Commodity price top risk for Australian mining leaders

27 Jul, 2022

Australian miners have nominated commodity price as the biggest risk for the year ahead, according to the latest KPMG Australia Mining Risk Report FY 2022/23 released today.

The annual survey of Australian mining leaders showed commodity risk in first place for the third year in a row with two new risks, financial risks (decarbonising the supply chain) and competition for talent at second and third place respectively.

Business impacts from decarbonisation of the value chain and concerns around attracting and retaining talent also jumped up the list. This reflects the change in focus away from the global COVID-19 pandemic which came in at number three in last year’s report.

KPMG Australia Head of Mining and Metals Nick Harridge said commodity prices are an ongoing concern for miners both in Australia and overseas.

“It’s not a surprise to see resourcing talent and skills coming into the top three risks for the first time, together with concerns around decarbonisation and ESG matters.”

Mr Harridge said the fact that environmental, community and decarbonisation risks were named as three of the top five risks this year reflected a lowering of concern around economic downturn (dropped to number ten in FY22) and global trade war (number three in FY21 and unplaced in FY22).

“The focus has shifted away from the geopolitical tensions of the past two years where the global pandemic and fears around possible fallout from a global trade war were top of mind for Australian mining leaders,” said Nick Harridge. “Interestingly, this year, three of the top five risks relate to decarbonisation and ESG concerns.”

He said that although community relations and social licence to operate had dropped from second place in FY21 to equal third place one year later in FY22, it was still a key area of management focus – particularly around workplace harassment issues.

“Social licence and environmental-focused risks, including regulatory concerns, are mainstream issues for miners across the sector. The importance of environmental risk for the sector is reflected in the fact it has jumped up one place from sixth last year to fifth this year.”

Commodity price risk held at number one in the eyes of Australian respondents, through a high price environment – one that is open to instability from rising geopolitical tensions, genuine conflict, or sector wide energy transition.

Supply chain risk continued to feature globally and in Australia, as miners and contractors become more accustomed to longer lead times from global supply chains disrupted by the pandemic and other disruptive factors.

Caron Sugars, Head of Energy and Mining Risk Advisory at KPMG Australia called out the increasing focus on regulatory and compliance concerns as key factors in risk management and mitigation for the sector.

“Impacts related to decarbonising the value chain and environmental risks including new regulations underscore the operational challenges faced by mining and metals leaders,” said Ms Sugars.

“They are operating in a heightened environment of intensifying regulatory requirements and stakeholder scrutiny particularly in the wake of COP26 last November.”

She said that both Australian and global mining leaders were looking for effective ways to manage risks such as a high carbon footprint. A majority of those surveyed (87 per cent) see technology as a key part of the decarbonisation and ESG solution. Whilst a changing regulatory landscape is creating financial risk and intensifying the focus on robust ESG data, technology is expected to be a disruptor in the next three years – named by 46 per cent – and also an opportunity.

“Mining companies are accustomed to dealing with environmental regulations and have done so for decades but now there is an evolution in the detail of reporting required by not just the communities in which miners operate but the broader society,” said Ms Sugars. “Setting and pursuing a successful ESG strategy is no longer a ‘nice to have’. It’s now a real compliance issue focused on rapid decarbonisation, safe and inclusive workplaces, and positive community impacts.”

The skills crisis being seen across Australian business is also affecting the mining sector appearing as a struggle for talent risk in third place in this year’s report (a new entry) as well as ‘access and retention of employees’ in ninth place (falling one place from FY21).

“The concern is across the spectrum – about the availability of on the ground employees, about mining leaders, and about specialist skills such as engineering and ESG skills,” she said. “Miners must maintain a social licence to operate. That means they must deliver a safe workplace, and one that actively recognises the importance of the environment and cultural heritage.”

Ms Sugars said it was positive that mining leaders were looking to further invest in safe work practices and ensure a ‘safe to work’ culture at their sites and across all operations.

Top 5 risks