The demand for natural resources sourced in the mining industry is growing as the world’s population continues to grow.
This means that operators in the mining industry are doing a tough balancing act with the ever-increasing demand for raw materials against the limitations of Earth’s finite resources while navigating challenges such as geopolitical risk, commodity price fluctuations, and societal pressure for greener solutions, all of which are the makings of a very complex operating environment.
Presenting on the back of the Invest Africa Mining Series, Paul Pryor, Aon Global Mining Practice Leader, pointed out that while the face of mining is changing, there is no denying the prominent role that the mining industry plays in many countries, such as South Africa, which is ranked as the sixth largest mining producer in the world. With a total revenue of R654 billion in 2023, the South African mining industry contributes around 8% of South Africa’s GDP and employs around half a million people in the country.
“The natural resources industry is facing a complex, volatile, and constantly shifting range of challenges. In Aon’s latest Global Risk Management Survey, it was found that the most pivotal risks concerning the industry today are: business interruption, regulatory or legislative changes, and commodity price risk or scarcity of materials, ranked as the top three. These highly interconnected challenges are the same top three noted in our 2021 survey, highlighting the persistence and seriousness of these risks for the industry,” explains Paul.
Survey results found that 51.3 % of organisations that participated in the survey suffered losses due to business interruption, while regulatory or legislative changes caused losses for 42.5% of respondents. Commodity Price Risk or scarcity of materials caused losses for a staggering 57.1 % of respondents, with property damage hot on its heels at 56.7% of respondents.
“Business interruption is at the top of the list and remains an ever-present concern, made worse by inflation across the globe, which has pushed up asset values. It is also driven by interconnected factors such as weather and natural disasters, supply chain failures, and climate change. From a South African perspective, the ongoing Transnet crisis is causing major cargo disruptions at ports and customs that are coupled with an erratic power supply and the prospect of an election year, all of which are adding to the business interruption woes of the mining industry,” says Paul.
“Supply chain or distribution failure plays a pivotal role in the business interruption space, and while it does not feature in the natural resources industry-specific top ten, it is ranked number four on South Africa’s top risks. It extends well beyond keeping production moving or suppliers’ manufacturing facilities intact. In the short term, supply chain or distribution failure could cause the company not to meet its quarterly target, which could lead to liquidity and solvency issues in the long term.
“The risk also ties into the financial solvency of critical suppliers, the ESG performance of a supply chain, and the increased intellectual property and cyber exposure triggered by shared supplier systems and processes. The mining industry has a complex and interwoven supply chain, which means there are many possible points of failure,” Paul explains.
“The prevalence of environmental and climate-related risks in the industry-specific top ten comes as no surprise, considering the increased focus on natural resources industries to demonstrate good corporate citizenship and dedication to supporting the push for decarbonisation. And while this may be a global directive, it requires massive investment in new technologies and new resources, both from a public and private industry perspective. The road to decarbonisation, specifically in the mining industry, will be an expensive and time-consuming undertaking for a carbon-intensive business where the needs and livelihood of its workforce need to be taken into consideration,” says Paul.
“Weather or natural disaster sand climate change significantly threaten mining organisations. While survey respondents put them in the top 10 risks at number 8 and number 9, respectively, the risks may warrant being higher on the list. Storms, cyclones, wildfires, and other events can disrupt operations, as mining assets are often in areas highly exposed to natural catastrophes. Such events commonly damage infrastructure and lead to resource shortages, necessitating strategic preparedness to mitigate and recover. Other risks that we would expect to be higher in the ranking as the sector continues to leverage technology to shift toward cleaner, more efficient, and sustainable operations include workforce shortages, failure to attract or retain top talent, and cyber-attacks and data breaches,” adds Paul.
In the mining sector, vigilance towards future risks is crucial for informed decision-making and strategic planning. Anticipating geopolitical shifts, regulatory changes, and technological advancements allows companies to navigate challenges, minimise disruptions, and capitalise on emerging opportunities. This proactive approach ensures adaptability, sustainability, and responsible development, safeguarding the industry’s interests in the long term.
The top five future natural resources industry risks identified in Aon’s Global Risk Management Survey include:
In the ever-evolving landscape of the mining industry, proactive risk management is crucial. Leaders must continually adapt strategies to address emerging risks, with both resilience and significant value at stake.
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