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Key risks for the industry in 2021

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.
 

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