Six key messages for the mining industry today
Welcome to the 2018 edition of our Mining Risk Review. The mining industry has undergone mixed fortunes during the 12 months since our last edition, and while there had been some encouraging signs that commodity prices were on the rise in the early part of the year, things certainly look a bit bleaker as we approach the final quarter of 2018. Falls in key commodity prices such as copper have recently disappointed investors; the US dollar has been strengthening significantly in recent months; concerns are mounting in respect of inflation and higher raw material costs; and the industry continues to face hostility from environmentalists and different communities around the world.
So while capital expenditure in the industry is on the rise, there’s no doubt that managing mining industry risk remains as challenging as ever.
So what is our message to the industry, as it battles against the impact of public opinion, natural catastrophes and the unknowns of new technology and rising geopolitical tensions? Within this Review, as well as covering a range of different topics which we think will be of interest, we have sought to build most of our content around six key messages that we think are critical in ensuring that the industry remains on track. These are:
1. Maintaining a 20th century view of managing mining risk is no longer an option. Ioannis Michos from our Strategic Risk Consulting team outlines a modern way in which mining companies can successfully integrate Enterprise Risk Management into the risk culture of a mining company – at a time when regulatory frameworks around the world are beginning to insist that companies demonstrate such processes are adopted within their own organisations.
2. Greater attention needs to be paid by the industry to managing project delivery. Our specialist mining engineer Don Hunter highlights six pitfalls that mining companies can often encounter which result in project overruns and delays – and how to avoid them, thereby making a significant contribution to a mining company’s bottom line.
3. Investors in certain regions need to do their homework to avoid a regulatory headache. Nowhere is this more apparent than in Latin America, an exciting region for mining investment but one where compliance with government legislation and obtaining and keeping a Social Licence to Operate often remains challenging. Our Latin America mining leader Tom Holliday explains more within the Review.
4. Geopolitical tensions are building - posing a significant threat to the industry. As this Review went to press, copper miners in Chile were out on strike; the threat of an all-out global trade war was very much in prospect, threatening the supply chains of miners throughout the world; while the eventual impact of the Trump administration on the US coal industry continued to remain unclear. Fred Smith IV, our US mining leader, takes another look at the US coal industry in light of recent developments.
5. Global insurance market capacity for thermal coal risks may be under threat. There seems little doubt that the European-led withdrawal from the thermal coal industry is not some flash in the pan. Finding alternative sources of risk transfer capacity is likely to become increasingly challenging in the months and years ahead – especially if North American insurers begin to follow the European lead.
6. Be prepared for a possible change in insurance market dynamics. Recent natural catastrophe losses, coupled with moves from Lloyd’s of London to eliminate unprofitable portfolios, may mean that London–based Direct and Fac (D&F) market capacity may not be available to the same degree than in the past. While the last few months have seen only a modest correction in the rating levels for most mining companies, should the D&F market become more restricted miners may have to look to alternative strategic risk partners in the market if they want to avoid any future volatility in mining insurance market pricing.
Meanwhile we can only echo and applaud a plea within our Review from Brett Forrest of South 32 for greater transparency between buyers, brokers and insurers. Everything in our experience suggests that everyone in the process gains when insurers are brought into the fold as strategic risk partners rather than being regarded as simply transactional providers of insurance.
We hope you enjoy this year’s Review and as ever we would welcome your feedback on any issue arising from it.
Graham Knight is Head of Downstream Natural Resources and Head of Risk Management & Engineering, P&C, Willis Towers Watson in London.
Andrew Wheeler is a mining specialist and Client Relationship Director at Willis Towers Watson in London.
