TORONTO--()--Today’s mining executives face many challenges beyond their control—sluggish economies, risk-averse investors, a dearth of equity financing, rising input costs, increasing regulatory burdens, labour disputes, title disputes, wavering public support and environmental concerns. Despite these challenges, though, mining executives remain optimistic about their business prospects according to Turning high risk into high potential: Grant Thornton International Mining Report 2013, which provides insights and perspectives of executives in today’s mining industry.
“The mining industry has always come with its fair share of risks, particularly for miners venturing beyond their own borders”
The Grant Thornton International Mining Report offers industry insight into the difficulties facing mining companies today and illustrates how these issues will impact mining operations in the coming year. More important, this report underscores the opportunities for mining executives to leverage creative solutions.
The research report is being released in time for the Prospectors and Developers Association of Canada annual conference, being held in Toronto from March 3-6, 2013.
“The mining industry has always come with its fair share of risks, particularly for miners venturing beyond their own borders,” says Mark Zastre, Grant Thornton LLP’s Vancouver-based global mining practice leader. “It’s a challenging time for miners, but growth can return. While there are common themes across different regions, there are also significant regional differences. At the end of the day, though, the risk-return equation will change once investors develop a renewed enthusiasm for potential high returns that few other opportunities offer. The industry hasn’t reached its peak yet.”
Some of the report’s findings:
Mining business leaders remain optimistic
More than half of mining executives surveyed around the globe (54 percent) expect pricing of their flagship asset’s commodity to increase, though projections for energy and labour costs are also on the increase. The survey found that 46 percent of junior miners will increase exploration expenditures for the coming year; only 12 percent expect a decrease. Globally, 68 percent of mining business leaders rated mining potential as good or very good—a number that jumps to 88 percent in Canada, where 34 percent of executives also expect to increase investment in plants and machinery.
The search for cash is a global issue
Perceived investment risk has meant that access to funding is the top constraint to mining growth, with 44 percent rating it a 4 or 5 on a 5-point scale. At the same time, the ability to raise capital is the top driver of growth, with 48 percent rating it a 4 or 5 out of 5. For junior miners participating in the survey, 55 percent rated access to funding a top constraint, and 56 percent said the ability to raise capital was a top driver of growth. For some junior miners (25 percent) around the world, the liquidity crunch is serious enough that they need to raise cash within three months or less, with that number rising to 31 percent in Canada.
Many mining companies say they are turning to more innovative (but limited) financing techniques, such as private equity, streaming or royalty arrangements, or sovereign wealth funds. Others are selling or spinning off earlier stage projects in order to increase their appeal to investors and maximize their prospects for securing investment.
Governance and public pressures increase
Miners around the world are experiencing increased governmental and public pressures such as tighter permitting and licensing, increased environmental controls and a growing list of regulations. Specific regional activities—such as a planned EU law requiring country-by-country reporting, or a recent SEC ruling on conflict minerals, or the response to labour unrest in South Africa—cause specific problems, but in general, 42 percent said increased government involvement and/or regulation was a constraint to growth, with the number being much higher in places like Australia (where 56 percent classified it as a top issue). In Canada, 41 percent of mining executives interviewed said disputed exploration rights were a top issue, though the percentage is significantly higher in Quebec (56 percent vs. 25 percent in the rest of Canada). Fifty-seven percent of mining executives in South Africa said that disputed exploration rights/title uncertainties are an issue—well above the global average of 44 percent.
Attitudes of mining executives towards public policy vary widely across the globe. In Canada, approximately 82 percent of executives see public policy encouragement for exploration, the highest percentage among the countries surveyed. By comparison, only 47 percent of Australian mining executives believe public policy encourages exploration and 17 percent define public policy as a “strong deterrent” to exploration.
M&A remains an option for growth
Mergers and acquisitions remain an option for junior miners in need of cash. One-quarter of mining executives (26 percent) rated acquisitions or joint ventures and partnerships as major drivers of growth. However, M&A activity can stall when there’s a dispute over valuation—something very common in the mining industry, especially now with depressed stock market valuations for many industry players.
A call to action
In order for mining companies to achieve growth, the report provides these companies with a call to action. For example, junior miners seeking financing must rigorously improve the effectiveness of their activities and expertise; better communicate their opportunities to investors and formulate reasonable valuation expectations. Companies must also take the time to build relationships with the communities in which they are working. Other suggestions include improved regulatory compliance, risk management, ethical business practices, process improvements and adoption of new technology.
The Grant Thornton international mining survey was based on responses from 389 mining executives in Australia, Canada, South Africa and the UK. The survey was conducted by Experian on behalf of Grant Thornton International in late 2012 and early 2013. To download a copy of the report, please visit http://www.grantthornton.ca/insights.
This report will be launched with a speaking event at PDAC. Media are invited to join Grant Thornton in the Metro Toronto Convention Centre, North Building, Room 202BA at 11 am on Monday, March 4. Mark Zastre, Global Mining Leader, Grant Thornton LLP is available for interviews in Toronto between March 4 and 6, 2013.
About Grant Thornton LLP
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.