There are many opportunities in the natural resources market, but whilst the rewards are high so are the risks. In this article Charles Russell set out our top tips for managing those opportunities, securing the rewards and minimising the risks.
1. Get the right framework in place - assess the detail and requirements of the project - At an early stage and how to best achieve. Well mitigated, properly advised supply chain management will assist in making the process of getting the product to market as streamlined and cost effective as possible.
2. How is the project to be managed - make sure that decision making and control is set out and clearly understood. Make clear what you might need to report, when this would need to be reported, by whom it should be actioned and why.
3. Where are the risks - Are you able to identify and protect against these at the outset? It is important to assess how much uncertainty you can deal with at an early stage and how much risk allowance you need to spend.
4. Independent expertise - you need to question whether you can realistically do this project by yourself, in an environment that can be very complex both politically, economically, socially and environmentally. It may be that you need to engage experts from other sectors and locally to provide advice in areas that you are unfamiliar with.
5. Contract risk management - contracts play a large role in disputes. It is therefore crucial that you seek appropriate legal advice from a firm that has extensive expertise in the industry and also in dispute resolution. It is important to look at potential legal issues with all people in the supply chain. Therefore, all contracts need to be consistent and the right legal framework, with the host nation and contractors, needs to be clearly understood.
6. Get involved - people and governments of host countries increasingly want to assert more control over the natural resources located on their territory. This is often referred to as resource nationalism. Investing in relationships with host governments at an early stage is crucial. Becoming an invaluable part of the fabric of a host country will help to keep tensions healthy. Encouraging direct government participation and engaging in social and community development projects can assist in managing the increasing expectations of all stakeholders.
7. Understand legislation - resource nationalism is widely recognised as the main risk facing global mining companies. In such a profitable industry the expectations of the host countries governments are growing as they seek to increase their shares of mining revenue, meaning that local legislation is at risk of change. It is important you have a legal team capable of advising and assisting should any new laws come into force which may affect the way in which you carry out your business or the profitability of it.
8. Work together - working together with contractors is an effective way to minimise risk. Transferring risk to contractors incurs hefty premiums. Working with your contractor to get strategies in place to mitigate risk can lead to the contractor having more confidence to take on more responsibility.
9. Identify opportunities - careful analysis can enable you to identify opportunities which may be significantly cost effective to your project.
Although the objective is to minimise disputes, it is crucial that there is a dispute resolution mechanism in place, because even in the best regulated contracts it is unavoidable that issues may arise.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
