
Hugh Waggett
UK Enterprise Risk Practice Leader (SVP)
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United Kingdom
Stress testing varies in meaning across different sectors. In essence, it is an assessment of a project or organization to understand the impact of volatility and, in some cases, extreme risk events.
Mining companies and their investors face unique risks and uncertainties not commonly experienced by other sectors. As well as being highly exposed to commodity prices and the economic cycle, mines are often located in remote areas with limited access for equipment and material extraction.
The benefits of performing stress testing for mining organizations can include:
Figure 1 shows how a future combination of market price shocks, flooding of mines, and loss of access routes could potentially severely diminish the projected baseline cashflow forecast and assumed production levels.
The results of this stress testing can indicate whether the business survives, needs to close, or requires some form of restructuring.
The methods, tools, and complexity of stress testing can vary. It is important that the testing provides valuable insights, and organizations should gradually build their testing capabilities and maturity. An incremental approach can contribute to a thorough understanding and effective use of results.
Acting on results
A challenging environment for mining companies can increase their vulnerability to risk, underscoring the importance of sound risk management strategies. By integrating stress testing with strategy and risk management frameworks, organizations can gain insights for planning purposes, optimize future projections, and reduce the potential impacts of adverse events. Organizations that get this right will be well-positioned to derive benefits from stress testing by building resilience against future potential scenarios.
UK Enterprise Risk Practice Leader (SVP)
United Kingdom
Global Mining Leader
United Kingdom