TORONTO (miningweekly.com) – Capital allocation and access to capital have rocketed to the top of the business risk list for mining and metals companies globally, up from number eight in 2012, global auditing house Ernst & Young's (E&Y’s) 'Business risks facing mining and metals 2013-14' report has found.

"Capital dilemmas are at the forefront of mining and metals executives' minds. Weaker metal prices, labour unrest and cost inflation have put pressure on companies' earnings. At the same time, high levels of capital expenditure have squeezed margins and challenged the expected rates of return on growth projects,” E&Y Canadian mining and metals leader Bruce Sprague said on Thursday.

These challenges were threatening companies throughout the entire industry – both the majors' long-term growth prospects and the short-term survival of cash-strapped juniors, Sprague noted.

"Majors now face the challenge of how best to allocate capital amid a new class of yield-hungry shareholders while juniors are attempting to navigate a capital desert – caused by the pullback of investors from riskier investments – not seen in more than a decade," he explained.

Companies were already reacting to these risks by focusing on greater capital discipline, increasing transparency around capital decisions and committing to maximising returns and credit rating quality.

A pipeline of divestments is also building as companies seek to optimise their portfolios and recycle capital away from high-cost assets and into high-performing ones. Underperforming, high-cost or high-risk assets were also being marked for disposal as companies sought to remove costs and reallocate capital.

"Today's miners face the profound risk that their decisions could damage growth prospects, destroying shareholder value over the longer term. Those with a disciplined approach to capital allocation decisions and a broad knowledge of available funding options and providers – at both ends of the market – will be best positioned for success,” Sprague said.