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Navigating shifting threats and emerging trends

The mining industry faces numerous challenges, including climate change, technological advancements, political instability, economic volatility, and uncertainties in securing key resources like energy and fuels. These factors pose significant risks and make planning for balance sheet protection complex.
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By Spiros Fatouros , 

Chief Executive Officer, Marsh McLennan, Africa

16/04/2024 · 5 minute read

Africa is emerging as a prime target for mining developments due to its abundant commodities, including copper, lithium, rhodium, platinum, cobalt, and palladium. Effective risk management is crucial as Africa possesses over 50% of the global production of these metals and minerals and holds the world's highest-grade mid-sized gold reserves.

The mining industry faces numerous challenges, including climate change, technological advancements, political instability, economic volatility, and uncertainties in securing key resources like energy and fuels. These factors pose significant risks and make planning for balance sheet protection complex.

Investors expect operational excellence and prudent capital allocation to ensure profitability from capital-intensive mining projects. Industry leaders must proactively mitigate risks by understanding their implications and implementing appropriate safeguards.

Top Uncharted Risks in Mining

57% of mining companies cite recruitment as the primary barrier to technology adoption, particularly as the industry heavily relies on technology for cleaner operations. This dependency may aggravate workforce shortages, talent retention issues, and cyber risks.

Over the course of 2024 and beyond, the economic, business-specific and personal challenges employees face will continue to shape their well-being. Through their benefits strategies, organisations now have a unique opportunity to mitigate the effects of the first, minimise the impact of the second and lift employees up to overcome the third. Those that don’t will risk compounding enduring labour shortages by neither attracting new employees from a broader pool of talent nor offering a compelling work experience to existing employees. Organisations must balance empathy for employees’ total well-being with the economics of the business to provide better support for their employees to thrive across every part of their lives. When people thrive, societies thrive.

Price volatility and supply chain disruptions impact profitability and resource availability. The mining industry's complex and interconnected supply chain presents numerous potential failure points. Disruptions can severely impair business continuity, leading to missed targets, liquidity issues, and even insolvency. Moreover, companies must evaluate the financial health of suppliers, the sustainability of the supply chain, and the heightened risk of intellectual property theft and cyberattacks due to shared supplier systems. The industry's multifaceted supply chain amplifies these potential failure points.

Business interruption is a constant concern, exacerbated by global inflation, which has inflated the asset values of mining companies. Interconnected factors such as natural disasters, supply chain failure, and climate change also contribute to this risk. In South Africa, unreliable power supply and the upcoming election further compound business interruption challenges facing the mining sector.

Climate Catastrophes and Mining Companies' Exposure

Weather events and climate change pose major threats to mining operations. Significantly, a third of Mining CEOs perceive their companies as highly exposed to climate-related risks. Moreover, the Global Risk Report, a comprehensive analysis developed with the World Economic Forum (WEF) and Marsh McLennan, ranks extreme weather as the second most significant short-term risk and the primary long-term risk worldwide.

Mining assets are often located in geologically hazardous areas, making them vulnerable to storms, cyclones, wildfires, and other disruptions. These events frequently damage infrastructure and lead to resource shortages, highlighting the need for meticulous mitigation and recovery plans.

Unsurprisingly, environmental and climate-related risks dominate industry-specific top risks. This is driven by increasing pressure on mining companies to act responsibly and contribute to decarbonisation efforts. However, achieving this requires significant investments in emerging technologies and resources from both public and private sectors. The mining sector faces a particularly challenging and costly path toward decarbonisation due to the need to consider workforce requirements and livelihoods. 
 
Although Africa's contribution to global greenhouse gas emissions is modest, the continent is poised to experience some of the most severe impacts of climate change. To address this, Marsh assists mining companies in modelling climate change scenarios for their asset portfolio to identify assets most at risk and use this information to guide adaptation and resilience strategies. We recently, leveraged robust risk assessment outcomes for physical climate risk exposure for the world's second largest metals and mining corporation, Rio Tinto and received acknowledgement in their annual report for optimising their Climate Change & Sustainability approach, with enhanced climate resilience. The full report can be found here.

The Mining Industry Must Anticipate Political Risks

Geopolitical instability, shifting policies, and social unrest can disrupt operations and investments across Africa. Surging demand for minerals and metals, driven by emerging market growth and the transition to electrification and decarbonisation, presents opportunities, but also amplifies political risks for mining companies and investors. 
 
Political risk encompasses disruptions to business operations, assets, contracts, or investments due to political events or shifts in the international landscape. The current environment, marked by conflicts, trade disputes, climate change, and economic uncertainties, has heightened these risks, unsettling investors and disrupting supply chains. 
 
These trends have brought unprecedented political volatility to commodities markets, affecting mining companies' operations, profitability, and investment strategies. To safeguard investments and pursue new ventures, mining companies and investors must anticipate these risks and implement proactive mitigation measures.

Securing the Mining Industry's Future

As the mining industry charts its course through a rapidly evolving landscape, resilience and growth will be closely intertwined. Forward-thinking strategies and data-driven decision-making will shape the future of mining, enabling organisations to navigate volatility and uncertainty. By embracing innovation and leveraging technology, the industry can mitigate risks, optimise operations, and create a brighter and more sustainable future. The mining industry has always demonstrated remarkable resilience, and by embracing change and adopting best practices, it will continue to thrive in the years to come.

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