The Financial Risks That Mining Operations Can Face

30 June 2022
 Categories: , Blog


Mining operations can be an extremely lucrative financial venture. However, businesses that engage in mining can face some unique financial risks that will need to be modeled so that effective mitigation strategies can be implemented.

Changes In The Price Of The Resources That Are Being Mined

One of the most common risks that a mining operation will have to mitigate will be dramatic or otherwise unexpected changes in the price of the resources that they are extracting. A sudden decline in the market price for these materials can directly impact the profitability of the business. In order to be able to know the impacts that these price changes will have, your management team will need to regularly receive updates on the exact costs that the business is incurring for the resources that are being extracted. This can allow management to know the minimum price that is needed to be profitable, which can help them to more effectively adjust the operation to help the firm survive times when prices are depressed.

Unexpected Equipment Costs

A mining operation will have extremely intense equipment needs. Unfortunately, equipment failures can be extremely costly to mining operations. In addition to the sizable costs involved with repairing or replacing the equipment, these failures could even force the mining operation to cease operations for an extended period of time. As a result of these risks, mining operations should keep a reserve fund that can be used to ensure that any equipment costs are covered. In addition to potential repairs, these issues could also lead to a lengthy closure of the mine, which could cost it a considerable amount in terms of lost productivity.

Accidents And Spills Occurring At The Mining Site

Unfortunately, mining operations can be fairly hazardous businesses, and this can introduce a range of risks and hazards that other enterprises may not have to address. While the risk of an accident resulting in a personal injury can be a constant issue for these facilities, they will also have to contend with the prospects of contamination or other issues that could impact much of the surrounding community. The costs of one of these incidents could be catastrophic for the mining operation, and aggressive steps should be taken to help the company protect itself from these liabilities. While there are insurance policies and bonding that can help to shield these enterprises, a mining operation should also keep a large enough reserve to cover any deductibles or co-insurance that will be required when one of these claims needs to be filed.

For more information, contact a mining financial risk modelling company such as SCM Decisions.