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Managing the new political risks in mining

By Sam Wilkin | May 24, 2024

Expert insights into the new geopolitical dynamics and their implications for the mining sector in 2024.
Credit and Political Risk
Geopolitical Risk

Geopolitical transitions are hard. After World War II, there was a rapid transition from a colonial to a post-colonial world. The UN had 51 member states in 1945; by 1960,the figure had doubled to 100; and then by 1980, tripled to 154, as former colonies became independent. (Today the figure has climbed further to 193, in part due to post Soviet break-ups.)

Many overseas mining operations did not survive that historic transition. In the 1960s and 70s, many mining contracts were simpler, specifying a fixed share of revenues accruing to the investor. As countries became independent and commodity prices soared, new host governments abrogated these contracts and seized the assets of investors. By some estimates, by the close of the 1970s, nearly a fifth of all foreign investment overseas had been expropriated – including most foreign mining investments in emerging markets.[1]

Today, there is another great geopolitical transition taking place – a transition from a unipolar world of the 1990s and early 2000s, in which the U.S. was the sole superpower, to a multipolar world, in which Russia, China and India exert regional, and in some cases global, influence.

To help mining companies navigate a path to continued growth against this dynamic geopolitical landscape, WTW worked with Oxford Analytica and mining sector experts to produce the 'Managing the new political risks in mining' report.

Will this new geopolitical transition be just as hard for miners as the last one?

The risks appear to be different. “In general terms, it is unlikely that sector-wide nationalization or wholesale asset transfers will take place,” writes one of Oxford Analytica’s expert contributors. That said, expropriation risk does appear to have risen, especially in countries suffering military coups (like Myanmar) or where non-Western mercenaries are active (as in many resource-rich nations in Africa).

In addition, the shift to a multipolar world brings new risks, driven by geopolitical competition. Governments are battling over access to the critical minerals that are crucial for mobile technology and will drive the green transition. Mining companies may benefit from such competition for access, for instance by receiving generous subsidies; but companies can also become casualties, when political influence (and thus, in some cases, mining assets) in resource-rich countries changes hands.

What do mining executives make of these new risks?

We asked Oxford Analytica to aid us in conducting research into this question. Oxford Analytica and WTW convened a panel of five external affairs and risk management professionals, representing mining executives based in North America and Western Europe.

Oxford Analytica and WTW then conducted in-depth interviews with these professionals, to produce the risk radar that appears in the next section. For one of the top risks the executives identified, Oxford Analytica commissioned scholars in its expert network to produce a peer-reviewed essay, covering “Resource competition risk scenarios.”

Download the full report to access more detailed expert perspectives on managing the new political risks in the mining sector.

Footnote

  1. Geiger, Linwood T. 1989. Expropriation and External Capital Flows. Economic Development and Cultural Change, 37: 535-556; Eaton, Jonathan and Mark Gersovitz. 1984. A Theory of Expropriation and Deviation from Perfect Capital Mobility. Economic Journal, 94: 16-40. Return to article
Author

Director of Political Risk Analytics, Financial Solutions

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