“Resource nationalism, poor infrastructure that impedes development and supply chain disruptions are some of the biggest risks facing the mining sector in the year ahead,” according to this year’s Mining Market Review, from global insurance broker Willis Group Holdings.
The report notes that “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, insurers in the mining sector have been tightening their pricing, capacity and coverage following a period of poor underwriting results.”
Willis called on insurers to “be more flexible and innovative in continuing to provide solutions that take into account these rapidly changing circumstances, while urging mining companies to review their risks more frequently and more dynamically.”
Other risks cited by the report include; “dramatically rising costs, the challenges posed by emerging markets, skills shortages, and the threat of losing a social license to operate.”
Andrew Wheeler, Willis’ Mining practice Leader, commented: “Resource nationalism and business interruption as a consequence of strikes probably represented two of the biggest risks facing mining companies in 2012 and this trend is set to continue for 2013. For example, in July last year the Bolivian government announced the nationalization of a silver and indium mine, Mallku Khota operated by a Canadian firm, the third major nationalization project within four months.
“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,” he added.
Wheeler also warned that mining companies are also facing more and more challenges in winning a “social license to operate.” Many jurisdictions are changing their attitudes towards mining projects, making it more complicated and expensive to secure and retain a license to operate. It is increasingly easy for local people to oppose mining projects and to force the cancellation of rights already gained. This trend is expected to escalate through 2013 and beyond.
The report also highlighted some of the challenges of operating in emerging markets, such as Africa and China, which include; political instability, poor liquidity, inadequate regulation, substandard financial reporting and large currency fluctuations.
Certain emerging economies can be a natural haven for crime, corruption, extortion and the fomentation of terrorism, warned the report. Furthermore, the location of many of these economies, combined with their lack of infrastructural and service resilience, make them particularly vulnerable to natural disasters. A good understanding of potential or current exposures as well as the appropriate risk mitigation measures is essential to success in these markets.
Source: Willis Group Holdings plc
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