Deloitte - 2013 Top 10 issues mining for companies

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Deloitte Report - HERE  - Deloitte Page Here

Despite near-term tapering demand, the world remains at risk of longterm supply constraints. This danger will grow as companies halt production in the face of capital cost increases and growing shareholder demands for more immediate returns. Although companies are hesitant to invest aggressively, one thing is clear: failure to replace depleting assets will result in higher future commodity prices. Significant rewards will be available to the companies that invest today

Contents

1. Counting the costs

2. Managing demand uncertainty

3. Capital project deceleration

4. Preparing for the M&A storm

5. Governments eye the mining prize

6. Combatting corruption

7. Climbing the social ladder

8. Plugging the talent gap

9. Playing it safe

10. At the IT edge

Set an unwavering course Projects all over the world are feeling the heat associated  with rising operational and capital costs at a time when the  economics of mine projects are starting to look less attractive  as commodity prices head south. This is forcing miners  to put a much greater focus on project returns rather than  production volumes. Projects need to earn their keep and  only the highest quality projects will get the green light. Carl Hughes, Global Head – Energy & Resources on M&A In the past year, capital markets have deteriorated. Now, equity and debt  investors are largely opposed to financing development assets. For the  vast majority of mining companies, this means their best recourse for  financing is to look to Chinese, Korean, Japanese and other Asian sources  of development capital. With the majors unlikely buyers, this lack of  capital will also drive M&A activity in the developer space – already a  trend being played out in the gold sector in 2012. Exploring labour-driven acquisitions Some mining companies are engaging in  mergers specifically designed to close talent  gaps. In this regard, the benefits of a specially  trained workforce cannot be overlooked. For  example, companies that plan to shift from  surface mining to underground mining can  improve their position by acquiring an  underground miner. On Governments Whether it’s through resource nationalism, special mining  taxes or the gradual creep in taxation, governments are  looking for a larger share of mining company profits.  Combined with mounting community demands,  the difficulty in obtaining local licences, social and  environmental mandates and labour union pressures, it is  getting increasingly difficult to justify a large number of  mining projects to investors and financiers. Reuben Saayman, Queensland Mining Leader, Australia   A chart on projected investment regions. Make discoveries here and they should be more valuable. But on the other hand As the comfortable countries are mined out, mining companies need  to find new reserves in less hospitable places. This will require a much  higher level of risk assessment, planning and forecasting, taking into  account such issues as obtaining community permissions to access  local watersheds, exploring public-private partnerships to build out  infrastructure and being prepared to walk away from projects – or from  regions – where the risks patently outweigh the rewards. Tony Zoghby, Mining Leader (Assurance), South Africa Links to follow 1. Economist Intelligence Unit, September 1, 2012. “China at a glance: 2012 – 16.” Accessed at country.eiu.com/ article.aspx?articleid=1089493693&Country=China&topic=Summary&subtopic=At+a+glance on September 18, 2012 2. Morgan Stanley Australia Limited+, March 27, 2012. “Global Metals Playbook: 2012” by Peter Richardson and Joel Crane. 3. Ibid 4. Reuters, December 6, 2010. “China mulls $1.5 trillion strategic industry boost: sources,” by Benjamin Kang Lim and Simon Rabinovitch. Beijing. Accessed at www.reuters.com/article/2010/12/02/us-china-economy-investment-idUSTRE6B16U920101202 on September 19, 2012. 5. The Australian Financial Review, June 12, 2012. “China gears up for splurge on projects,” by Angus Grigg. 6. Reuters, September 13, 2012. “Australia miners slam brakes on huge pipeline of projects,” by Sonali Paul. Accessed at www.reuters.com/ article/2012/09/12/australia-mining-idUSL3E8JR08T20120912?feedType=RSS&feedName=rbssEnergyNews&utm_source= twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+reuters%2FUSenergyNews+%28News+%2F+US+%2F+Energy%29 on September 19, 2012. 7. British Geological Society, June 2012. “The Future of the Global Minerals and Metals Sector: Issues and Challenges Out to 2050,” by Andrew Bloodworth and Gus Gunn. 8. Interest.co.nz, June 26, 2012. “Lower gold production hits Australia in Q1 2012,” by David Chaston. Accessed at www.interest.co.nz/ news/59941/lower-gold-production-hits-australia-q1-2012-new-mine-opening-2013-new-zealand on September 19, 2012. 9. Reuters, June 19, 2012. “Peru mining chamber sees lower 2012 output,” by Omar Mariluz. Accessed at www.reuters.com/ article/2012/06/19/peru-mining-output-idUSL1E8HELEO20120619 on September 19, 2012. 10. Financial Times, May 6, 2012. “Mining industry braced for pullback,” by Helen Thomas, London. Accessed at www.ft.com/intl/ cms/s/0/05645a82-960e-11e1-a6a0-00144feab49a.html#axzz272LaEALf on September 20, 2012. 11. Deloitte Access Economics, July 30, 2012. “Investment Monitor: Resources sector propping up pipeline.” Accessed at www.deloitte.com/view/en_AU/au/90ed7cf95c5d8310VgnVCM2000001b56f00aRCRD.htm on September 20, 2012. 12. Mining Weekly, July 31, 2012. “Australian mining leaders cautious about big investments,” by Esmarie Swanepoel. Accessed at www.miningweekly.com/article/australian-mining-leaders-cautious-about-major-investments-2012-07-31 on September 20, 2012. 13. Deloitte Financial Advisory Services LLP, March 26, 2007. “Capital allocation: increasing your odds for placing the right bets.” Online poll of 595 executives. 14. DataStream 15. Thailand, Malaysia, Singapore, Indonesia, Philippines, Vietnam, Laos, Cambodia 16. Niger, Guinea, Burkina-Faso, Sierra Leone, Liberia, Ghana, Nigeria, Angola, Namibia, Botswana, Mozambique, DRC, Tanzania, Zambia 17. Mediabadger.com 18. The Wall Street Journal, November 16, 2011. “The $200,000-a-Year Mine Worker,” by John W. Miller. Accessed at http://online.wsj.com/article/SB10001424052970204621904577016172350869312.html on September 27, 2012 19. Ibid 20. Mining.com, April 9, 2012. “Mining investments in Chile to reach $100 billion by 2020,” by Cecilia Jamasmie. Accessed at http://www.mining.com/mining-investments-in-chile-to-reach-100-billion-by-2020/ on September 27, 2012 21. Daily Maverick, July 3, 2012. “Mining safety: The same old story,” by Khadija Patel. Accessed at http://dailymaverick.co.za/article/2012-07-03-mining-safety-the-same-old-story on September 27, 2012 22. The Epoch Times, September 25, 2012. “Chinese Coal Mine Accident Kills 20,” by Alex Johnston. Accessed at http://www.theepochtimes.com/n2/china-news/296400-296400.html on September 27, 2012 23. McKinsey & Company, January 2011. “Understanding the strategic value of IT in M&A,” by Hugo Sarrazin and Andy West. Accessed at www.mckinseyquarterly.com/Understanding_the_strategic_value_of_IT_in_MA_2709 , on September 27, 2012