Opportunities & Risks in Mining Sector

Finding new opportunities in the global junior mining sector can be more art than science. It’s a daunting process, even for those with many years in the mining industry. Managing risk is a key part of the equation.

Opportunities Risks in Mining Sector

Richard Warke, a mining industry executive with more than 25 years of experience, says projects must be in mining-friendly jurisdictions that are also politically stable. “They have to stand up to severe technical due diligence, have significant upside potential and demonstrate the ability to be a low-cost producer,” Warke adds.

“Secondly, like any business you cannot succeed unless you have a first class dedicated management team,” adds Warke. “People who know their craft and are not afraid to work together for a common cause. There is no doubt that any successes I have had would not have been possible without a full team effort.”

Luke Burgess of investment firm Energy & Capital, says management is particularly important in the junior mining sector because most companies tend to have a small number of employees, so a strong management team is critical. Burgess also explains that it’s important to find a manager with a solid track record. 

“Mineral exploration is a long, expensive, and complicated process. It can take a decade (or more) and hundreds of millions of dollars to take a single mineral property from the grassroots exploration stage to a reserve/resource-defined project. So it’s important to have someone in your corner who’s already faced all the unseen challenges,” he says. 

Burgess also points to promotion as an important aspect for a manager’s ultimate success, as it leads to financing.

Consultant KPMG conducts an annual survey of the mining industry, backed by responses from over 130 executives in Canada, Australia, Brazil and South Africa. The 2019 edition of the survey found that financing was the most-cited risk in the mining sector, followed by permitting, and community relations.

The study indicates that Canadian mining companies continue to face increasing levels of regulation and scrutiny in order to get key mining permits granted, both at home, in Canada and across the globe. With new mining projects pushing deeper into socially and environmentally sensitive areas, responsible extractive and processing methods continue to be paramount, KPMG said. “However, these can have a material impact on development and operating costs that can be challenging to absorb, especially in periods of low commodity prices.”

Meanwhile, a new generation of junior exploration companies is trying to improve the mining industry’s social licensing challenges by experimenting with profit-sharing schemes and engagement programs in an effort to make a good first impression on community members, according to Corporate Knights magazine.

In doing so, they are aiming to “de-risk” the mining industry, viewed as critical to financial success. At the same time, they are hoping that larger firms will pay a premium for access to a junior miner with a solid, pre-established relationship with the community.

Along with traditional risks such as commodity prices and access to reserves, KPMG notes new and growing threats involving cyber-attacks, access to water and energy, health and safety issues and climate change all play a critical role in the risk landscape. However, miners can help support growth and improve sustainability through the adoption of innovative technologies, improved extraction methods and increased worker productivity. This strategic response to risk can lead to opportunities to create value for forward-thinking mining companies.

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