Article:

Planning to thrive: How the mining industry can prepare for the upswing

02 June 2015

Phillip Murdoch , Partner, Audit & Assurance |

BY MAKING CHANGES TO ADAPT TO A PROTRACTED DOWNTURN, MINING COMPANIES CAN PERFORM BETTER NOW AND POSITION THEMSELVES TO SEIZE OPPORTUNITIES WHEN TIDES TURN.

The news for many commodities in Australia’s natural resources sector hasn’t been particularly bright of late, but that doesn’t mean it’s the end of the line for these companies. In fact, enterprises should now be taking steps to not just survive the downturn, but position themselves to seize opportunities when the market turns around - and turn around it will. Significantly, organisations in the mining industry currently have more options than meet the eye. Taking advantage of these strategies could help them to perform well now and prepare for future success.

On the horizon: Understanding the supercycle

The current downturn in commodity prices is part of a supercycle that started about 20 years ago, with the end of the great recession around 1998 to 2000. Since then, the Australian economy has had about two decades of growth, with the mining boom in particular bolstered by rising demand for commodities in China and other nations. However, the correction began around 9-12 months ago, bringing a downward trend in prices that now sees some products valued at half what they were previously.

Importantly, it is a cycle, and that means eventually the prices will turn around and start to rise again. Global demand for many of these commodities will remain strong, giving the mining sector plenty of opportunities to look forward to - especially if it’s well-positioned to seize them.

Current opportunities in a global market

How can companies better prepare themselves for the upswing? It starts with making some changes now that will not only strengthen their operations for future growth, but can bring productivity and revenue benefits in the short- and medium-term as well.

The trick is recognising that we can’t know exactly how long or deep this protracted downturn will last. That makes it all the more important for enterprises to focus on ways to be more profitable and sustainable now, so they can continue operations - such as exploration - that will leave them in a stronger position 10-15 years down the road. It is likely that those mining companies that are best positioned in ten years’ time will be those who reshaped their business and took advantages of the opportunities on offer today.

“If you haven’t shaped your business for a protracted downturn by changing the way you do things and leveraging technology, you can’t grow,” said Sherif Andrawes, BDO Australia Natural Resources lead.

For instance, after cutting unnecessary costs, companies can leverage technology and make changes to how they conduct business to boost their efficiency.

“Some of the best ideas come from those on the front lines,” said Mr Andrawes. “They’re performing these tasks on a day-to-day basis and usually have a sense of how to make it work better.”

Natural resources enterprises can also speak to business advisors about additional ways to raise capital and make their companies more appealing to investors.

Finally, although the mining sector may not be seeing the results it would like at home, many of Australia’s firms have operations and business interests overseas. With the weakness of the Australian dollar and recently negotiated free trade agreements, now may be a great time to seek ways to enter foreign markets. At BDO, our business advisors work with counterparts throughout the global BDO network to attain local insights and determine the best opportunities for our clients.

From Johannesburg to Santiago to Vancouver, attaining both domestic and regional expertise can help mining companies identify ways to thrive today, to prepare for even greater success tomorrow.