the local communities around the mining project. While reducing workforce size or the closure of a project will inevitab
RISK FOCUS MINING BULLETIN SEPTEMBER 2016 | ISSUE 3: COPING IN A COMMODITY DOWNTURN
Changing people risks For mining companies the safety of the workforce is paramount. Yet, as more miners operate in frontier markets, rapidly changing security environments mean there is an increasing requirement to assess people risks and provide adequate duty of care to all employees. Appropriate strategies must be put in place to mitigate these evolving risks.
NEW CHALLENGES TO WORKFORCE SAFETY
locations. Emerging market challenges
be trained, and the mining company
such as gaps in infrastructure, weak rule
will have to impart its own culture of
of law, extremities of weather, corruption
safety. The mine site may be located
The health and safety of the mining
and supply chain risks are all part and
in an area where local communities
workforce is crucial. Mining companies
parcel of operating in a frontier mining
hold particular sway, making the social
routinely publish safety numbers in their
market. With respect to workforce safety,
licence to operate an essential part of an
annual reports, and there is a clear
there are additional layers of complexity
investment. Poverty and corruption also
commitment from senior management
to consider. Mine sites will likely be
are two influencing factors; poverty can
which extends down the managerial
at some distance from high standard
correlate with higher levels of criminality,
ranks. For many miners, the concept
medical facilities, requiring complex
putting employees at risk, and corruption
of employee safety is enshrined in their
contingency plans to be in place. Local
can mean safety can be compromised if
corporate culture. Mining companies
workforces with different cultural values
an individual places financial gain above
have also always been aware of the
around health and safety will need to
following the rules.
risks of operating in the most remote
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MINING BULLETIN | Risk Focus | September 2016
These risks and challenges have been
Zambia, the Democratic Republic of
For example, job losses in South Africa
surmounted by numerous mining
Congo, Sierra Leone, Mozambique,
over the last three years have totalled
companies that have been investing in
Mali and countless others experienced
47,000 as miners trim workforce size.
emerging markets for many decades.
an economic boom as commodity
The industry employs near to half a
However, the end of the commodity
prices soared. According to the African
million South Africans and contributes
super cycle has created conditions in
Development Bank Group (AfDB), out
7% to GDP. In Zambia, mining accounts
which the risks to ‘people’ – employees
of the 54 countries in Africa, 24 rely on
for 70% of export earnings and employs
and contractors of both expatriate
mineral products to generate more than
60,000. It is expected that around 6,000
and local status – will increase. In this
75% of their export earnings.
jobs will be lost. Meanwhile the DRC
environment, mining companies need to reassess how the economic impact of low commodity prices can translate to heightened security risks for the workforce.
CHANGING RISKS IN AFRICA The mining sector in Africa is facing a challenging period of economic and political instability and insecurity. With prolonged low mineral prices, the governments in this region are financially overstretched. In Africa, countries like
As mining companies reset their strategies, the impact of their commercial decisions has major repercussions for the local communities around the mining
province of Katanga, a global supplier of copper, which contributes 21% to the country’s GDP and delivers more than 90% of exports, a job crisis looms.
project. While reducing workforce size
Fuelled by the economic downturn,
or the closure of a project will inevitably
we are likely to see a rise in social
lead to a rise in localised unemployment
discontent as unemployment in mining
The difference now is the scale of the
communities will increase significantly,
impact. It is not just single sites that are
leading to heightened risk of protests.
closing up or reducing workforce size.
There is also a greater likelihood of
This time, a country with a sizeable
strikes and workforce stoppages, as
mining sector could see a significant
mining companies struggle to meet
jump in unemployment as not just one,
demands for wage increases, in some
but almost all investors, cut back on
cases, fuelled by rising inflation. In South
employee numbers.
