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Ernst & Young: Project execution top priority for miners in 2013

By Rob Starr, Content Manager, Big4.com

Cost competitiveness and project execution will remain the focus for global mining and metals companies going into 2013, in stark contrast to 12 months ago when fast-tracking production was still top of the agenda.

The priority for miners 12 months ago was to maximize production to capitalize on premium prices. The speed with which commodity prices softened off the back of reduced growth in demand from China and Eurozone uncertainty fuelled investor caution. This has lowered shareholders’ appetite for risk, creating a very different environment for miners to navigate coming into 2013.

Producing countries that experienced the impact of the rapid expansion and higher exchange rates are now dealing with a higher cost legacy. As a result, cost competitiveness and tighter discipline around project execution and operational effectiveness have become a key issue for miners globally.

With less capital being committed, miners needing capital for growth will be focused on recycling existing capital by divesting non-core or underperforming assets to free up capital for investment.

Ernst & Young’s Global Mining & Metals Leader, Mike Elliott, says the fundamental demand outlook for the sector remains strong and with the policy-induced soft landing in China, the picture coming into 2013 is brighter.

“However the volatility created by the global economic roller-coaster over the past 12 months, and the cost blowouts in the sector from the rapid expansion in recent years has created a very different operating environment for miners coming into 2013,” says Elliott.

“The volatility has created greater risk aversion by shareholders who have increased the pressure on mining companies to deliver committed projects more efficiently and not spend capital on new projects or investments. This creates other challenges for miners looking at how they achieve longer term growth plans – they have the cash but not shareholder permission to invest.”

 

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