Canadian Underwriter

What risks keep mining clients up at night?

July 20, 2020   by Greg Meckbach

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If you have clients in the mining sector, chances are their biggest concerns are how much their customers will pay for their products and how easily they can raise investment capital.

Commodity prices and access to capital placed first and second respectively among the risk concerns of Canadian mining executives recently surveyed by KPMG.

To raise money for their projects, Canadian mining companies tend to rely on “traditional” methods of raising capital through stocks and bonds, suggested Katherine Wetmore, KPMG Canada partner for energy and natural resources. Moreover, Wetmore describes the Toronto Stock Exchange as a global leader for mine financing.

The S&P/TSX Composite Index was trading at nearly 19,000 this past February before dropping below 12,000 during the third week of March, shortly after the World Health Organization declared COVID-19 a pandemic. It closed this past Friday at 15,189.

“With the current state of equity markets and the volatility we are seeing, there might be more pressure on Canadian mining companies — who are dependent on sources of funding — to find ways to fund new projects and other things,” Wetmore said in an interview this past March.

She was commenting specifically on Risks and Opportunities for Mining, a report KPMG released March 3.

That annual report is based on responses from 135 mining executives in 16 countries (including Canada) about the state of their industry — including the top risks identified by respondents.

This year, access to capital placed second with Canadian respondents and third worldwide. Commodity price risk placed first — both for Canadian and global respondents — for the second year in a row.

Community relations and social licence to operate dropped from third in 2019 to fourth in 2020. But that risk is still probably high on the radar if you have clients in the mining sector.

Mining company risk managers should ask whether their activities are consistent with the values of the surrounding community, said David Clarry, vice president of corporate social responsibility at Hudbay Minerals Inc., during the Global Mining Risk and Insurance Conference, held this past November in Toronto by the Mining Insurance and Risk Association.

If a mining firm does not have good relationships, this creates risks such as loss of social acceptance, Clarry said at the time.

Separately, Wetmore told Canadian Underwriter the main takeaway from KPMG’s Risks and Opportunities for Mining report is that many mining executives are paying more attention to “holistic measures of success,” and not just to the traditional financial metrics.

So there is a greater emphasis on environment, social and governance (ESG) factors, she suggested.

One indicator is that tailings management appeared in the list of top 10 risk concerns for the first time this year. The other new risk to hit the top 10 this year was global trade war.

Tailings are one of the waste products of mining.

So now that tailings management is now a top 10 risk among global respondents, does that mean that risk managers in the Canadian mining industry are more concerned now than in the past about tailings?

Not necessarily, Wetmore told Canadian Underwriter. “Due to recent high profile events globally, around tailings management, there has been more uncertainty around the implications for mining companies in general — not specific to Canada — but just generally around regulatory risk, reputational risk and social license to operate.”

Worldwide, the top 10 risks this year in order are:

  • Commodity price risk;
  • Permitting risk;
  • Access to capital, including liquidity;
  • Community relations and social license to operate;
  • Political instability;
  • Economic downturn/uncertainty;
  • Regulatory and compliance changes and environmental risks, including new regulations;
  • Global trade war;
  • Ability to access and replace reserves; and
  • Tailings management

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