How many mining companies really analyse risk?
In this podcast, Rob interviews Robert Fig who specialises in commodity risk management, and who has worked in the banking and mining industry for over thirty years gaining a deep understanding of the risks involved for companies within the mining sector.
We talk about the difference between transactional and strategic hedging and what safeguards exist around it to protect companies such as those the world saw trying to chase up the prices prior to the crash of 2008.
We also discuss and identify the major internal costs involved in setting up the infrastructure needed in order to be hedging in the first place. How do we identify these risks? What reporting systems are needed? What instruments are required, and where do we go for the required training?
KEY TAKEAWAYS
- The first major risk that mining companies seem to face is that they are producers of metal, and between the time it is mined and the time it is sold, companies are at risk of the metal’s price going down. Risk management is all about “locking in” that period of risk, so that a mining company can protect itself from a falling price.
- The second risk is that companies are often sitting upon huge inventories of metal that again can be affected by falling prices. The tactic is to often “forward-sell” these inventories so as to lock in a price and prevent risk.
- The ever-emerging market for electric cars and their batteries has seen a huge effect on the mining industry. Materials used for batteries, in particular, are of particular value at the moment and look set to stay so for a long time.
- Transactional hedging is when a buyer agrees a forward-selling price over the term of a contract with a mining company. The buyer is then protected if the price of the material goes up, and the mining company is protected in case it falls.
- Strategic hedging is locking in the price of a commodity at a slightly lower price for a fixed period, so that falling values could essentially be insured against.
- There seems to be increasing reluctance in the industry to utilise strategic hedging as a way of managing risk, which Robert believes is a mistake as it allows companies to smooth out volatility on their balance sheets.
- Risk management must adhere to strict government controls, it requires the correct software, it must follow company policies, and be performed by a rigorously trained body of staff. Risk management done correctly can be extremely advantageous to a company’s bottom line, and will lead to an increase of reputation between your company and lenders.
BEST MOMENTS
'Mining is a precarious business. Commodities go through fairly volatile periods'
'One really has to understand what happened in the lead-up to the crash of 2008’
‘We’re still seeing the consequences and fallout from investors leaving the mining industry, which I think is a serious problem’
‘Strategic hedging is not plug-and-play’
‘It’s terribly important for any company to manage risk to a very high standard'
VALUABLE RESOURCES
Dig Deep – The Mining Podcast on iTunes
The Metals Risk Team
Robert Fig - Email
ABOUT THE HOST
Rob Tyson is an established recruiter in the mining and quarrying sector and decided to produce the “Dig Deep” The Mining Podcast to provide valuable and informative content around the mining industry. He has a passion and desire to promote the industry and the podcast aims to offer the mining community an insight to peoples experiences and careers covering any mining discipline, giving the listeners helpful advice and guidance on industry topics.
Rob is the Founder and Director of Mining International Ltd, a leading global recruitment and headhunting consultancy based in the UK specialising in all areas of mining across the globe from first world to third world countries from Africa, Europe, Middle East, Asia and Australia. We source, headhunt and discover new and top talent talent through a targeted approach and search methodology and have a proven track record in sourcing and positioning exceptional candidates into our clients organisation in any mining discipline or level. Mining International provides a transparent, informative and trusted consultancy service to our candidates and clients to help them develop their careers and business goals and objectives in this ever-changing marketplace.
CONTACT METHOD
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https://www.youtube.com/channel/UC69dGPS29lmakv-D7LWJg_Q?guided_help_flow=3