TORONTO--(BUSINESS WIRE)--The mining industry is not for the faint of heart— risk is part of doing business. But some risks are greater than others. How do you navigate the ever evolving economic landscape while mitigating your risk?
To mark the close of another successful PDAC convention, Mark Zastre, National Mining Leader at Grant Thornton LLP and Global Mining Leader at Grant Thornton International, suggests mining companies focus on these five things in order to navigate the tough environment—and thrive.
1. Managing rising costs
Exploration and production are
being pushed into increasingly remote regions as miners work in
previously untapped areas. This trend increases both risk and costs in
areas such as transport, labour and machinery and, combined with rising
fuel prices and a heavier regulatory burden, means miners are facing
shrinking margins. Improving productivity and exploring outsourcing
opportunities to run non-core activities as efficiently as possible will
allow you to improve your profitability.
2. Preventing corruption
The Corruption of Foreign Public
Officials Act (CFPOA) has been on the books in Canada since 1999. Since
2011, the RCMP has been cracking down on Canadian companies (over 35
under investigation) engaging in corrupt behaviour involving foreign
public officials. Simple awareness is no longer enough. Ignorance could
be disastrous. If you’re aware of the CFPOA, make sure you understand it
and have internal policies and procedures in place for obeying and
enforcing it. If you don’t know about it, educate your company
immediately and take the actions necessary to safeguard your
international operations.
3. Changing financing options
The traditional routes to
finance for miners are being squeezed by risk averse credit markets and
the increased market scrutiny of major exploration and production
activity. Business leaders need to be increasingly creative and
open-minded when it comes to sourcing funding, and need to consider
venture capital and other alternative financiers (such as streaming and
royalty companies and/or private equity). Other options include the sale
of non-core assets and capital market transactions.
4. Understand your risk appetite
In January 2012, the
Committee of Sponsoring Organizations of the Treadway Commission (COSO)
issued a new thought leadership paper, Enterprise Risk
Management—Understanding and Communicating Risk Appetite. It
provides organizations with additional guidance on how to develop, and
communicate, a shared vision of the amount of risk they’re willing to
accept as they work toward achieving their objectives.
Understanding and embracing your risk appetite can be broken down into three steps:
- Develop: Your risk appetite will be unique to your organization. The key is to make a defined choice, rather than let it evolve into a level that may far exceed what you’re actually willing to accept.
- Communicate: Once you’ve decided on your risk appetite, it needs to be communicated to everyone. This communication should include whether that appetite differs for different categories of risk
- Monitor: The key thing is to make risk appetite a living, breathing part of the culture of your organization.
5. Shifting regulatory sands
As the boundaries of
exploration expand, miners have to manage a much wider range of
government policy, legislation and relationships to create a local
legitimacy to operate. Many jurisdictions have increased their focus on
bribery and corruption, with higher sanctions for those found to be in
breach. Additionally, securing land title and obtaining required tenure
rights are a growing issue as environmental, aboriginal and local
communities increase their say on development activities. Tax and
royalty regimes are also changing, with many governments looking to
extract larger rents from miners to reduce deficits and pay for the
environmental and social costs associated with the industry.
Well-designed governance is key to managing this evolving regulatory
burden. Implementing processes and controls while understanding
prevailing legislation and tax across different jurisdictions will
ensure you are minimizing risk and maximizing opportunity.
About Grant Thornton LLP in Canada
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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,
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has approximately 4,000 people in offices across Canada. Grant Thornton
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