MiningSee 9 September, 2018

Mapping Miners’ Exposure To Political And Regulatory Risks

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As political and regulatory risks remain among the greatest risks faced by miners in 2018 and beyond, we graphically map the exposure of industry and country risks of the global coal, copper, iron ore and gold mining sectors. We also pick four large diversified miners and analyse their risk profiles based on their earnings from each country.

The global gold market will continue to reap benefits from having the lowest risk profile and greatest geographical diversification, whereas the thermal coal market will remain more vulnerable to political and regulatory risk.

Among the four diversified miners we analysed, BHP’s has the least exposure to what we see as risky countries while Freeport’s earnings will continue to suffer from significant regulatory hurdles.

Political and regulatory risks will remain among the greatest risks faced by miners in 2018 and beyond. Despite the return to good performance and profits since the 2016 financial year, miners remain wary of the amount of risks in their portfolios, while at the same time striving to reduce debt, embracing technology to reduce costs, and exploring innovative ways of working in pursuit of greater efficiency and productivity to remain ahead of the race.

The regulatory space in the mining industry is ever-changing, with more governments looking to demand greater returns from the natural resources sectors in their jurisdictions. Additionally, mining companies often operate in developing countries subject to shifting political environments. Developed markets – mostly well-established and stable democratic systems – also often witness political transitions with elections, but mining regulations are usually more stable there.

In this article, we graphically map risks in the global coal, copper, iron ore and gold mining sectors, using risk scores (an average of our proprietary Mining Industry Risk score and of our Country Risk scores) from our Mining Risk/Reward Index and our 2018 production estimates of the top-ten producing countries for each commodity. Mining industry risks include regulatory risks, government intervention risks and vulnerability to commodity prices. Country risks include long and short-term economic and political risks as well as operational risks. We also pick four large diversified miners, namely Rio Tinto, BHP Billiton, Anglo-American and Freeport-McMoRan, and analyse their risk profiles based on their earnings from each country.

Source: fitchsolutions