As the mining industry heads home from the PDAC, here are some five things they need to keep in mind for the year ahead
The mining industry is not for the faint of heart— risk is part of doing business. But some risks are greater than others. How do you navigate the ever evolving economic landscape while mitigating your risk?
To mark the close of another successful PDAC convention, Mark Zastre, national mining leader at Grant Thornton LLP and global mining leader at Grant Thornton International, suggests mining companies focus on these five things in order to navigate the tough environment—and thrive.
1. Managing rising costs
Exploration and production are being pushed into increasingly remote regions as miners work in previously untapped areas. This trend increases both risk and costs in areas such as transport, labour and machinery and, combined with rising fuel prices and a heavier regulatory burden, means miners are facing shrinking margins. Improving productivity and exploring outsourcing opportunities to run non-core activities as efficiently as possible will allow you to improve your profitability.
2. Preventing corruption
The Corruption of Foreign Public Officials Act (CFPOA) has been on the books in Canada since 1999. Since 2011, the RCMP has been cracking down on Canadian companies (over 35 under investigation) engaging in corrupt behaviour involving foreign public officials. Simple awareness is no longer enough. Ignorance could be disastrous. If you’re aware of the CFPOA, make sure you understand it and have internal policies and procedures in place for obeying and enforcing it. If you don’t know about it, educate your company immediately and take the actions necessary to safeguard your international operations.
3. Changing financing options
The traditional routes to finance for miners are being squeezed by risk averse credit markets and the increased market scrutiny of major exploration and production activity. Business leaders need to be increasingly creative and open-minded when it comes to sourcing funding, and need to consider venture capital and other alternative financiers (such as streaming and royalty companies and/or private equity). Other options include the sale of non-core assets and capital market transactions.
4. Understand your risk appetite
In January 2012, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) issued a new thought leadership paper, Enterprise Risk Management—Understanding and Communicating Risk Appetite. It provides organizations with additional guidance on how to develop, and communicate, a shared vision of the amount of risk they’re willing to accept as they work toward achieving their objectives.
Understanding and embracing your risk appetite can be broken down into three steps:
Develop: Your risk appetite will be unique to your organization. The key is to make a defined choice, rather than let it evolve into a level that may far exceed what you’re actually willing to accept.
Communicate: Once you’ve decided on your risk appetite, it needs to be communicated to everyone. This communication should include whether that appetite differs for different categories of risk
Monitor: The key thing is to make risk appetite a living, breathing part of the culture of your organization.
5. Shifting regulatory sands
As the boundaries of exploration expand, miners have to manage a much wider range of government policy, legislation and relationships to create a local legitimacy to operate. Many jurisdictions have increased their focus on bribery and corruption, with higher sanctions for those found to be in breach. Additionally, securing land title and obtaining required tenure rights are a growing issue as environmental, aboriginal and local communities increase their say on development activities. Tax and royalty regimes are also changing, with many governments looking to extract larger rents from miners to reduce deficits and pay for the environmental and social costs associated with the industry. Well-designed governance is key to managing this evolving regulatory burden. Implementing processes and controls while understanding prevailing legislation and tax across different jurisdictions will ensure you are minimizing risk and maximizing opportunity.
About Grant Thornton LLP in Canada
Grant Thornton LLP is a leading Canadian accounting and advisory firm providing audit, tax and advisory services to private and public organizations. We help dynamic organizations unlock their potential for growth by providing meaningful, actionable advice through a broad range of services. Together with the Quebec firm Raymond Chabot Grant Thornton LLP, Grant Thornton in Canada has approximately 4,000 people in offices across Canada. Grant Thornton LLP is a Canadian member of Grant Thornton International Ltd, whose member firms operate in close to 100 countries worldwide.