Precious Mettle - Part 3: Smart Capital Strategy
The Value of High-Grade Mining CFOs
Our five-part blog series, Precious Mettle – The value of high-grade mining CFOs, looks at the qualities proactive mining CFOs deploy to drive greater business returns. This series shares observations from more than 75 years’ combined experience in senior mining finance roles, across multiple commodities, by Andrew Bantock, Steven Michael and Martin Nicholson of FTI Consulting’s Australian Mining Advisory Practice.
Arguably the most valuable contribution a finance leader can make to any business is arranging a smart capital structure that:
- delivers an outstanding return on equity when times are good; and
- has enough flex to protect all financial stakeholder interests when times are tough.
More easily said than done in the mining space, especially given the time required to progress from exploration to mine development and then production, in volatile commodity markets.
Leading mining CFOs develop bespoke capital solutions that respond to these challenges. In this third instalment of our Precious mettle series, we discuss some of the smart capital management strategies these finance leaders employ.
Managing Commodity Price Volatility
Effective mining CFOs understand that commodity prices are cyclical, requiring strategies which allow their business to “bank” the benefits of peaks but also allow them to ride out the troughs. A well-executed risk management strategy will enhance the bankability of a mining project, ultimately providing a more robust capital structure for the business.
The two charts below demonstrate the potential to add value to a mining project by understanding and managing the relationships between:
- commodity prices and currencies (i.e., revenue protection); and
- commodities as costs (i.e., cost protection).
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February 11, 2022
Senior Managing Director, Co-Leader of Australia Mining and Mining Services