Non-technical risks and their impact on mining - Trench, Sykes & Packey - Oct 2014 - AusIMM Monograph 30 Roadshow

NON-TECHNICAL RISKS AND THEIR
IMPACT ON THE MINING INDUSTRY
Allan Trench123 FAusIMM
Daniel Packey12 MAusIMM
John P. Sykes124† MAusIMM
† Today’s presenter: johnpaul.sykes@curtin.postgrad.edu.au
[1] Department of Mineral & Energy Economics, Curtin University, Australia
[2] Centre for Exploration Targeting, Curtin University & The University of Western Australia
[3] CRU Group, United Kingdom
[4] Greenfields Research, United Kingdom
AusIMM Monograph 30 (Mineral Resource & Ore Reserve Estimation) Roadshow
30th October 2014, Perth, Australia
Monograph 30 – Mineral Resource & Ore
Reserve Estimation – The AusIMM Guide
to Good Practice. Second Edition. Chapter
7: Risk in Resource and Reserve
Estimation: pp. 605-618.

AusIMM Monograph 30 (Ore Reserve and Mineral Resource Estimation) Roadshow, Perth, Australia
What is the paper about?
• A classification and definition of non-technical risks
• Focus on ‘country risk’
• Some resources available for (subjectively) assessing ‘country risk’
• Some personal perspectives on non-technical risk in the mining
sector
– This is the really interesting and worrying bit!
30 Oct 2014Slide 2 of 75 Non-Technical Risks and Their Impact on the Mining Industry

A classification of non-
technical risks in mining
Non-Technical Risks and Their Impact on the Mining Industry
30 Oct 2014Non-Technical Risks and Their Impact on the Mining IndustrySlide 3 of 75

Non-technical is one type of mining risk
Mining Risk
Safety Risk
Non-Technical
Risk
Technical Risk
30 Oct 2014Slide 4 of 75
Refer to relevant parts of
Monograph 30: Mineral
Resource & Ore Reserve
Estimation
Refer to the Australian
Mine Safety Journal
(and other relevant
publications)
THIS PAPER!
Source: Trench et al., (2014)

And several types of non-technical risk
Non-Technical Risk
Geographical
(Country)
Commodity
Prices
Exchange
Rates
Corporate
(Going
Concern)
Unlawful
Activity
‘Other
commercial’

Country risk being particularly complex
Geographical (Country) Risk
Resource
Nationalism
LandAccess
LandClaims
RedTape
GreenTape
Corruption
CivilUnrest
Infrastructure
SocialUnrest
Natural
Disasters
Labour
Relations

But price & x-rate usually biggest risk
The Kipawa rare earth project is most
sensitive to commodity price risk
The Prosperity copper-gold project is
most sensitive to exchange rate risk
Sources: Trench & Sykes (2014); Saucier et al. (2012); Reproduction of Jones (2007)

Resources for assessing
non-technical risks in mining

(Subjective) Resources for country risk
Sources: Trench et al., (2014); Wilson et al., (2014); Multilateral Investment Guarantee Agency
(2013); Schwab et al., (2013); World Bank (2013); Transparency International (2013)

Personal perspectives on
non-technical risks in mining

Consider non-technical risk early
“One approach that has been observed is where companies first complete the
geological and technical work, then later seek to tackle the non-technical
aspects of a project. This approach may be in part reinforced by the JORC
[and NI43-101] codes, which first call for geological delineation of Mineral
Resources, then economic proof of concept. Non-technical risks should be
assessed, monitored and discussed from the exploration stage to help with
stage-gating of project decisions.”

Consider non-technical risk early
RESOURCES
RESERVES
GEOLOGICAL CERTAINTY
ECONOOMIC
FEASIBILITY
‘McKelvey” Reserve Box Theoretical Reserve Box
RESOURCES
ECONOOMIC
FEASIBILITY
RESERVESRESERVES
Sources: Sykes & Trench, (2014a); Sykes & Trench, (2014b)

Integrate the technical & non-technical
“Non-technical risks are often considered as being separate to technical risks,
with different people and functions within a company assigned to deal with
each. We take the view that non-technical and technical risks cannot be
entirely isolated from each. It is the authors’ view that an integrated approach is
required in evaluating both risk types early on in the assessment of potential
mining projects.”

Integrate the technical & non-technical
RESOURCES
RESERVES
GEOLOGICAL CERTAINTY ECONOOMIC
FEASIBILITY
ECONOOMICFEASIBILITY
RESERVES
RESOURCES
Sources: Sykes & Trench (2014a); Sykes & Trench (2014b); United Nations Economic Commission
for Europe (2013); CRIRSCO (2013); Otto & Cordes (2000); Cook & Sheath (1997)

Take ownership of non-technical risk
“It is noted that companies have a tendency to treat technical risks as
‘internalities’ and non-technical risks as ‘externalities’, but the division is not
clear cut. As a consequence a lot of effort may end up going into solving
technical problems as these are seen within the company’s responsibility, while
less effort is applied to externalities as there are (wrongly) deemed as entirely
beyond the company’s control”

Take ownership of non-technical risk
0
20
40
60
80
100
120
140
No. Pages in AusIMM Monograph 30 by ‘Factor’ in the JORC Code
Social
Infrastructure
Environmental
Legal
Marketing
Economic
Processing & Metallurgy
Mining
Geological
General
Non-technical?
Source: AusIMM (2014)

Make choices about non-technical risk
“It is tempting for companies to take the view that nothing can be done to avoid
non-technical risks. This also isn’t true: if you decide to enlarge an open pit in
an environmentally sensitive area, it is not unreasonable to expect permitting
issues. These are choices – not issues beyond a company’s control.”

