License to operate continues biggest risk for miners this year: EY report

COVID-19-related disruptions have reshuffled the mining industry's perceptions of risks, with license to operate (LTO) and environmental, social and governance (ESG) issues becoming more prominent as social responsibility and broader stakeholder demands intensify, consultant and professional services network Ernst & Young said in its Global Mining and Metals Top 10 Business Risks and Opportunities 2021 report published this week.

"We believe that COVID-19 has created the opportunity for change and that we will see major structural changes and acceleration of transformational projects take place across the sector," the report said.

LTO remains the number one issue for miners, with 63% of more than 250 respondents surveyed between June 29 and Aug. 31 flagging it as a top three risk. "We expect the issue to become even more important as stakeholders broaden and develop a stronger voice," the EY report said, noting that local communities' expectations are increasing as to how miners should respect indigenous rights and native titles; that resource nationalism may be expected to rise and that pressure may build to provide ownership of assets to communities.

Some 31% of respondents told EY they foresee a U-shaped "slow and steady" mining and metals sector recovery from COVID-19; 23% see a "quick" V-shaped recovery; while 46% expect a W-shaped "up and down" recovery.

The second most-quoted risk for the mine and metals sector respondents is high-impact risks, including tailings dams accidents. This has jumped up from 5^th position in the 2020 report.

"Infrastructure is getting older and needs more investment," said Paul Mitchell, mines and metals global lead at EY, commenting on the report's results. There is a significant link between a company's ability to manage these kind of risks well and its LTO, and the pandemic has heightened stakeholder expectations around how enterprises prepare for, manage and monitor all high-impact risk exposures, according to the report.

The new global tailings dam standard launched in recent weeks has "raised the bar for the sector," according to the report. This followed a report published by the Church of England earlier this year that said a third of the world's tailings dams were at high risk of collapse, with the majority of these in Australia, Brazil, the US and Southern Africa.

Rising costs jump up on the risk list

In third place among the risks is productivity and rising costs, as commodity prices come under pressure due to disrupted supply and the impact of economic uncertainty on demand, the report said. This has risen from 10^th place last year.

EY's fourth place risk is decarbonization and the green agenda, with the mining sector seen to be accounting for 7% of the world's greenhouse gas emissions. In a recent EY investor survey, 67% of respondents said that climate-related insights or financial disclosures would play a significant or very significant role in their allocation of capital. However, the EY Global Climate Risk Disclosure Barometer reveals that, with the exception of the largest companies, the mining sector performs poorly in this area.

Geopolitics and volatility - growing risks

New risks appearing in EY's Top 10 this year are geopolitics, in 5^th place, and volatility, in 8^th place.

The geopolitical risk is focused around what miners view as the changing role of the US in the international system, EU stability and US-China relations, which may impact demand, particularly via a trend toward economic protectionism favoring domestic producers.

Volatility has risen because the pandemic has created significant near-term disruption to supply and uncertainty around demand. "While China's swift economic rebound has kept up demand for iron ore, and gold and silver retain their status as safe havens, any future disruption could see this change fast," the EY report said.