Analysis: Making mining work

Entrance to a coal mine with cart tracks

  • Sophisticated project management software is contributing to better project delivery
  • Failure to have the correct oversight in place is costing the industry
  • Regulatory pressures often lead to in-depth investigations

The mining industry is facing a shrinking pool of project managers but improved project management software, what impact is this having on the industry and its insurers?

Willis Towers Watson’s recently published Mining Risk Review 2018 details the slide-deck of evolving challenges facing the global industry, but also highlights repeated mistakes and oversights that miners have not fully addressed.

Distilled down to its purest form, the review provides six core messages for miners looking to safeguard their operations and develop them in a sustainable way in the months and years ahead.

WTS’s six core messages

  • Maintaining a 20th century view of managing mining risk is no longer an option and enterprise risk management must be central to mining companies’ risk cultures
  • Greater attention needs to be paid by the industry to managing project delivery
  • Investors in certain regions need to do their homework to avoid a regulatory headache
  • Geopolitical tensions are building - posing a significant threat to the industry
  • Global insurance market capacity for thermal coal risks may be under threat
  • Be prepared for a possible change in insurance market dynamics

Speaking to Post, Faruquz Zaman, head of natural resources at Zurich Commercial Insurance, expressed surprise that project delivery continued to be a bugbear for the market. “Over the last few decades there has been a lot of attention paid to all of these aspects [of project delivery],” he said. “In most cases, in order to get funding, these plans have to be put up for scrutiny to lenders and my view was that this was improving.”

Zaman questioned whether some of the issues around project delivery reflected the fact that many existing mines were depleted and that to extend their life owners were expanding operations to access new mineral deposits.

He explained: “On many of these projects they start with an open pit and once it is depleted, they start to go underground and that becomes more complicated, especially when there has already been a lot of extraction and movement in the surrounding land. It increases the level of complexity and the chance of something going wrong and is completely different to a greenfield project.”

WTW laid the blame more squarely at the feet of the mining industry’s shrinking pool of project managers. The report stated: “The use of increasingly sophisticated project management software and systems is no doubt contributing to better project delivery. However, project outcomes are still dependent on the quality and skill of experienced project managers - of whom there appears to be a shortage. So the mining industry generally would be well served by focussing on improving project management skills, with the objective of reducing the risk of late and over budget project delivery.”

It may take time to recruit, train and give experience to project managers, and IT solutions seem to offer more economical options, but failure to have the correct oversight in place is costing the industry dear and will continue to do so until the issue is addressed.

One area where miners have less control is in the fast-improving regulatory regimes throughout the world. At first glance, more restrictive operating environments might be viewed as problematic for miners, but the improved health and safety outcomes they deliver and the protection they create for the environment are unquestionably positive.

It is not only that enhanced regulatory regimes make it more difficult to secure and maintain licences to operate, but also that they take faster and firmer action in the event of a problem.

Matthew LeBrun, global director of natural resources at loss adjusting firm McLarens, commented: “Regulatory pressures often lead to in-depth investigations, even with the best work safety practices in place. This can delay the implementation of a mine’s contingency plans (an effective part of loss mitigation). Some authorities will secure control of the property, regardless of the extent of damage, until cause and responsibility have been determined.”

While such intervention may aim to pinpoint the cause of an accident, it can also lead to escalating losses by making it more difficult to immediately enact contingency plans.

Similar, LeBrun says government-backed actions around natural catastrophe can have a debilitating effect on mining operations, even where the mine has not been affected directly. He adds: “Public authorities preventing access to supplies and employees following natural disasters can have a big impact. Evacuation orders, alerts and relocation of nearby communities can severely impact production even when a mine is not directly exposed. These orders often extend to closing key supply access points such as rail and road networks.”

In addition to the tougher regulatory regimes that miners need to adapt to, they also face challenges from changing insurer appetite.

European insurers have already shown their desire to take thermal coal risks off the menu, although US carriers have not followed suit. This is likely a result of the changed domestic political landscape towards coal, and while it is enjoying short-term support in the US it is difficult to envisage that lasting into the long-term.

Paul Smith, head of engineering at Allianz Global Corporate & Specialty London, says: “It is clear that as the world evolves, green renewable energy is another way forward.  While the US have withdrawn from the Paris agreement it is difficult to see whether this is going to have a direct impact on US insurers and their appetite to underwrite coal risks.”

How quickly and in what direction US carriers move remains to be seen. However, the shift in European insurers’ appetite means miners in this sector of the market are already having to engage with a diminishing pool of carriers, putting pressure on them to present good quality risks if they want to maintain affordable and effective levels of cover.

It is also true that mining underwriters are looking more closely at risks in all areas, and that some more recent entrants into the market are reconsidering their position having been stung by losses.

Zaman concludes: “A lot of carriers came into the sector, but some of that capacity was perhaps naive or opportunist and some of the losses that have occurred over recent years have made people rethink their strategy. In the last 12 months there has definitely been some rethinking on this.”

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