/Risks in the mining sector: A general overview

Risks in the mining sector: A general overview

Risk Advisory

By Jeremiah Ndhlovu, CERM

The natural resources sector of any mineral-rich country is not only an important barometer of the health of the economy of that particular country, but is also an important catalyst for transformation (indigenization), growth and development.” (Mining in Africa in 2020, Eversheds Sutherland)

Mining stakeholders’ objectives include seeking transformation, growth and development from mining activities. These objectives are not always attained due to risk.

What is risk?

There are many definitions of risk. In simple terms, risk is the potential negative outcomes that result in failure to achieve expectations or objectives. Key in the definition of risk is uncertainty. Something that is certain to happen is not a risk. Also, risk is contextual, meaning an individual or entity’s risk does not necessarily become risk for all and sundry. It is my belief that the risk advisory articles will explain clearly the concept of risk in a mining context.

Mining operations generate extensive supply and value chains with notable impact on countries’ economies. It is, therefore, imperative to effectively manage risks that may result in halted operations as this has a ripple effect to an economy. 

Challenges affecting stakeholder expectation

The Zimbabwean macroeconomic environment is faced with many challenges with a potential to affect attainment of different mining stakeholders’ expectations. The challenges are as follows:

  • Local currency depreciation
  • Power shortages
  • Sustained need to replace old equipment and infrastructure

These challenges are part of a spectrum of eminent and latent factors which impact sustainable mining operations. Risks in the mining sector are broad, and future risk advisory articles will focus on a specific risk area. Risk can be grouped into environmental, social and governance (ESG), economic and compliance factors.

Stakeholders and risks in mining

The following are stakeholders involved in the mining sector:

  • Investors
  • Employees
  • Environmentalists
  • Communities
  • Supply and value chain participants
  • Government and statutory bodies

Risk in the mining sector includes failure to meet expectations of one of these different stakeholders. It is critical to note that responses to risk differ depending on the balance between taking risks and attaining economic returns. People who engage in mining risk injury or death, and measures put in place to eliminate the risk of injury or death rarely eliminate the risk. Without risking injury or fatality, no income will be earned, hence mining activities are still pursued. There is, therefore, need for a balance between the risks that are taken and the mitigating measures to be implemented for the mining returns to be morally acceptable in the eyes of the various stakeholders.

Economic and compliance factors

Mining in Zimbabwean is comprised of small-scale and large scale mining operations, and the risk profile of the mining sector is dynamic owing to the mix of participant profiles. The participation by small-scale miners in the mining sector increases the compliance risk profile of the sector because they tend to take high risk. Small-scale miners take high risk without applying commensurate mitigating measures. For mining to provide a sustained contribution to the Zimbabwean economy, the country has to implement extensive risk management. Managing the different risks, however, is complex because of the interrelationship that exists between the risks. This may result in reputation damage that might collapse mining enterprises that would have been otherwise sound economically. There is, therefore, need for an all encompassing risk management framework to have a coherent, collaborative, coordinated and effective management of risk exposures. Components of an effective enterprise risk management framework for the mining sector will be extensively covered in future articles.

Because of the prevalence of risks, the mining industry generally adopts leading practices and standards. These include practices and standards related to Occupational Health and Safety Advisory Services (OHSAS) and the International Standards Organisation (ISO). Adoption of tried and tested practices and standards assists mining players to manage risks within expected limits.

Corporate Social Investment (CSI) is generally expected from all sectors of the economy, but expectations from mining players have been more pronounced as compared to other sectors in Zimbabwe. This has mainly been more prevalent through the community share ownership schemes. CSI is an entity’s grant strategy for improving the social, environmental and economic spheres of its community or society at large. Dedicating resources for projects that improve the society, without a direct financial benefit to a business constitutes CSI. In turn, CSI results in a Social Licence to Operate (SLO). The SLO is the stakeholders’ ongoing acceptance of an entity or industry’s business practices and operating procedures and activities. CSI and SLO, indirectly, are critical components of an entity’s sustainability framework. Both, CSI and SLO, confirm an entity as a good corporate citizen by not limiting its interests to its investors and employees.The environment and the vulnerable in the communities in which the business operates are also catered for.

Conclusion

It is in the context of these diverse, observable and latent risks, spanning across operational functions and value chains, that established mining enterprises have set up units with a sole mandate of enterprise-wide coordination of managing risks.

The mining sector can catalyze growth and development of the Zimbabwean economy if only the dynamic risk universe impacting the sector is adequately and sustainably managed. Risk is not always avoided. In some instances, risk is consciously taken in pursuit of economic returns. Deliberate risk taking by a business should not, however, jeopardize the ability of a company to continue operating into the foreseeable future.

All sectoral players with undisputed eminence have virtually mastered the art and science of risk management. The good part, however, is that established risk management frameworks is not their preserve. Any player can take the necessary steps and can develop risk management frameworks to sustain their operations.For optimal performance and satisfaction of diverse stakeholders, it is indispensable for a mining entity to establish and maintain a risk management framework. 

About the Author

Jeremiah Ndhlovu is a Certified Expert in Risk Management (CERM). He has acquired extensive risk management insights in the mining sector through outsource projects, including enterprise risk management, combined assurance, process and controls standardization, internal auditing and external auditing. jerryndhlovu@gmail.com

4.9 (97.04%) 27 votes
Please follow and like us:
error