Resource Nationalism tops mining/metals risks for 2011-12—E&Y

Resource nationalism has imposed greater controls on foreign investment, mandated beneficiation, and resulted in use-it-lose-it demands and other risks to global mining, says Ernst & Young.

Author: Dorothy Kosich
Posted:  Wednesday , 14 Sep 2011 

RENO, NV - 

Ernst & Young's latest mining and metals report cites resource nationalism as miners' top risk for 2011 while skills shortage, capital allocation and infrastructure access continue to dominate the business agenda.

In the past 12-18 months, 25 nations have increased or announced their intention to mining taxes or royalties, as some have invoked "use it or lost it" clauses.

Governments worldwide are looking to increase local participation in mining projects "and we think this trend will only increase," said the E&Y report, "Business risks facing mining and metals 2011-2012."

Among the many forms of recent resource nationalism are imposition of a resource rents; amendments to royalty or other tax rates; imposition of greater controls on foreign participation; institution of new mining codes; mandatory government/local participation; and preference for state-owned minerals. Surprisingly, E&Y considers a nation's decision to encourage in-country beneficiation of raw commodities before export to be a business risk although economists often advocate such developments.

Steps can be taken to respond to resource nationalism risks, according to the E&Y report. These include investing in transparent relationships with host government; aligning with the host government's long-term economic and political incentives; focusing on generating direct and sustainable benefits for the host community through social and community development programs; aligning with multi-lateral agencies to achieve a prominent victim status in the face of mounting resource nationalism; partner with state-owned enterprises; and encourage direct government participation in the project at market prices.

Skills shortage ranked as the second highest threat to mining and metals businesses. "Indeed, we believe it may become a bigger risk in both developed and developing countries as we move into 2012," said the report.

"The long term impact could mean increased costs, a reduction in productivity and difficulty in meeting contractual obligations," said E&Y's Louise Rolland.

Significant risks associated with skill shortages include project delays, safety, higher operational costs, and reduce productivity, the report warns. To ease these risks, mining companies can invest in training; tap broader talent pools beyond traditional channels, groups or age brackets to fill positions; fast-track careers; initiate programs that encourage semi-skilled and retired workers to re-enter the workforce; and substituting capital for labor.

Infrastructure access climbed from its sixth ranking in 2010 mining business risk to third among the2011-2012 risks. "The lack of available infrastructure means that production cannot get to the markets where the demand is," said the report.

"A lack of sufficient rail networks appear to be the largest global bottleneck," said E&Y. "However, if the sector is meet the expected supply challenges for the expected growth in demand from the rapidly developing economies, greater innovation is required to bring together producers, customers, infrastructure, operators, financiers and governments."

Maintaining a social license to operate was ranked as the fourth top risk to miners, "and it has been a more significant risk in the 2011-2012 top ten list," said E&Y. Among the issues which can affect a social license to operate are environmental performance, risk to reputation caused by safety incidents, and land disputes.

Capital project execution, which was not a major risk a year ago, now sits in the middle of the top ten risks for miners. A large number of new mining projects, expansions and restarts have almost simultaneously been announced this year.

"Tight management of major capital plans in today's mining and metals landscape of a scarcity of inputs has become more imperative than ever," said E&Y. "Addressing risks surrounding the construction of mining projects is also critical and many miners have seen cost escalations that have forced them to defer, cancel or suffer the costs of project delays and/or overruns."

Among the other top 10 risks highlighted in the report are price and currency volatility, capital allocation, cost management, interruptions to supply, and fraud and corruption.

Under the radar risks or those that did not make it into E&Y's top 10 for 2011/12 are access to secure and cost effective energy, access to capital, climate change, consolidation, project pipeline shrinkage, scarcity of water, increased regulations, new communication vehicles for community activism, and new technologies.

To read the full reports, go to www.ey.com/ca

Metals commodities likely to be hot and volatile for some time - INDEPENDENT VIEWPOINT | Mineweb

Metals commodities likely to be hot and volatile for some time

Programs to stimulate the economy are likely to keep commodity prices strong in the short to medium term and net longs have been increasing for the past four weeks as funds increased their bullish bets.

Posted: Tuesday , 13 Sep 2011

NEW YORK (Economic Times) -
Funds increased bullish bets on raw materials for a fourth straight week, the longest series of gains this year, on speculation that economic-stimulus programmes will lift demand for metals, grains and energy.
In the week ended September 6, speculators raised their net-long positions in 18 commodities by 0.2% to 1.28 million futures and options contracts, government data compiled by Bloomberg show. That's the highest level since June 14. Funds became bullish on copper for the first time in three weeks, and wagers on a gold rally increased for the first time since early August.

Last week, Federal Reserve chairman Ben S Bernanke said policy makers this month will discuss tools they may use to help the recovery, and president Barack Obama proposed a $447-billion plan to spur job growth. The Standard & Poor's GSCI Index of 24 commodities has surged 22% in the past year as the Fed kept US borrowing costs near zero percent and bought Treasuries in a bid to stimulate growth.

"The printing presses of various governments running overtime is likely to keep the commodity markets hot and volatile for quite some time," Philip Gotthelf, the president of Equidex Brokerage Group in Closter, New Jersey, said ....
To read full article click on Source


Mineweb.com - The world's premier mining and mining investment website Metals commodities likely to be hot and volatile for some time - INDEPENDENT VIEWPOINT | Mineweb

Eric Sprott interview-Silver is a 30 Bagger to $1,200

Eric Sprott - From Here Silver is a 30 Bagger to $1,200

“I think it’s becoming obvious to everyone that it’s the one area that you can feel safe to invest in. We are witnessing events unfolding that are suggesting to us that we are finally seeing a differentiation in the market between gold stocks and general stocks.

One of the key days was August 19th and on that day the Dow was down something like 500 or 600 points and the HUI gold index was up 4%. When you can outperform an index by 800 basis points in one day, it’s telling you that things have changed.

We all recall that in the last serious market selloff in 2008, the gold stocks got hammered. This time when the markets are weak, typically the gold stocks and gold have done well. So there have been a lot of things that have changed in the market just recently, that are telling us the market is looking at gold very, very differently than it has in the last ten years....

When asked where he sees the price of silver headed Sprott responded, “I think silver will outperform gold in the next decade. If silver should trade at a 16 to 1 ratio (to gold), it will probably trade at 10 to 1 because things tend to overshoot. Let’s use Jim Sinclair’s $12,000 target, that would suggest $1,200 silver, which is a thirty bagger from here...The biggest reason it (silver) should go there is people should fear bank deposits, that’s what I think they should fear.”

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