THE Philippine mining sector is “greatly impacted” by geopolitical uncertainty, among other top risks, according to the Mining and Minerals Industry Sector Leader of SGV.
“Among the top 10 risks and opportunities identified in the report, the mining sector in the Philippines is greatly impacted by geopolitical uncertainty, maintaining a license to operate due to anti-mining sentiments, and rising costs and productivity challenges,” Eleanor A. Layug, SGV Mining and Minerals Industry Sector Leader, said in a statement on Friday.
“On the other hand, the increasing focus on environmental, social and governance, the disruption brought about by digital transformation, and the advent of new business models provide mining players the opportunity to future-proof their businesses,” Layug added.
For his part, Paul Mitchell, EY Global Mining & Metals leader, said, “Managing ESG risk is becoming more complex. Miners who get it right can get an edge on competitors in many ways—from accessing capital, to securing a license to operate, attracting talent, and mitigating climate risk.”
According to the report released by Ernst & Young Global Limited, on the Top 10 business risks and opportunities for mining and metals in 2023, geopolitics climbed two notches in 2022 to second rank from fourth, heading into an “uncertain” 2023.
The report noted that “The war in Ukraine has had an impact on the trade of minerals and metals, while increasing competition between China and the US, and newly elected governments in key mining markets, are affecting the long-term plans of miners.”
Hence, the report recommended that as miners consider strategic decisions, “they should assess the implications of several geopolitical trends.”
In fact, the EY business risks and opportunities survey 2023 showed that 72 percent of the respondents believe the current geopolitical uncertainty will result in a rise in resource nationalism (in the form of taxes and royalties; nationalization; mandated beneficiation) while 64 percent said the uncertainty will lead to rising operating costs.
Meanwhile, environmental, social and governance (ESG) remains the number one risk and opportunity in mining and metals, according to the survey respondents.
The survey shows that 76 percent of the respondents cited water management as their top ESG risk. This was followed by decarbonization, which 57 percent of the respondents agreed to.
“Access to clean water is a human right. We need to allow local communities access to clean water and make sure that we don’t contaminate the water sources around our operations,” one mining leader noted, according to the report.
Another risk that impacts the country’s mining sector is maintaining a license to operate (LTO), which dipped from third rank in 2022 to fourth, heading into 2023.
The report noted that obtaining and maintaining an LTO is an “increasingly complex” issue to navigate because miners face “new LTO expectations, including building livable communities and forging trusted relationships with Indigenous communities.”
With this, Mitchell said, “It is critical for mining companies to go beyond doing what’s merely required by law. It’s time to commit [to] furthering truth and reconciliation. Ultimately, reframing LTO as a way of creating long-term value can have a positive impact on the company’s brand.”
Meanwhile, the report noted that costs and productivity have moved to fifth spot from 10th in 2022, “as inflation affects cost of mining operations and may potentially delay growth plans.”
Under this category, the report stressed, “how governments deal with high inflation will significantly impact the sector.” This is among the impacts that will be felt by the Philippines, according to Layug.
The report also stressed that aside from energy costs, miners have been facing higher input costs, including those of tyres, explosives and sulphuric acid. Moreover, it noted that higher costs will reduce margins for metal producers and, in some cases, force capacity to be suspended. In fact, the report divulged that around 1,164kt of capacity is already suspended in Europe.
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