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How should the mining and metals sector bear the impending economic downturn?
A BigLaw firm has released a report exploring the resilience of the mining and metals sector considering the global economic downturn.
Jess Feyder
Russia’s invasion of Ukraine resulted in an unprecedented rise in mineral and metal prices earlier this year, with multiple metals breaking historical records.
With the mining sector so vital to Australia’s overall economic health, no country is more aware of the fluctuations, opportunities, and potential economic risks than Australia.
Global law firm White & Case has explored key trends in the sector in its report Mining & Metals 2022: Putting the resilience rhetoric to the test.
The report examines whether the mining and metals sector is prepared for a global downturn and whether there is an opportunity to distinguish the sector from the dominant oil and gas sector.
The report covers the issues of decarbonising the Australian economy, the future of critical mineral supply and production, and how mining and metal companies might respond to environmental, social and governance (ESG) trends.
It also covers opportunities in mergers and acquisitions and capital raising that often arise in downtowns, along with how to manage the impending increases in financial crime.
The report noted some key findings. Firstly, the softening of commodity prices, along with economic headwinds, may deter miners and metal companies from deploying the significant capital expenditure required to decarbonise the economy.
Secondly, it emphasised the importance of a steady supply of minerals as a critical component to ensuring the energy transition through the expected recession.
Twenty-four per cent of 63 senior decision-makers said ESG was the chief risk for mining and metals; in light of this, the report recommended that boards should consider how to build on existing ESG frameworks to ensure they are futureproofed for and resilient against tomorrow’s economic realities.
It was also noted that participants in the mining and metals supply chain will see many challenges and opportunities in playing both offence and defence in an economic downturn through capital raising and mergers and acquisitions.
Mining and metals companies can take advantage of low prices in the leveraged finance markets to manage their liabilities amid the expected recession, the report suggested.
The mining and metals sector faces a number of industry-specific risks, the report said; it will need to react to the likely surge in enforcement activity due to the increase in financial crime often accompanying a downturn.
