Recent high profile cases, such as the destruction of Juukan Gorge, have heightened public awareness around this issue. There is also a serious risk that the COVID-19 pandemic will reignite calls for ‘resource nationalism’ that limits who miners can sell to, and why. EY reports that some governments have already imposed tariffs and/or export bans to protect domestic producers, with 56% of survey respondents expecting royalties and taxes to increase. This is a risk for mining companies across the globe, since resource nationalism in any country affects confidence in future investment. 2020 threw up some new challenges, which will inform the key risks for 2021. As long as mining and energy companies are cognisant of the risks ahead, it is likely that the sector can remain resilient into the future. Related Articles Climate change action is being driven by business and industry While everyone’s focus in recent months has been on the COVID-19 pandemic, climate change was top of everyone’s mind when the year began with bushfires ravaging Australia. The pandemic has seen individuals and organisations assess their ideologies and perspectives on a range of topics, climate change being one of them. It now seems that climate change is back on everyone’s agenda and none more so than business and industry. Energy industry and government response to COVID-19 In response to the coronavirus (COVID-19) crisis, government and industry have come together to ensure the community, economy and industry are supported. The Council of Australian Governments Energy Council (COAG Energy Council) has formed the Energy Coordination Mechanism (ECM) which is expected to have a complete plan by the end of April. The immediate focus of these efforts has been on four areas What is concerning mining and metals industry executives today? Recent surveys conducted in the mining and metals industry sector indicate that climate change, price volatility and the risk of a global depression are the top concerns for executives. The KMPG Mining Risk Forecast 2020/21 Report nominates climate change and price risks as top-of-mind for executives while a mid-year survey by White & Case found that the fear of a global recession was the most common concern amongst those surveyed. It’s worth noting that the KMPG survey was conducted before the COVID-19 pandemic. However, the concerns raised have ongoing relevance both now and into the future. The impact of coronavirus on the energy and resources industry The last few weeks have seen the world face an unprecedented disruption with the novel coronavirus (COVID-19). First reported in China, we’re now seeing many countries shutting down for periods of time to try to contain the spread of the virus. Australia is facing a particularly difficult year given the bushfires that ravaged the country recently. Now with COVID-19 adding to the pain, the energy and resources industry is being impacted in several ways outlined below. Dealing with market volatility in the oil and gas industry The oil and gas industry is experiencing unprecedented volatility since prices slumped in March following the collapse of the OPEC+ supply pact. In the past week alone oil prices have reached historical lows with West Texas crude reaching approximately -US$40 a barrel in future trades. Volatility has been driven by reduced output from Russia quickly followed by lockdowns associated with the COVID-19 pandemic. This is impacting economic growth across the world, with the OECD already lowering its global economic growth estimate for 2020 from 2.9% to 2.4%. The longer the outbreak continues, the greater the decline in global growth and the corresponding fall in demand for energy. The push for decarbonisation Climate change continues to be one of the critical issues facing industry and Government. The push for change is now accelerating with new and revised policies to reduce carbon emissions set to be introduced. Showing 0 Comment Comments are closed.