Commodity prices create risk and opportunity: KPMG

Commodity prices have emerged as the top risk facing the Australian resources industry, according to KPMG’s Australian Mining Risk Forecast 2021-22 report.

However, the report also found that surging commodity prices have created opportunities for the Australian mining sector.

KPMG Australia head of mining Nick Harridge said the rise in demand and increasing prices for some of Australia’s key commodities had been spurred by stimulatory spending.

“We’ve seen investors seek safe havens in commodities and new demand for the raw materials necessary to drive the zero-carbon transition,” he said.

“The COVID-19 pandemic that came upon the market suddenly in the first quarter of 2020 also brought with it an opportunity to reassess traditional established practices and norms in the Australian mining sector.

“Whilst it may be surprising to see commodity price risk reclaim the top spot on the list, industry veterans will be very aware of the cost blowouts and inefficiency that can creep into systems and practices during upswings.

“The risk here is that it leaves companies vulnerable when commodity price momentum shifts direction.”

KPMG partner, and mining risk and governance lead, Caron Sugars said the COVID-19 pandemic had created a range of challenges for mining companies.

“These have included shortage of workers, ensuring wellbeing of people, supplier and liquidity risk,” she said.

Community relations emerged as the number two risk in the report as mining success is increasingly defined as not just profits.

“Maintaining a social licence to operate looms as an ever more complex problem for executives to deal with,” Sugars said.

“This is further complicated by the increased risk related to the need for diligent management of sites with cultural heritage significance and the fact that community groups, activists and investors have also joined the push for mining companies to take greater responsibility for the land and the people impacted by their operations.”

Harridge said this concern was affecting capital flows, as investors were now applying more weight to ESG matters when deciding to invest capital.

He added that overall this year’s Mining Risk Forecast finds Australian mining executives aware of the changes facing the sector, but also optimistic about the ability of their company and their industry to respond.