Geopolitics of resources:
prospecting threats to the mining sector
Geopolitics of resources: prospecting threats to the mining sector
Introduction: new geopolitical challenges and risks
At the most fundamental level, the location of resources has been the most obvious geopolitical driver, with echoes of the rise and fall of empires continuing to impact trade partnerships, national security and development pathways. Three centuries ago, the technologies used by humanity required half a dozen metals; today we use more than 50. Furthermore, the transition to a low carbon economy will require an increase in the consumption and diversity of materials needed as well as technology that hasn’t been invented yet1 .
The sector is at the forefront of new challenges and risks that, if not managed correctly, can threaten the very viability and long-term profitability of sites and unveil new business models.”
Geopolitics high on boardroom agendas
Disruptions are emerging from more areas than aging infrastructure and extreme working environments2 . At a societal level, the outbreaks of unrest in Peru, Ecuador and Chile3 challenged the industry, and the global momentum building around inequality has made it clear that political risk events can arise suddenly in regions traditionally seen as risk-free. The unfolding COVID-19 outbreak has also highlighted the fragility of the global system to interconnected events, with business interruption happening at a scale few would have dared to imagine.4 ESG shock, populism/nationalism, US-China strategic competition and Middle East regional instability were the four most mentioned emerging issues in the survey.
COVID-19
At a macro level, a debt crisis among emerging markets is growing as developing countries face a wave of government bankruptcies, due to the global economy going into shutdown5 . Alongside this, countries around the world are at different stages in their COVID-19 cycle, which is hampering prospects for export-dependent economies and jeopardizing the prospects for income convergence between developing and advanced economies.
6 . False media should be anticipated; this will require extra mitigation and attention during such information-rich scenarios. Not managing these risks as the situation continues to unfold could impact the Social License to Operate in the future.
Dialling in on risk
7 , we introduced you to "the six lenses" used to explore these nuances and build an integrated view of risk. In an increasingly connected world, many of the geopolitical drivers of risk are interrelated, and effects often cascade beyond local geographies or individual industry sectors.
Interconnected drivers and risks can be difficult to unpick, but this is where thinking about the geopolitics perspective is useful because it gives context to the ‘who, what, where, when and whys’, and leads to asking the right questions.
Six lenses – an integrated approach to geopolitical drivers of risk The six lenses that we deploy to examine geopolitical risk fall into the following categories:
People risk. Safety and security issues can pose clear risks to employees; however, there are also risks associated with workforce management, including recruitment and retention, which must be understood and managed.Investment and return. Exposure across multiple geographic locales means geopolitical drivers of risk can be diverse. In order to protect assets and investments, this diversity of risk must be critically considered, and appropriate risk management tools deployed.Business resilience and value chain. When risks materialise as incidents and events it is crucial to have effective business continuity practices. Response and recovery plans, which have been properly tested and exercised, can limit the impact of incidents and help companies quickly resume business operations.Climate and environmental. The risks presented by climate and environmental factors, including storms and earthquakes, can be better understood with advanced analytics. By modelling environmental events and physical assets, risks to property and people can be quantified and managed.Cyber risk. Digital ecosystems and connected devices fundamentally underpin the future of the mining sector. Having a comprehensive understanding of a company’s cyber footprint is critical to managing this source of risk, including network outages and regulatory impositions.Reputational risk. Impacts on brand and reputation can affect the ability of a company to attract customers, recruit talent or even to gain an operating licence in a country. Being attuned to the relationships between geopolitical drivers and reputation helps anticipate and mitigate these risks.
Organisations need to identify and understand their geopolitical risks and the connections between them – in order to mitigate the risks and seize new opportunities, so:
When there’s a change of government on the other side of the world, the components delivered by your supply chain are less likely to be affected; or
When a pandemic and its impacts strike, your customers and suppliers can still work with you; or
When your competitors leave a geography due to civil unrest, your understanding of the situation may present you with an opportunity.
As our contribution to this Review, we wanted to set out three possibilities that bring these lenses to life, and which can be used to construct bespoke scenarios for clients. This is the approach we have taken across all our Natural Resources Reviews this year, and we would recommend looking at the reports to understand the sector specific issues and consider how these may create secondary impacts for you further up the value chain.
Storyline One - geopolitics of ESG: business resilience, climate and environment, investment and return lenses
“In the years to come, the sentiments of these generations will drive not only their decisions as employees but also as investors, with the world undergoing the largest transfer of wealth in history: $24 trillion from baby boomers to millennials”. “As wealth shifts and investing preferences change, ESG issues will be increasingly material to corporate valuations”.
Source: Blackrock – Larry Fink letter 20198
As the landscape continues to shift, the demands on firms in the wider economy to respond to ESG measures will only increase.9 In a world of potentially 9 billion people by 2030 – including 3 billion new middle-class consumers10 – the challenges of expanding resource supply to meet future demand are unprecedented but will still need to be considered through this viewpoint.
You can’t manage what you don’t measure 11 . It is also something that industry groups such as the International Council on Mining & Metals (ICMM) have been exploring with their members, with several already reporting against the Taskforce for Climate Financial Disclosure (TCFD) framework that articulates their thinking and actions to these increasingly interested stakeholders12 .TM proposition. Quantifying how possible futures will affect companies can allow them to make choices based on their risk appetite, capability and aspirations, and to use existing expertise to create new revenue streams.Pivoting expertise 13 . This is where the mining sector should be thinking about the decades of information and expertise that they have built up regarding supply chain dynamics around resource provenance and human rights, as well as what can be done with that in the face of rising interest in ESG issues. This could range from monitoring dams with SmallSat-enabled IoT sensors to creating a digital twin of a mine site to simulate COVID-19 mitigation efforts14 . Combined with growing digitalisation and work to set standards, there is deep expertise in the sector that can be pivoted to support these new challenges, and any investments in new technology or systems should ensure they are capturing holistic benefits.
