Global mining industry faces unprecedented threats: report

Resource nationalism, poor infrastructure that hinders development and supply chain disruptions are some of the biggest risks the global mining sector will have to face in the months to come, shows a study published Tuesday.

According to this year’s Mining Market Review, from global insurance broker Willis Group Holdings (NYSE: WSH), global economic uncertainty combined with political upheaval has generated a volatile environment in which demand for metals, natural resources and commodities has ebbed and flowed considerably, according to the report.

Despite these challenges, says the report, insurers in the mining sector have been tightening their pricing, capacity and coverage following a period of poor underwriting results.

The group calls on insurers to be more flexible and innovative in continuing to provide solutions that take into account the changing environment and urges mining companies to review their risks more frequently.

The publication also lists other risks, such as skyrocketing costs, challenges in emerging markets, skills shortages and the threat of losing a social licence to operate.

“Resource nationalism and business interruption as a consequence of strikes probably represented two of the biggest risks facing mining companies in 2012,” said Willis’ Mining practice specialist, Andrew Wheeler.

The trend is set to continue this year, he adds.

“One way in which foreign investors may mitigate the risk of resource nationalism is building relations with the host state by adopting a sound corporate social responsibility strategy, such as healthcare initiatives, building schools and other community projects,” Wheeler says.

The report warns that mining companies are also facing increasing challenges when it comes to obtain a social licence to operate, trend that is expected to escalate through 2013 and beyond.

Canadian miners, in particular, should become familiar with the potential impacts of natural disasters, such as Hurricane Sandy, says the firm.

“[Natural disasters] can cause significant business disruption and also impacts on the availability of insurance capacity and coverage. Securing a competitive price for flood, earthquake, and windstorm risks in catastrophe exposed parts of Canada can be a challenge,” says Roger Cervo, Mining Practice Leader for Willis Canada.

He adds that with thorough risk engineering and loss prevention measures it is possible to obtain catastrophe cover at a sustainable rate.

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