Africa, there is evidence to suggest that
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violent crime rates have increased in the
relative impunity. For terrorists seeking
licence renegotiation and changes to
townships around Johannesburg as gold
to raise their profile and their religious
taxation to win votes. Mining companies
mines in the area have closed over the
and political missive as well as revenue,
need to be mindful of potential risks
years. More than 600 abandoned mines
these groups will look to target locations
to their people in downtown offices
surround Johannesburg and a number
which have a heavy presence of foreign
locations during these periods.
of townships, including Khutsong and
nationals who not only attract higher
Bekkersdal have experienced a number
ransom payments but will also receive
of localised riots in the last five years. In
global media attention.
In the last 10 years, electoral
Also worth highlighting is the heightened
candidates have threatened
addition, on account of the number of refugees that have found shelter in South Africa’s townships, xenophobic tensions can quickly flare as competition for work increases, and significant numbers of job cuts in the mining sector could contribute to further violence.
risk of protest in urban centres, particularly capitals and larger cities. The economic impact of the end of
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licence renegotiation and changes to taxation to win votes
the super cycle will, for a number of countries relying heavily on mining revenue, result in greater levels of political
For mining companies, the changing
Meanwhile in the Sahel region and in
instability. Election periods can be
security environment means that
parts of East Africa, Islamic militants will
particularly unstable times, and in those
people risks need to be assessed more
continue to exploit disenchantment as a
countries where public finances have
comprehensively; while terrorist attacks
result of economic and political instability
been impacted by falling revenues, civil
at mine sites remains relatively rare,
to strengthen their operational networks
unrest can flare with little warning. Mining
random attacks in urban centres, such
across the continent and carry out more
companies may even be direct targets
as bombings or active shooter attacks on
terror attacks. The porous borders
for this unrest; electoral candidates may
hotels, transport hubs and commercial
between Burkina Faso, Mali, Niger, and
seek to galvanise populist sentiment and
centres means that personnel travelling
Nigeria in particular, enable extremist
use miners as scapegoats for broader
through the country are
groups ranging from al-Qaida in the
social-economic issues. In a number of
potentially exposed.
Islamic Maghreb (AQIM), Islamic State
African countries in the last ten years,
(IS), and Boko Haram to operate with
electoral candidates have threatened
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MINING BULLETIN | Risk Focus | September 2016
A GLOBAL CHALLENGE
damage, such as inability to farm, hunt
to protect them from anti-mining groups,
The end of the commodities super cycle
and fish. These protests will typically be
while simultaneously being seen to
led by local communities and have the
be engaging in the local community,
mining company itself at the heart of
investing in the community and taking an
the dispute. Meanwhile, perceived lack
active part in the dynamics of
of compensation is typically a criticism
local politics.
has also seen people risks change in other key mining regions. In South America, kidnapping of mining workers in countries such as Colombia and Peru used to hit the headlines, but as groups such as the FARC and Shining Path have seen their influence diminish, the risk to miners has lessened to some extent. Possibly the greatest challenge for mining companies operating in South America now is public aversion to mining on account of environmental concerns – and the resultant protests that can be triggered. Typically mining protests fall into two categories; opposition to a mine on account of a perception of a loss of rights, and opposition on account of a lack of compensation. Loss of rights can include protests around the relocation of communities and the loss of land, protests around loss of access to fresh water or clean air, and deprivation of livelihood resulting from environmental
levelled at the federal government, driven by a perception that the majority of mining revenue is being retained centrally. Both types of protest have the potential to quickly escalate and turn violent. Large protests have occurred in close proximity to mining sites in Peru in particular, leading in some cases to long project delays, and elevated risks to the workforce. Mining companies of course recognise the importance of securing a social licence to operate if they are to manage the risks to property, people and reputation as a result of these protest movements. The difficulty is that on account of the dichotomy between the two, mining companies have to take a duel approach to risk management; securing mine sites, equipment, employees and contractors
This means that risks to people, employees and contractors of both domestic and expatriate status, are highly complex. Operational safety risks remain the priority, yet security risks to personnel must be managed on a more dynamic basis, as security risks have far more scope to flex and change in a very short period of time. Finally, while kidnapping risks for mining companies in South America may have changed, kidnapping rates continue to increase across parts of Asia. The number of kidnappings in mining countries such as the Philippines and Indonesia have been rising over the last few years as extremist groups or criminal gangs target workers on account of perceived personal wealth, or seek to extort the mining company itself.