Storyline Two – prospecting for resilience: people, business resilience, reputation and trust, investment and return lenses
15 , while current sites can also serve as focal points for local and international issues16 . Both instances can cause reputational harm, investor uncertainty and local security issues; furthermore, increasing digital surfaces and accessibility can also widen the field of play to activists. It is therefore vital that the state of community opinion, politics and the security situation are monitored and responded to, and that political and security risk management are integrated into company culture.
Threat assessments Experience indicates that the benefits of conflict analysis are greater when the approaches are integrated throughout the project cycle as opposed to being introduced only when conflict surfaces mid-flow. Predicting the occurrence and nature of political and social disruptions may seem impossible, but threat assessments can make use of recent examples such as the attack in Burkina Faso in November 201917 , to add context to ‘actor mapping’18 .
How closely do your security specialists collaborate with your environmental specialists, community outreach, communications staff and general management? Is your Chief Information Security Officer (CISO) involved? Could they list the dividers and connectors in their project area and how their project increases or decreases them? While this kind of analysis won’t give you all the answers, red teaming19 and scenario building with these questions in mind can give you input on the ‘who, how and where’.
Continuous situational analysis The scope of threats may be broad, and for this reason consultants may be commissioned to assist in analysis and planning. Typical areas of activity driven by continuous situational analysis may involve planning for medical emergencies, planning for political and natural disasters including evacuation, physical security at installations and a terrorist threat assessment of upstream and strategic installations. Other measures may include business diplomacy, lobbying, community liaison and the building of a dynamic network of local and regional influence and insight20 .21 . Local engagement and information will be essential to monitor and managing the evolving situation.
Addressing ESG risk As highlighted in the first scenario, we also expect institutional investors to increasingly demand that ESG risk is addressed before investing in projects in many parts of the world, and to be more active with calls for a sustainable reset22 . This therefore needs to be part of the planning process and outputs used to inform employee risk assessments. Having an onsite engagement plan with local stakeholders and an assessment of regional interests will be essential to understand land use dynamics, and tools such as virtual reality can be used to showcase your asset today and what it could be in the future23 .
Having an onsite engagement plan with local stakeholders and an assessment of regional interests will be essential to understand land use dynamics, and tools like virtual reality can be used to showcase your asset today and what it could be in the future.”
Storyline Three - digitalising geopolitics: cyber, people, reputation and trust lenses
24 .
C-Suites should wake up to new policy landscape 25 . If an embargo were to hit the mining sector, do you understand what the impact would be? As the sector looks to digitalisation to gain the benefits, understanding the capabilities of the potential players on the board is going to be critical.
Cyber-attacks 26 ). While the name might evoke the image of a cuddly pet, Refined Kitten is a hacker team that Microsoft believe to be backed by Iran, that can do things that virtually no other known hacker group can do, namely infiltrate the control systems of critical national infrastructure, including electric utilities, manufacturing and oil refineries27 .
Uncertainty around COVID-19 may provide a doorway in for any malicious actor28 . Most cyber-attacks start with a phishing email29 , and aren’t always directly aimed at your business. As was subsequently determined, NotPetya had been created by a hacker group working for Russian military intelligence, and initially targeted Ukrainian government agencies and businesses30 . Even though Maersk – one company impacted – was not the primary target, it was “collateral damage,” as its chairman, Jim Hagemann Snabe, later explained31 .
Time to get the story books out 32 Being aware of the art of the possible has never been more important for risk managers to ensure scenario planning and business continuity exercises are relevant.33 that brings cutting-edge defence and security research to its members.
Companies should learn from the innovation journeys of other sectors to think outside the box to create new value in future stranded assets.”
Conclusion – multiple perspectives to build resilience
34 , and this should be a question that all mature companies ask themselves.
What risks are on the horizon and who can speak to them or be invited in to build awareness and understanding? This is where board composition, NED selection and trusted advisors are increasingly important to encourage a holistic view that recognises and explores interconnectivity of risks and how these can be pivoted to opportunity.When designing scenarios to build resilience to these changes, mining companies should assemble multi-disciplinary, diverse teams from across the organization. This is the approach that our geopolitical team takes, and it reduces the possibility of blind spots. A classic example of the power of scenario planning is the approach pioneered by Shell. When the 1973 oil crisis hit, Shell was better prepared than its competitors because its management had already considered a comparable scenario35 .
Taking an integrated approach to geopolitical risks
Exploring positive futures 36 . As a result of this kind of thinking, innovative companies are investing in new technologies, diversifying their models and, in some cases, working with local governments to transform sites into new uses that take advantage of transport links, proximity to transmission lines. They are then using their detailed site knowledge to create renewable energy sites37 , gas capture38 , battery storage locations39 , vertical farms, housing and tourism, which in turn can reduce regional inequality that can develop into social unrest40 .
Next steps 41 allow global companies to assess the financial impact of political risk exposure that can feed into your company’s business continuity planning. However, if for example your company needs to examine its supply chain dynamics to understand the impact of the Chilean Water Directive on lithium production42 , the Willis Research Network, with its strong links to the scientific community, can help find the relevant experts.
