By Mathew Murphy
IT APPEARS it is not just Australian mining companies that are concerned about governments taking a larger slice of their profits. A report by professional services company Ernst & Young shows global companies are becoming increasingly spooked by the growing number of governments in resource-rich countries trying to top up depleted coffers with relatively resilient mining money.
The 2010 Business risks facing mining and metals report, to be released today, shows resource nationalism has jumped from ninth position to fourth in the sector's top strategic business risks. Ernst & Young garnered responses from 50 of the world's top mining houses, but completed most of the report before the release on May 2 of the Henry review and before the government's subsequent resource rent tax proposal.
As Prime Minister Julia Gillard offers to open the door for consultation with the mining industry over an increased tax take, several governments have already moved on similar proposals. South Africa's new royalty regime came into effect in March, Ghana has plans to double royalties on mining, and Sierra Leone wants to increase royalties from precious metals. Chile recently requested and received an increase in royalties to help in the country's reconstruction following February's devastating earthquake.
''The resources sector had what we have come to describe as a sharp V-shaped recovery,'' said Mike Elliott, Ernst & Young's global mining and metals leader. ''Because of that, in many places around the world where other sectors weren't faring as well, the sector became a target for governments with treasuries that had been affected during the global financial crisis.''
Mr Elliott said countries such as Venezuela had revoked mining licences as companies slowed projects during the financial crisis, while Mongolia had issued a freeze on issuing and transferring licences as it planned to introduce stricter laws on mining investment.
The biggest mover and top concern for mining companies, however, is capital allocation. ''What we have seen is that all the inputs into capital allocation decision-making have been highly volatile - prices is one, currency is another, the risk appetites that boards are having, and the mix of capital which is available,'' Mr Elliott said.
Rounding out the top five risks for global mining business were skills shortage, cost management and maintaining a social licence to operate.