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Emerging risks in the mining industry

Hydrocarbon Engineering,


This year has brought new challenges for the mining industry; a key example is what is known as winning a ‘social licence to operate’. Many jurisdictions are changing their attitudes towards mining projects, making it more complicated, lengthy and expensive to implement them. What is more, widespread social disturbances in key mining regions are potentially provoking this issue.

Land rights

Local populations have been increasingly vocal and organised in opposition to mining projects. Although such projects are welcomed in terms of job creation and wealth stimulation in the immediate vicinity, workers are becoming more demanding in terms of the rewards available to local communities.

Opposition to mining development may therefore delay the granting of any licence to operate while the various interested parties negotiate employment rights, compensation, remediation works and infrastructure. Mine operators need to be aware of the legislative environment throughout the build process as changing regulations may give local opposition a stronger voice.

In Indonesia, for example, anti-mine sentiment is at an all-time high with local communities coming into conflict with foreign-owned mining companies and local government officials playing off both sides. Uneven regulation and local unrest have posed major problems for foreign investors with major sites experiencing a month long strike last year over pay disputes.

Sustainability

As commodity prices fall, the time required to generate profit at a mine has been increasing – one mine in Mongolia is expected to take 25 years to generate its first profit. Mine operators are duty bound to investors and other stakeholders to return a profit as soon as possible and also to ensure that the choice of mine location will result in a profit at all. Mine operators need to be confident they will be able to maintain their licence for as long as it takes to see profitability.

Recent experiences in Australia have shown this can be easier said than done. Following a serious injury or death at a mine, the Australian authorities are now revoking the licence to operate until the incident is thoroughly investigated and the authorities are confident that the mine is operating safely and properly. This in itself is no surprise; however, five years ago the process of acquiring a licence took about six months to complete. In 2013, this same process is more likely to take two or three years.

Legislation is becoming clearer

According to Oxford Analytica, legislation around transparency – both in the realm of payments and in material supply chains – is pushing ahead.

It warns that increasingly focused initiatives have emerged, such as the Organisation for Economic Cooperation and Development’s (OECD) ‘Due Diligence Guidance For Responsible Supply Chains Of Minerals From Conflict-Affected and High-Risk Areas’ guidelines acting as the overarching framework for engagement.

Still, the lack of genuine co-ordination and agreement between certification and traceability initiatives – particularly between competing donors and their civil society partners – has further complicated an already nebulous mineral policy landscape. Some in the industry worry the proliferating regulation will impose a heavy compliance burden. This in turn could antagonise governments and provide commercially sensitive information to rival companies with fewer qualms, and public pressures.

Liability

The mining sector continues to have a high profile in the liability insurance market, having generated more than US$ 400 million of losses. The key drivers to this loss activity include Chilean Employers Liability claims, Australian pollution claims and a notable increase in subsidence claims that were once a grey area of coverage between property and liability insurances.

For example, Employers Liability in Australia has become an area of increased focus. In general, the business model has evolved meaning that more labour is being outsourced and therefore fewer miners are now classed as ‘employees’. Injuries are therefore less likely to be covered by the Workers Compensation Act (WCA) scheme. Whilst many claims continue to be settled under the WCA, the government is now bringing recovery actions against mining companies for negligence, resulting in a public liability claim. In the past, a civil action could not be filed by an individual who made a claim under the WCA, but the constitutional court has overturned this ruling, opening the way to litigation.

Four years into the financial crisis, directors and officers of both large and small mining corporations are increasingly facing the threat of regulatory scrutiny and litigation arising from a concerted global push by authorities keen to make the boardroom more accountable for their actions. The end result however has been a much keener interest from directors and officers in the protection available to them in the form of corporate indemnification and/or directors’ and officers’ liability insurance to ensure their businesses can be more resilient to the impacts that increasingly complex legislative controls – and wider social issues – are currently having on the mining industry.

Written by Andrew Wheeler, Mining Practice Leader, Willis

For more information, please visit Willis Mining

Read the article online at: https://www.hydrocarbonengineering.com/special-reports/11032013/emerging_risks_mining_industry_009/


 

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