Other risks to consider both in Asia and also in the Middle East include illegal detention; as a number of governments are prioritising security in the wake of the rapid spread of Islamic extremism, employees can be illegally held by security forces even for the most seemingly minor of offences, such as travelling without the right visa and permit documents, seeking to travel into restricted territory, or associating with the press or certain groups.
www.jltspecialty.com | Risk Focus
HOW TO PREPARE
company’s duty to ensure these persons
Most mining companies operating in
the company’s guardianship.
emerging markets have significant
are adequately protected whilst under
experience in dealing with the challenging
Arguably, the most important aspect
and diversified economic, political
to monitor and avoid complacency
and security risks that these countries
with is security and providing adequate
present. It is however important to
education and protection to employees,
recognise that these risks are changing
guests, contractors and consultants
rapidly and companies constantly need
that are operating on site and travelling
to adapt their risk management tactics to
to and from the mine site. Ultimately,
address the new emerging risks.
any security incident, particularly
It is also important to remember that a
Typically mining protests fall into two categories; opposition to a mine on account of a perception of a loss of rights, and opposition on account of a lack of compensation.
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company’s duty of care will legally extend beyond simply full time employees. Guests and customers undertaking travel under a mining company’s supervision, employees performing contractual obligations, and consultants and contractors temporarily working for the mining company are all owed varying degrees of duty of care. It is the mining
those involving foreign nationals, will attract media attention and therefore a company’s ability to manage a crisis effectively and efficiently will be under scrutiny. Poor crisis management and media handling strategy could result in corporate brand and reputational damage, or even potential loss in share price. Contingency planning, stress-testing crisis management and evacuation plans and comprehensive travel security plans are just some of the key issues to address. There are a diverse range of security consultancy firms offering these services, but it is also worth noting that insurance policies focusing on people risks, such as a kidnap & ransom policy, can also unlock a level of funding from insurers to conduct a range of pre-loss consulting services. With people risks changing rapidly, the insurance market has responded with new products that enable mining companies to tailor their coverage to their risk profile, that extends cover to new risk scenarios, and access consulting services. JLT's specialist team, dedicate to people risks are always on hand to confidentially discuss security risks and the wide variety of available solutions. Mining companies either investing in emerging markets, or considering moving into new territories ought to explore their options to continue ensuring that their most valuable asset – their workforce – remains adequately safeguarded. ¢
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MINING BULLETIN | Risk Focus | September 2016
JLT Mining is a specialist broking team, with an exclusive focus on risks spanning the entire mining project lifecycle. We manage a large and established client base of mining companies, contractors, traders, and financiers, across a range of commodities and regions. Acknowledged as placement leaders, our brokers know how to position complex mining risks to deliver the broadest coverage terms, for the best possible rate. We deliver local service, but with global reach, by leveraging JLT Group’s network of 10,000 specialists across 135 countries. Our in-house claims division has collected over GBP3bn since 2010, while our consultancy team helps clients identify, understand, and mitigate risk more effectively. Our objective is simple: to provide a competitive advantage by enhancing our clients’ resilience and empowering them to take risks.
CONTACTS Simon Delchar Managing Director, JLT Mining +44 (0) 20 7466 6226
[email protected] Amy Gibbs Head of Global Mining, JLT Mining +44 (0) 20 7 558 3958
[email protected] Sam Aiken Head of Kidnap & Ransom +44 (0) 207 528 4204
[email protected]
JLT Specialty Limited The St Botolph Building 138 Houndsditch London EC3A 7AW www.jltspecialty.com Lloyd’s Broker. Authorised and regulated by the Financial Conduct Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London EC3A 7AW. Registered in England No. 01536540. VAT No. 244 2321 96. © September 2016 271711
This publication is for the benefit of clients and prospective clients of JLT Specialty Limited. It is not legal advice and is intended only to highlight general issues relating to its subject matter but does not necessarily deal with every aspect of the topic. If you intend to take any action or make any decision on the basis of the content of this bulletin, you should first seek specific professional advice.
