Sheq and operational risks are not among the top 10 business risks in metals and mining, according to business risk managers and consultants. Protest and water access are.
Top business risks, also named financial risks, or ‘pure risks’, facing South African mining and metals industries in 2014 -2015, are listed in the Ernst & Young annual business risks report.
Most of the major risks identified in last year’s report, appear again, but one is new ot the top ten. The top mining and metals business risks are seen as:
3. Social license
4. Resource nationalism
5. Capital projects
6. Price and currency volatility
7. Infrastructure access
8. Sharing benefits
9. Balancing talent requirements
10. Access to water and energy.
Sheq risks are minor business issues
The third highest financial risk, ‘social license’, is seen as “the influence of communities to stop or slow projects… no matter how exemplary a company’s track record is with social engagement [also named corporate social investment, CSI].
“The frequency and number of projects being delayed or stopped due to community and environmental activists continues to rise.” Social support for organisations and shareholders is seen as uncertain.
Mining and metals industries “should integrate the activities required to obtain and maintain a social license, into the broader strategic plan of a more sustainable business.”
The report thus raises the expectation that CSI may become a mainstream managerial strategy, not a mere social sweetener, and potentially part of formalised industrial relations (IR) and perhaps bargaining.
(See posts on the context of the Marikana stike and policing disaster on Sheqafrica.com). In the context of social benefits, the risk named ‘sharing benefits’ may also be relevant to social license.
Social action is typically aimed at higher wages and improved social services. Industrial relations is seen to play a large role in productivity.
From general news reports, social pressure is seen to pay some lip service to workplace conditions, but not motivated by health and safety concerns.
The mining industry is generally blamed for causing silicosis and the TB epidemic, and for contributing to the HIV /AIDS pandemic. Mines have paid out large sums to litigant groups in class actions by sufferers of asbestosis and silicosis, but further civil compensation actions, and the breach of statutory compensation, are apparently not among the top ten business risks.
Skills risk among top ten
Training costs due to increased staff turnover feature among the top ten risks, under ‘balancing talent requirements’. Six years ago, talent needs (formerly named ‘skills shortage’) was the top risk, followed by industry consolidation, infrastructure access (electricity, water, roads), social license, climate, costs, pipeline shrinkage, nationalism, energy security access, and increased regulation. The latter is no longer among the top ten.
Mining business strategy aimed at productivity
The report advises mines to regain lost productivity and ‘gain new ground’ using a whole-of-business response, or a ‘broad transformation’.
It also mentions diversification, efficiencies, and innovation. Business risks themselves are seen to “have evolved greatly over the year, with prolonged commodity price dips”.
Water and energy access
Moving up into the top 10 business risks this year, is access to water and energy, due in part to rising demand, rising costs, and decreasing supply.
Access to affordable water and energy has become increasingly difficult, especially in South America and Africa. Burgeoning energy costs and competing water demands in many mining regions around the world are starting to have a bigger impact on costs and the ability to operate.
With global demand for energy expected to increase 36% by 2025, and with falling ore grades, this risk is compounding year by year, with the sector facing higher energy prices and volatility.
“Water scarcity demands a strategic and practical response”, advises the report.
• Sources; IRMSA RiskChat. Ernst & Young. Sheqafrica.com.