Make choices about non-technical risk
Greater
Project Risk
Needs
Increased
Scale to be
Economic
Increasing
Social &
Environmental
Footprint
A large, low grade
deposit in a
developing country
without an
established mining
culture…
Source: Trench et al., (2014); Sykes & Trench (2014a)

Constantly monitor non-technical risk
“In the authors’ view, the mining industry globally has reached an
understanding in recent years that non-technical risk does not simply
diminish once a project is constructed. That is, non-technical risks may
never be solved – merely mitigated – so continuous monitoring is
appropriate. For example, a mineral right and land access claim may seek to
be revoked if the government or sentiment around the mine changes.”

Risk
Change in risk type through the mine project development stage
Corporate
Risk
Technical
Risk
Sources: Modified from Trench et al., (2014); Trench & Packey (2012)

Risk
Corporate RiskTechnical Risk Sources: Modified from Trench et al., (2014); Trench & Packey (2012)
Non-Technical Risk:
Commodity Price?
LowerPrices
HigherPrices

Risk
Non-Technical Risk:
NIMBYism?
Corporate RiskTechnical Risk

Risk
Non-Technical Risk:
Political Risk?
Elections
Unsupportive party elected
Unsupportive
party
unelected
Risk
increases as
project
advances
Corporate RiskTechnical Risk

Get into the detail of non-technical risk
“Non-technical risk assessment is at an early stage of development in the
industry and requires considerable further work. For instance, it is common to
hear of risk maps at corporate offices with whole countries crossed out… such
an approach lacks granularity, as different regions within countries offer very
different risk profiles. Different commodities also present different non-technical
risk profiles, so again very different non-technical risk profiles may be
generated within the same country.”

Source: www.smartraveller.gov.au
Depends if your mine/project is here… …or here!

Escondida & Zaldivar copper mines, Chile
Source: Google Earth
Daisy Milano gold mines, Western Australia
40km
4km

Perceived vs actual non-technical risk
“Risk perception surveys like the Fraser Institute rankings are clearly a very
good start, but do not quantify and weight risks clearly. Much more work
remains to be done across the broad subject area of non-technical risks,
particularly in the space connecting high-level risk assessment with on-
ground mitigation.”

Perceived vs actual non-technical risk
PERCEPTION
ACTUAL
ACTUAL PROBLEMS
Solving these should also improve
the perception problems.
PERCEPTION PROBLEMS
Focus needs to be improving
image and reputation, rather than
“actual” problems.
UNREALISED PROBLEMS
Focus needs to be on resolving
unrealised, underlying issues before
they damage brand and reputation.
NO PROBLEMS!
The actual situation and outsiders
perception of it is good.
Sources: Sykes & Trench (2014c)

The granularity non-technical risk
LOW
BROAD REGIONAL
PREDICTION
HIGH
PROSPECT SCALESCALE
RELATIVE
EFFECTIVENESS
DETECTION
Camp scale decision
COST
FLEXIBILITY
?
We should now be able
to detect non-technical
risks earlier here?
We can probably
foresee (predict?)
non-technical risk
here?
Can we link
the two?
Sources: Modified from McCuaig et al., (2014); McCuaig et al., (2010)

In summary:
Think more about non-technical risk!
“The general thesis here is that the assessment of technical
risk is advancing considerably and rapidly across the minerals
sector. Conversely, the understanding and assessment of
non-technical risk (and of the interplay of non-technical risk
with technical risks) remains in its infancy.

Thank you

Further reading
• Trench, A., Packey, D., & Sykes, J.P., 2014. Non-technical risks and their impact on mining.
Monograph 30 – Mineral Resource & Ore Reserve Estimation – The AusIMM Guide to Good
Practice. Second Edition. Chapter 7: Risk in Resource and Reserve Estimation: pp. 605-618.
• McCuaig, T.C., Vann, J.E., & Sykes, J.P., 2014. Mines versus Mineralisation – Deposit Quality, Mineral Exploration Strategy and the Role of
‘Boundary Spanners’. Proceedings of the AusIMM & AIG 9th International Mining Geology Conference: pp 33-41.
• Sykes, J.P., & Trench, A., 2014a. Resources versus Reserves: Towards a systems-based understanding of exploration and mine project development
and the role of the mining geologist. Proceedings of the AusIMM & AIG 9th International Mining Geology Conference: pp 243-270.
• Trench, A., & Sykes, J.P., 2014. Perspectives on Mineral Commodity Price Cycles and their Relevance to Underground Mining. Proceedings of the
AusIMM 12th Underground Operators’ Conference: pp 19-31.
• Sykes, J.P., & Trench, A., 2014b. Finding the copper mine of the 21st century: Conceptual exploration targeting for hypothetical reserves. Society of
Economic Geologists Special Publication 18: pp. 273-300.
• Sykes, J.P., & Trench, A., 2014c. Australia versus The World: The perceived attractiveness of Australia’s mining industry in a global context. Centre
for Exploration Targeting Newsletter, 28 (June): pp. 6-9.
• Trench, A., & Packey, D., 2012. Australia’s Next Top Mining Shares: Understanding Risk and Value in Minerals Equities. Port Campbell Press: 410p.

Non-technical risks and their impact on mining - Trench, Sykes & Packey - Oct 2014 - AusIMM Monograph 30 Roadshow

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