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Why insurers and financiers shun the mining industry?

In spite of ripe business opportunities in the mining sector, insurers and financiers continue to shun the industry owing to the high risks involved in mining operations, industry experts said.

The mining risk goes hand in hand with changing global trends. These include:  Environment, Social, and Governance (ESG)  for example, extreme weather like floods that affect operations in minefields and harm workers. “Insurers are reluctant because mining is a highly risky undertaking. For example, when a mine collapses it is a total loss,” said Ms. Ritah Mutesi Kabayiza ED at Willis Towers Watson during a discussion at the Mineral Wealth Conference. 

Other risks include financial volatility, insecurity, terrorism from geopolitical tensions, cyber risks, and business interruption to supply chains. Mutesi said that She said that in 2018 insurers made losses -while premiums covered up to $ 1 billion, firms made claims of up to $1,3 billion. But she explained, it is advisable to work with the insurance so as to design and assess the risks and judge how much risk can be insured against

There are also risks that cannot be easily insured against, for example, geological risks. Mr. Peter Tererai Zizhou, chief geologist at Samta-Mines explained that exploration is the only way to discover more resources to drive the global mining industry and hence technological advancement. But if the geologist is unqualified, and therefore, does not do proper physical mapping, on-the-ground research, soil sampling data interpretation, and application gives a false end result which affects the entire operations. Geologists are the heart of the mining industry.  

‘The risks include the chance that an outcome or investments’ actual gains will differ from an expected outcome or returns. Risks include the possibility of losing some or all original investment,” Zizhou said.

Mr. Michael Jjingo GM of Commercial Banking at Centenary Bank observed that access to financial services is often the biggest challenge facing the mineral sector, especially for Small and Medium Enterprises. He said that while the banks have enough funds for mining businesses, these businesses must formalize their operations, improve financial management, and provide sufficient collateral to de-risk funds. Mr. Jjingo said that the mineral sector players also lack information about financing.

“Mining risks should be mitigated in order to attract investments in the sector. There is a need for business formalization campaigns for informal enterprises to attract interest from the financial institutions and technical assistance in financial management, strategic business planning, and execution of corporate governance,” he said. 

Mining businesses also need credit guarantee schemes, interest rebates,  and fixed collateral. Outreach campaigns -where all market participants must have the same relevant information will also help the mining businesses to access financial services.   

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