Ernst & Young’s ‘Lessons from Change: Restoring Growth in the Mining and Metals Industry”.

13 12 2009

An Ernst& Young report was recently released to give insights to the metals and mining industry sectors on how to best navigate an economic downturn as well as commodities boom and bust cycles. To have a greater value this report should have been published in Q1-2009, although I will give it the credit of conforming to economists’ beliefs in the best explanations being made after the fact.

The report is built on the postulate that market unpredictability is the most prominent challenge facing the metals and mining industry. E&Y finds mining’s general priorities “have morphed from boom-related production constraints to back-to-basic efficiency gains, made in part through better capital and cash flow management, and heightened risk awareness.” Basically this is what companies, with the exception of gold producers, have implemented in the past year.

In very blunt terms here are some elements of E&Y’s recipe for success.

• Reduce debt and design capital structure flexibility
• Create sustainable cost reduction
• Create sustained access to capital
• Divest while buyers are active
• Manage their cash and working capital at all parts of the cycle
• Add value through diversification
• Stress-test risk management
• Increase company flexibility to reduce pressures on stakeholders
• Build in flexibility of core and maintenance
• Retain hard-to-hire skills

This is a good dose of common sense. Sometimes one wonders what good are consultants…

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