PERTH (miningweekly.com) – Cash optimisation has been flagged as the top risk facing mining and metals companies in 2016, a new report by EY has found.

In its 'Top 10 Business Risks in Mining and Metals 2016/17' report, published on Friday, EY noted that capital access and productivity risks rounded out the top three risks.

EY global mining and metals leader Miguel Zweig pointed out that mining and metals companies were prioritising cash generation and preservation in the wake of moderate global growth, dampened demand for commodities and a lower-for-longer price outlook this year.

“Maintaining strong balance sheets and facilitating long-term profitability requires companies work proactively to address sector risks. Those that do will be in the best position to pursue growth when commodity prices finally begin their upswing.”

As far as access to capital was concerned, Zweig noted that traditional forms of debt and equity were not readily available in the current mining and metals market.

The EY report noted that capital raised in the sector was down by 5% quarter-over-quarter in the second quarter of 2016 and 28% year-over-year to $60-billion. In the short term, access to capital would remained difficult, meaning that alternative sources of finance and ways of raising capital would be crucial to business growth going forward, Zweig said.

In 2015, there were 11 major streaming deals worth $4.2-billion, up from $2.2-billion two years earlier. In 2016, two streaming deals worth $940-million and $500-million were announced.

“Appetite for growth remains subdued in the mining and metals sector. However, those that are looking to do deals face the reality that capital may not be available to them. Debt markets are expected to improve more rapidly than equity markets, which remain out of reach in the medium to long term. Alternative sources of finance will be crucial this year.”

Meanwhile, productivity declined significantly during the sector boom as companies adopted a “volume-at-any-cost” mindset. This approach resulted in a singular focus on the mine and created an integration gap between the mine and production plant, maintenance and supply chain, Zweig added.

“Miners put complexity back into the business during the boom cycle and now face a substantial integration gap to solve. Productivity is undoubtedly the greatest operational challenge in the sector, but it’s also one of the biggest opportunities.

“Companies have made progress to improve labour productivity, but have hardly scratched the surface on asset productivity. The focus needs to be on building a productive, cost-effective end-to-end value chain. Adopting a process model and digital approach will be key enablers to addressing the productivity risk.”

The EY report also identified social licence to operate, transparency, switch to growth, access to energy, joint ventures, cybersecurity and innovation as the top ten issues facing the mining and metals sector.