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Solutions to Mining Industry Risk Challenges

Mining companies have an impressive track record for delivering continuous improvements in safety and risk governance standards. We have no doubt that the professionalism and expertise present within the industry will ensure that any new and emerging risk challenges are dealt with in an equally determined fashion.

Insurers have recognized the approach and achievements of mining companies in identifying, mitigating and retaining their risks. Many mining companies have close and longstanding relationships with their insurers built through regular dialogue with mining company executives and visits to mining sites and processing facilities.

This document should be of value to any organization involved in this ever-evolving industry.

The very nature of mining natural resources means that many businesses will have operations in some of the most remote and inhospitable areas in the world and very often coupled with a high susceptibility to natural catastrophe.

In addition to the traditional risk factors, the mining industry now faces an even wider range of challenges. Factors such as climate change, new technologies, economic uncertainties and secure supply of key consumables like electricity, water, gas and other fuels are all difficult to predict and bring additional complications to securing appropriate balance sheet protection.

The Effect Of The Financial Crisis On Mining

As a number of mining companies were financing operational expansion on the back of debt, many have been significantly affected by the recent global financial crisis. Credit markets seized up, requiring balance sheets to be shored up to prevent a funding crisis. Drastic measures had to be taken including suspending operations, divestment of non core assets and other cost-cutting measures to protect earnings.

Less than two years later, these strategies have, broadly speaking, paid off. Operational efficiencies have increased and, as many countries demand more and more commodities (including coal, copper and iron ore) to underpin the expansion of their infrastructure, the mining industry is once again thriving with commodity prices rising.

Additionally, the ongoing rapid expansion of a middle class in China, India, other parts of Asia, Latin America and Eastern Europe, continue to fuel the voracious demand for these commodities.

Global Expansion Brings New Risks

To satisfy this demand, heavy investment has been seen in mining assets in Canada, South America, Australia, Asia and Central Europe amongst others. In addition, some mining companies are looking at ways to get to quality reserves in non-traditional locations, including Mongolia, the Democratic Republic of the Congo, Afghanistan and Mauritania.

Safety and environmental control of mining activity remain key drivers, but expectations of sustainable development require the provision of electricity, water, healthcare and education to the local communities where mining operations are based. Companies are also more exposed to Political Risks and K&R activity than had previously been the case.

The creation of new mining techniques (such as the ability to secure minerals from under ice, lakes, and inside volcanic sulphur mines) requires the development and use of advanced extractive technologies which can create additional risks.

The expanding geographical reach of mining companies brings greater exposure to host government actions – such intervention has increased substantially in recent years.

The economic crisis has led to the introduction of new taxes and royalties on mining companies. We have seen levies introduced in Chile and many parts of Africa – and proposed in Australia.

Some countries are also looking to replace lost revenue by nationalising mineral assets, which could lead to the imposition of resource rents, affect royalty rates, increase control of foreign participation, and introduce new mining codes.

Furthermore the increased demand for rare earths, particularly in the ‘green’ sector, and then the tightening of export restrictions on these by China, searches for alternative sources of supply are ongoing in Australia, Brazil, Canada, South Africa, Greenland and the US.

Many existing sources were mothballed when China undercut world prices in the 1990s and it will clearly take some time to restart production.

Environmental Responsibilities

Mining owners and operators face many significant and complex environmental risks throughout the mining cycle including groundwork, handling hazardous substances, waste disposal and control. These include risks arising from more onerous regulations on liability for environmental damage and growing pressure from shareholders to disclose environmental performance.

New regulatory structures are designed to address the potential impacts of mining activities on the environment and to ensure the local community
doesn’t become financially liable for the reclamation of abandoned sites with a risk of civil fines, penalties and sanctions being imposed on those companies who fail to satisfy the local civil authorities.

Changing Weather Patterns

In the last 12 months, natural disasters such as earthquakes and floods have had a real impact on mining companies, as have climate change and water scarcity issues. Factoring the potential effects of climate change is of particular relevance to the mining industry when undertaking environmental risk assessments (as well as integrating them within Enterprise Risk Management programs).

Human Capital

An ageing specialist workforce affects many sectors, but perhaps none more so than in mining – particularly in the developed countries where the disparity between the numbers approaching retirement and those entering industry is increasing. Growing demand for metals and minerals just adds to this challenge.

Services And Solutions

We have outlined our analysis of the risks and challenges facing Mining companies in the short to medium term.

We have put together our comprehensive response in the following two sections of our Industry Risk Challenges and Solutions Report. Our detailed analysis and our industry expertise has enabled us to propose a full range of insurance solutions, risk consulting capabilities and other service offerings which are specifically tailored to the mining industry. We believe these will be of significant benefit to mining companies.

Our Credentials

We have a deep understanding of the mining industry secured over many years of close working relationships with a large number of mining companies from single site businesses to the largest multinationals.

We have a large dedicated network of mining specialists operating all over the world who provide risk management advice, claims consultancy and transactional services on a daily basis to our mining clients.

Furthermore, we have colleagues whose professional backgrounds include accountancy, law, loss adjusting, underwriting and banking; these skills serve to reinforce the level of advice and service we can and do provide.

To deliver our services consistently around the world to our mining clients we have developed an innovative advice and service delivery framework – Marsh 3D – which provides significant benefits to our clients such as better planning and cost efficient programs.

We trust you find this Risk Analysis to be an informative document. Marsh’s Mining Practice is available to you – contact details are included at the back of this report.