Resource nationalism is now the top risk for the mining industry, according to Ernst & Young’s annual report, Business Risks Facing Mining and Metals 2011-2012.
Tom Whelan, leader of Ernst & Young’s national mining and metals practice, said the growing risk isn’t from countries nationalizing their resources but from governments looking for a return through taxes and royalties.
“Just in the last four or five months, there have been over 25 countries that have announced intentions to increase their government royalties or taxes,” he said.
Examples of this activity include South Africa’s new royalty regime, Ghana’s plans to double royalties and the Australian government’s proposed minerals resource rent tax.
The trend, Whelan said, is being driven by cash-strapped governments viewing the mining industry’s recent success.
“Mining companies with strong commodity prices and record earnings the last few quarters are just an absolute target.”
In descending order, the top 10 risks the report identifies for mining for 2011-2012 are: resource nationalism, skills shortage, infrastructure access, social license to operate, capital project execution, price and currency volatility, capital allocation, cost management, interruptions to supply, and fraud and corruption.
Jenny Wagler
Twitter: JennyWagler_BIV