Managing the transition Mining Risk Review 2020 Table of contents Mining Risk Foreword ........................................................................................................ 3 Review 2020 Introduction ...................................................................................................4 Part one – managing the transition Climate risk: transforming the mining industry ............................ 8 The rise of ESG: why it matters to the mining industry ........20 ESG pressures: the rise of automation and innovation in the mining industry ............................................ 23 Enhancing your ESG response: the strategic role of the risk manager .......................................... 32 The post-COVID-19 mining industry: the thoughts of an engineer ............................................................... 41 Part two – risk management issues Using risk and analytics to support your risk financing strategy: the views of a former risk manager ...........................50 Geopolitics of resources: prospecting threats to the mining sector ................................... 53 The challenge of digitalisation: troubleshooting cyber risk in the mining industry ................... 62 Part three – the global insurance markets for mining risks Property: how do you solve a problem like the market? ...... 70 Liabilities: dealing with a “double whammy” ..............................80 D&O: the worst of all worlds ..............................................................89 Regional market commentaries .......................................................94 Style Our Review uses a mixture of American and English spelling, depending on the nationality of the author concerned. We have used capital letters to describe various classes of insurance products and markets, but otherwise we have used lower case to describe various parts of the mining industry itself. 2 willistowerswatson.com Foreword Welcome to this year’s edition of our Mining Risk Review. In the pandemic has only reinforced fund managers’ belief these unprecedented times, the mining industry finds itself that ESG is worth worrying about”1. beset by challenges from all sides; as COVID-19 continues to tighten its stranglehold on every corner of the world, we That’s why in this Review we address some of the key risk would just like to take a moment to wish all our readers a issues arising from the energy transition from a mining safe and secure remainder of 2020. industry perspective. Please read on and I’d be delighted to discuss any of your issues arising out of this publication The Mining Risk Review is one of a suite of publications with you at any time. that we at Willis Towers Watson Global Natural Resources publishes every year that focuses on the key industry developments and risk issues faced by our clients in each of our sectors (Oil & Gas, Power & Utilities, Renewables, Mining & Metals). We hope you will find that the issues that we discuss are the ones that concern you most; we would be delighted if you wanted to follow up on any of Graham Knight is Head of Global Natural Resources, the issues discussed in the Review. We have included the Willis Towers Watson. e-mail addresses of all the authors at the end of each [email protected] article, so do get in touch with them to discuss their areas of expertise in more detail. Right now, I think it’s safe to say that the global business environment is in a constant state of flux, and there is no doubt that the pandemic is the number one immediate issue for so many of us. But there is one other issue out there that will undoubtedly survive the pandemic, and that is the issue of climate change and the ensuing energy transition. I’m sure you would all agree that the mining industry is going to be significantly affected by the global drive towards net-zero emissions targets. As part of this transition, climate change and Environmental Social Governance (ESG) pressures are likely to have significant risk implications on the mining industry of the future. Only a few months ago the Financial Times was reporting that “companies that consider environmental and social factors — and abide by good standards of corporate governance — should be better equipped to ride out a downturn and quickly get back up to speed”. In the same article, the FT also commented that “investors are also still going all in on environmental, social and governance themes — and so far their bets have paid off. If anything, 1 "Coronavirus is strengthening the hand of ESG investors” - Billy Nauman, May 15 2020 https://www.ft.com/content/19047cda-0648-48a9-a512-87653149026c Mining Risk Review 2020 3 Introduction As we move towards the final quarter of 2020, the pandemic continues to be at the forefront of all our thinking at this time. This year we have included a thought- provoking piece from our senior mining engineer, Don Hunter, on the long-term effects of COVID-19 on the industry. However, the energy transition is going to to be absolutely key for miners, together with the shift in focus away from fossil fuels and towards renewable energy as the world sets its sights more firmly on zero-emissions targets. Of course, the global demand for minerals will remain during this energy transition, but the risk landscape of the mining industry is likely to undergo radical changes in the process. That’s why we have titled our Review “Managing the transition”. Mining companies need to know: how the energy transition is going to affect their industry why climate change is already transforming their industry risk landscape which ESG pressures resulting from the rise of automation and innovation are going to affect the industry in the future how risk managers can play a strategic role in developing their company’s response to this transition So in Part one of the Review Margaret-Ann Splawn, who is a climate policy finance and investment consultant, sets the scene with a detailed analysis of how climate risk is impacting the mining industry, followed by our head of Mining for Canada, Katrin Hayduk, who examines how ESG pressures are affecting the rise of automation and innovation in the industry. Our experts from the Willis Research Network then show how mining industry risk managers have a vital strategic role to play in quantifying climate change risk, as well as improving their company’s ESG footprint. 4 willistowerswatson.com In Part two we examine three aspects of risk Ensure that your values are accurate, up to date and management that we think are of significant accountable. relevance to the mining industry: Timing is everything – the placement process is now taking a lot longer than in the past, and planning the Responding to the challenging global insurance timing of your market approach is going to become market conditions, Matthew Frost, who has recently increasingly critical in the months ahead. been appointed Natural Resources Regional head for Australasia, outlines the steps that mining companies As ever, we very much hope you enjoy reading the Review should take to ensure the creation of an optimal risk and would welcome any comments or questions that you financing strategy. may have. As geopolitical tensions around the world intensify, the Willis Research Network’s Lucy Stanbrough describes the process by which mining companies can more accurately identify, manage and transfer their geopolitical risk more effectively. As the threat of cyber-attacks on the mining industry looms ever larger, our own Myles Milner outlines the latest developments in this critical sector and the options open to miners to rise to this significant challenge to Tom Holliday is Mining & Metals Leader, their business. Global Natural Resources, Willis Towers Watson. [email protected] As if all these challenges were not enough for the mining industry, conditions in the global insurance markets continue to deteriorate significantly from a buyer perspective. We have not experienced a truly hard insurance market for many years and there is no denying that the effects on risk management budgets will continue to be profound for a while. In Part three of the Review we have included market analyses for the Property, Liability and Directors & Officers’ sectors, as well as including contributions from the Australian, Chinese and South African markets. It’s worth summarising here the advice given by our market practitioners in this section: Make sure your risk retention, captive participation and risk transfer strategy is based on sound actuarial principles. Make a careful inventory of what should be insured, and what should not. Mining Risk Review 2020 5 6 willistowerswatson.com Part one - managing the transition Mining Risk Review 2020 7 Climate risk: transforming the mining industry Introduction: the Tolstoy maxim Unlike COVID-19, nations and businesses can’t just shut their borders to climate change, self-isolate and expect to To paraphrase Tolstoy: successful mining companies are ride out the wave. The climate crisis is a global issue that all alike; each mining company is facing risk in its own way. knows no borders and will have impacts over decades This principle is highly applicable today, as mining’s diverse rather than infection waves; international cooperation geographical spread - often involving operating in remote is essential and will require collaboration on a scale we locations, sometimes in politically instable countries - haven’t seen before. And what the pandemic is teaching