Business Risks That Threaten the Mining Industry

There are always risks that business owners and managers have to take, and this couldn’t be more true than for those in the industry of mining. The risks are not only on the business aspect but even more so on the mining site where the life and limbs of miners are always at stake.

In the business aspect, two of the biggest issues in mining are capital allocation and access to capital. These are twin issues that are experienced by mining and metals companies worldwide. If not properly addressed, the threats can be two-fold: the long-term growth prospects of big and established miners and the short-term subsistence of junior players that have insufficient cash on hand.

Threats to Larger Miners

The huge size of a mining company doesn’t always guarantee long-term stability. In 2012, because of the decline in commodity prices at a very rapid rate, coupled with cost inflation that was out of control, along with failing ROIs (return on investment), together, these created a mismatch between the big companies’ long-term investment prospects and the new industry players that are hungry for positive yields.

How is this a threat? Well, many years of huge growth in profits, cash flows, and appreciation of capital have gotten the attention of a different group of investors in the industry. This group has its mind set on short-term investment prospects and is not very comfortable in (and therefore not too keen on) the industry’s cyclical nature of long-term investment and return.

Threats to the Junior Players

There’s not much of a difference when it comes to threats to the smaller players in the industry. The continuing sell-off (sale of assets to dispose of them, typically at a low price) in equity markets have made the junior stakeholders at the other end of the spectrum cash-starved. Those that are in the middle (advanced juniors and mid-tier players) are now caught in the middle of this industry predicament.

Amidst these issues and threats both to large mining companies and their junior counterparts, solutions are put forward by the stakeholders in their effort to stave off further risks to all the players in the industry. Meanwhile, as these risks persist, those that have a stake in the mining industry tiptoe on the edge of a house of cards that can collapse and crumble at any time.

However, despite the not-too-good prospects besetting the sector, the mining industry continues to thrive as its stakeholders regularly come together to find ways to address these major issues.

Source by Howard Joseph Smith

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