With the prospect of rising costs, falling commodity prices and decreased productivity levels, mining companies are embracing cost cutting measures to lay the foundation for long-term business growth, according to Willis.

In its annual Mining Risk Review, the broker and risk advisor warned companies not to be tempted to cut back on risk management outlays in order achieve cost reductions. This could be fundamentally self-defeating as the costs saved are marginal but leave potentially enormous exposures, the group warns.

“To date, the bulk of cost cutting has come via reduction of head office spend, exploration and business development. We have not yet seen loss-making production assets curtailed or substantial cost cutting at the asset level,” reads the report.

Instead, mining companies should look for ways to extract maximum value from their insurance programmes.

“Often, mining operations have highly developed risk registers and risk management systems but on checking in the field there is disconnect between what is planned and what is really happening,” said Andrew Wheeler, a senior partner in Willis’s Mining Practice. “There is often a poor understanding of risk controls in the workplace, poor implementation and a lack of robust reviews and audit systems to ensure the controls are working.”

“Successful companies manage their business processes to reduce loss,” Wheeler added. “Good levels of control and business continuity planning can help ensure that large loss events are reduced as far as possible. It is this level of commitment to strong risk management processes that define resilient mining operations.”

“Strong and consistent leadership is also critical to the success of any operation. Management sends a strong message when senior people take time out to visit the field operations, engage with people on the job and challenge people to do better.”

“Lower reinsurance costs, increased competition and a relatively benign loss environment, have combined to the advantage of insurance buyers in 2014,” he added. “In all, companies who can drive down costs and protect their margins in this tough climate are the ones who will be resilient to the threats they face.”

Share Story: