International mining executives cite global economic disruptions as the
leading risk impacting their organization in 2013, according to new
research published by BDO.
The survey of 130 C-Level and senior financial executives at mining
companies in the United States (U.S.), South Africa, United Kingdom
(U.K.), Australia and Canada sought their insights on international
expansion plans and financial investment priorities.
The concern over global economic disruptions has left mining executives
with mixed feelings about their ability to access capital and credit in
2013. While 37 percent feel that 2013 will mirror 2012, 31 percent feel
their ability to access capital and credit will improve, and 32 percent
feel it will be worse. Sentiment was similar across all countries.
After ‘global economic disruption’ (44 percent), ‘environmental and
regulatory issues’ and ‘geopolitical unrest’ top the list of executives’
concerns at 18 percent each. Executives from the U.S., however, list
‘environmental and regulatory issues’ as their top concerns. This is
predictable, as the U.S. government is contemplating new environmental
and regulatory programs, parts of which have not been updated since 1872.
“While most commodity prices continue to be near record levels,
macroeconomic issues around the globe continue to impact the mining
community at large,” says Charles Dewhurst, Global National Resources
Resources industry group at BDO. “As mining companies ride the ebb
and flow of commodity prices, they should remain aware that other risks,
including the high cost of infrastructure, geopolitical unrest and
regulatory issues, challenge the profitability and long-term
sustainability of their operations.”
To grow their organizations, 40 percent of executives plan to expand
their business through further international expansion, followed by
domestic expansion (27 percent) and merger and acquisition activity (23
percent). With limited resources on their shores, the U.K. has the
largest focus on international expansion, with 71 percent looking
overseas. The U.S. deviates from the collective trend, with 25 percent
citing research and development as a preferred means to grow their
organization compared to an average of only 10 percent across all
Foreign expansion on the horizon
Collectively, 76 percent of survey mining executives currently have
international operations, with an additional 5 percent planning to
expand internationally in the next six to twelve months. Those surveyed
cite Africa (32 percent) as their primary target for expansion, followed
by North America (23 percent) and Latin America (17 percent).
Interestingly, each country notes some domestic expansion activity, yet
motivations for international development differ between countries.
For instance, South African companies are exclusively looking to expand
further into Africa in 2013, while Canadian companies (56 percent)
anticipate that North America will be a key component of expansion plans
– suggesting that an expansive geographic footprint is a challenge for
mining companies. One-third (33 percent) of all executives from the U.S.
are eyeing Latin America for future development, almost double the study
average of 17 percent.
“A company’s ability to expand internationally will be a competitive
advantage as resources become more challenging to mine around the
globe,” says Dewhurst. “Yet expansion without properly managing the
financial risk and exposure can seriously impact a company’s success. As
countries around the globe consider new tax regulations and royalty
requirements, it is critical they weigh the risk and reward of expanding
Mining executives are employing a variety of tactics to enter foreign
markets, including joint ventures with local companies (39 percent),
acquisitions in the country of interest (31 percent) and independently
establishing operations (24 percent). While their strategies for entry
into a foreign market differ, there are some commonalities. For example:
South Africa (36 percent), the U.S. (50 percent) and Australia (48
percent) prefer joint partnerships, while Canada (40 percent) and the
U.K. (44 percent) favor acquiring a company in their target region.
Other key findings from the report include:
Investments in technology are driving profitability.
board, mining executives are placing a stronger focus on the
development of internal business processes (65 percent) to drive
profitability in 2013. Though new technologies are the second most
popular strategy overall at 30 percent, U.S. executives are more
heavily focused on investments in technology, with 50 percent of
executives anticipating that it will improve their bottom line.
Private equity cited as primary financing option in 2013
those surveyed, 28 percent note private equity as a means to aid
business growth across all countries. This is a positive indicator for
the private equity market after natural resources funds experienced a
slow year in investments in 2012.
The U.S. is embracing project financing,
with 39 percent of
U.S. executives citing this as a key financing option. The results
follow a recent trend of U.S. banks, including Citigroup and Bank of
America, increasing their project financing transactions.
Demand for resources is the most important factor driving growth
for the industry
, according to 42 percent of executives surveyed.
Access to capital or credit (37 percent) and increased commodity
prices (13 percent) rounded out the top three factors for growth.
NOTE TO EDITORS
About the international BDO network
BDO refers to one or more members of BDO International Limited, which
form part of the international BDO network of independent member firms
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Service provision within the BDO network is coordinated by Brussels
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Each of BDO International Limited (the governing entity of the BDO
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partnership between BDO International Limited, Brussels Worldwide
Services BVBA and/or the member firms of the BDO network.
BDO is the brand name for the BDO network and for each of the BDO member
The combined fee income of all the BDO Member Firms, including the
members of their exclusive alliances, was $6.02 billion in 2012. The
global network provides advisory services in 138 countries, with almost
55,000 people working out of 1,204 offices worldwide
This is the initial BDO International Natural Resources Study with
emphasis on the mining industry. The research was conducted among senior
management executives representing a broad mix of companies and
geographic areas. Topic coverage was highly diverse including, but not
limited to, key drivers of growth for the global mining industry, access
to capital and credit, strategies for enhancing profitability, impact of
regulations, key targets for geographic expansion and the identification
of important threats facing the global mining industry.
This multi-country executive survey was designed and managed by Market
Measurement, Inc. in close consultation with BDO. Questionnaire content
was in the native language of each country.
The study findings are based upon attitudes, behaviors and perceptions
among 132 mining executives with similar levels of representation in the
study data across the U.S., Australia, Canada, South Africa, Russia, and
the United Kingdom. Study participants were identified through major
trade and professional associations, subscribers to industry
publications and similar sources. Additional characteristics of this
important research initiative include:
Job titles: More than one-third (35 percent) are the chairman, CEO,
president or managing director of the organization, with a similar
level of representation from CFOs/controllers/directors of finance (28
Geographic coverage: More than three-quarters (76 percent) have
Sales revenue: Almost one-half (45 percent) of the participating
companies report annual worldwide revenues in excess of $50 million.
Bliss Integrated Communication for BDO
Erin E. Burke, (212) 584-5477