Mining companies are being urged to review their risks more frequently and dynamically as resource nationalism, poor infrastructure and supply chain disruptions challenge the sector
The Willis publication Mining Risk Review 2014 warns that mining companies looking to cut costs to lay the foundation for long-term business growth should not be tempted to cut back on risk-management outlays to achieve cost reductions.
Senior advocate partner in Willis’s mining practice Andrew Wheeler said that such moves could be fundamentally self-defeating as the costs saved might only be marginal while leaving potentially enormous exposures.
Wheeler said that most mining operations had highly developed risk registers and risk-management systems, but on checking in the field there was often a disconnect between what is planned and what is really happening.
“There is often a poor understanding of risk controls in the workplace, poor implementation and a lack of robust reviews and audit systems to ensure the controls are working,” he said.
“Successful companies manage their business processes to reduce loss, [and] good levels of control and business-continuity planning can help ensure that large loss events are reduced as far as possible.
“It is this level of commitment to strong risk-management processes that define resilient mining operations.”
Wheeler said that strong and consistent leadership was also critical to the success of any operation. “Management sends a strong message when senior people take time out to visit the field operations, engage with people on the job and challenge people to do better,” he said.
Mining Risk Review 2014 also indicates that risk analytics are playing an increasingly valuable role in the mining sector.
“For bigger mining companies especially, risk analytics are also becoming an essential strategic resource and in many cases, a corporate governance necessity,” the report states.
“As more and more companies adopt this approach so the body of risk data and quality of advice is developing and improving to the benefit of the industry.”
Another interesting observation from the review is that Asia is expected to contribute more than half of the global premium growth over the coming decade.
“As reported by the International Union of Marine Insurance, around $5.3bn – or one-third of global cargo transit premiums for 2011 – were insured in the Asia-Pacific region,” the report states.
“There is an abundance of capacity for Asian cargo business in the region, which can offer up $1bn in capacity and a strong appetite for commodity, project cargo and DSU [marine delay in start-up insurance] business as well.”
Executive director of marine international trade and logistics at Willis Ian Pettican said that, generally speaking, cargo rates were still being cut.
“[However], margins are getting thinner and insurers are being a bit more selective about where reductions are offered,” he said.