Mining resilience: Proactive against catastrophic risks

With a global footprint and a heavy reliance on complex operations, mining companies must be agile and proactive in identifying and mitigating catastrophic risks that could have devastating consequences.

What are catastrophic risks?

Catastrophic risks are events or conditions that have the potential to cause significant harm to people, the environment, or the economy. In the mining industry, these risks can arise from health and safety hazards, environmental disasters, financial instability, and political influences, to name a few. Without proper management, these risks can escalate into crises with far-reaching impacts.

Protecting your assets to ensure their integrity

The integrity of mining facilities and assets is a catastrophic risk for mining companies. For example, the end-to-end lifecycle management of Tailings Storage Facilities (TSFs), which are vital structures used to store waste materials from mining operations; and plant equipment used to process raw materials, remains a critical area of concern. Inadequate maintenance, infrequent geotechnical assessments, and insufficient emergency response plans can lead to serious incidents which can harm people and result in production losses. Failures in these systems also have the potential to cause large-scale environmental disasters, representing a catastrophic risk.

Mining companies must prioritise safety systems, robust maintenance strategies, regular inspections, and responsive management protocols to prevent these failures so that workers, communities, customers, and the environment are protected.

Demands from regulators continue to grow

Non-compliance with environmental, safety, and legislative regulations represents another catastrophic risk for mining companies. As governments tighten regulations and increase enforcement, the consequences of non-compliance can be severe, ranging from costly fines to the loss of operating licenses. This is especially true in light of incoming mandatory sustainability reporting requirements, which are increasingly becoming a central focus for investors.

The cost of non-compliance can be far greater than the cost of implementing comprehensive systems to meet these obligations. Mining companies must ensure that they have the right governance structures in place to identify and manage regulatory risks effectively and proactively.

Wavering access to capital could raise financial concerns

Financial insecurity looms large for many in the sector. A lack of access to capital, combined with the financial pressures of fluctuating commodity prices can expose mining companies to significant strategic and operational risks. These risks can jeopardise and impact long-term growth prospects. Managing financial risk, ensuring sufficient liquidity, and planning for future investment are critical to the sustainability of mining operations.

Could changing political landscapes threaten your operation?

Political influences and other macro-factors can further complicate the risk landscape. Changes in policy, trade restrictions, new government administrations, unexpected tariffs and the rise of resource nationalism can disrupt operations and have long-term impacts on profitability. Mining companies must be prepared for the political realities of the countries in which they operate, and that of their customers.

Health and safety remains a key concern in mining

While health and safety has long been recognised as a catastrophic risk for mining companies, it continues to be one of the most pressing and consequential risks for the sector. The regulations and processes in place to manage health and safety hazards and set the standards of safe behaviour expected from the executive level to the miners on site remains front of mind.

A comprehensive approach to risk management

In the face of these challenges, mining companies must safeguard against catastrophic risks by going beyond traditional risk management frameworks and prioritising risk management as a cornerstone of their strategy. A forward-thinking strategy should include bottom-up and top-down risk identification, robust monitoring systems, clear emergency response protocols, and the ability to adapt to an evolving political and regulatory environment.

While there are common themes relating to the catastrophic risks that mining companies may be exposed to, every operation is unique in nature and, therefore the type, level and frequency of risk exposure will vary. However, the processes to identify, assess and determine risks and associated mitigating measures should be consistently applied. A consistent and well governed approach to risk management provides confidence in the resilience of the company and an enhanced ability to make informed decisions.

By taking a holistic, proactive approach to identifying, assessing, and mitigating catastrophic risks, companies can not only protect themselves from significant losses but also position themselves for long-term success in an increasingly volatile world.

How BDO can help

BDO’s experienced team of risk advisers can provide tailored support to help your organisation understand the applicability and significance of the emerging catastrophic risks, and guidance on the controls you have in place to manage the risks and realise opportunities.

For more information about how to shape your risk management approach around catastrophic risks, contact your local risk advisory services adviser.