ACs and boards face unprecedented disruption | KPMG | QA

ACs and boards face unprecedented disruption

ACs and boards face unprecedented disruption

The key is being prepared to act

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Audit, mining, audit committees, financial statements, digit

One of the main challenges in dealing with business disruptors of any kind is the difficulty in accurately predicting effects. In technology, disruptive innovations are often so revolutionary that nobody foresees the uses to which they will eventually be put. Blockchain’s decentralized, distributed verification mechanism, for example, has broadly transcended its original bitcoin functionality to include an array of potential business and industry applications, including in mining.

In the mining industry, digital initiatives and sector disruption have become increasingly common themes, with boards and audit committees becoming sensitized to the potential impacts of both risks and benefits. How will the organization be affected by: automation and robotics? remote operations centres? a digitally enabled workforce? advanced data analytics and predictive analytics? The World Economic Forum recently suggested that the mining industry could see “more than $320 billion of industry value over the next decade”[1] from digital transformation. Have companies started to strategize or assess risk around that?

A similar dynamic applies when considering the most radical or unexpected political shifts and their potential impacts on both the mining industry and the global economy in which it operates. Political uncertainty and its disruptive implications are ever present, but in the last year, with both Brexit and the U.S. election taking many by surprise, that level of uncertainty has escalated significantly. Boards and ACs will both have to start thinking about impending policy changes and looming risk scenarios that could affect the financial statements.

The mining industry is rife with such questions:

  • What effect will some of these policies have on the U.S. dollar?
  • What will the corresponding impact be on various commodities?
  • Will the U.S. infrastructure program drive demand for some of the base metals?
  • Will global uncertainty drive the price of gold up?
  • What are the best jurisdictions to invest in for the long run?

Basic questions then raise deeper questions, and asking them is the only way to uncover not only surface impacts, but possible hidden repercussions. Changes to the U.S. permitting regime provide an example. Some have predicted that with the coal mining moratorium being lifted, an overwhelming increase in coal mining permit requests could delay the Bureau of Land Management from processing gold and copper mining permits, thereby having a corresponding effect on hard rock miners. These questions, and more, should be subject to scenario testing to determine how you might respond to even moderately likely scenarios. And beyond potential fallout from general policy decisions, some level of risk assessment should be done around specific regulatory changes.

Mining audit committees and boards are facing challenging, transformative times, and a great deal of time is rightly spent looking for responsive solutions. There are also times, however—especially when disruptive factors such as digital innovation and political change are poised to have a range of unforeseeable effects—when you simply need to get the right questions on the table, consider the possibilities, identify potential risks and be prepared to act when the imperatives become clear.

 

 

[1] World Economic Forum. “Mining and Metals: digital transformation and the industry’s ‘new normal.’” Accessed at http://reports.weforum.org/digital-transformation/mining-and-metals-digital-transformation-and-the-industrys-new-normal/ on February 7, 2017.

© 2017 KPMG LLP, a Canada limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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