PERTH (miningweekly.com) – A risk assessment for the Australian mining sector has placed commodity price risk as the major concern faced by miners, advisory firm KPMG said on Tuesday.

In its latest 'Australian Mining Risk Forecast', KPMG Australia’s newly appointed head of mining, Nick Harridge, said that the rise in demand and increasing prices of some 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.

Harridge said that while it may be surprising to see commodity price risk taking the top spot in the risk forecast, industry veterans would be aware of the cost blowouts and inefficiency that could creep into systems and practices during an upswing.

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

“Depending on where the prices go over the next 12 months, we believe operating cost risk may emerge with renewed focus and we suggest Australian miners be alert to that. In addition, we believe now is the time for mining companies to maintain rigour on updating and improving the efficiency of their operations, even though the imperative may not feel urgent. Maintaining discipline and streamlining processes today will deliver a stronger position when times change.”

Meanwhile, community relations and social licence has jumped to second place in the risk forecast, while the global pandemic has taken out the third spot, along with a global trade war risk.

The KPMG report noted that mining in this century was increasingly defined not just by profits, but by more holistic factors, putting social licence at the forefront of risks for miners in Australia.

KPMG’s partner and mining risk & governance lead, Caron Sugars said that maintaining a social licence to operate loomed as an ever-more-complex problem for executives.

“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 grater responsibility for the land and the people impacted by their operations.”

Harridge noted that this was also affecting capital flows, with investors now applying more weight to environmental, social and governance (ESG) matters when making a decision about deploying capital.

The KPMG report noted that 92% of those surveyed indicated that the ability for mining companies to achieve success in the long run was becoming increasingly dependent on their ability to define success in broader terms than financial, and to look more holistically at all stakeholder returns, including government and communities.

Some 88% of respondents also agreed that it was important for mining companies to have clear and measurable ESG statements, but 64% noted that investor ESG expectations and measures were not clearly understood or consistent across the market.

A global trade war and the global pandemic shared the third position on the risk survey.

“With global health experts warning the next pandemic is a case of ‘when’ and not ‘if’, executives understand how swiftly theory can become reality,” Sugars said.

“At the same time, the global trade war situation is arguably an even more complex scenario to grapple with. In KPMG’s Global Mining Risk Survey, it wasn’t considered a top five risk factor, but here in Australia it is looming larger.”