Metals in the Crosshairs: The energy transition tug of war
At COP28 last year, over 130 governments agreed to work together to increase the world’s installed renewable energy capacity to at least 11,000 gigawatts by 2030³, three times the current capacity levels. This ambitious goal is only achievable if the supply of critical minerals and metals such as copper, cobalt and lithium are readily available to support the production of transition assets such as electric vehicles.
Mining operations are a vital cog in the global energy transition. However, often, these sites are located in countries and areas that face political uncertainty, civil unrest, and economic instability.
Africa, and in particular southern and eastern African countries including Namibia, South Africa, Kenya, Madagascar, Malawi, Mozambique, Tanzania, Zambia and Burundi are countries with identified high-grade rare earth mineral deposits that offer huge mining potential and opportunities for these economies⁴. But, political stability in these countries is often in short supply.
With the energy transition gaining speed to meet the 2050 net zero target and the development of these sites being pivotal, the potential for the mining of these minerals could be transformational for these regions. Attracting international investment will be essential for this potential to be realised.
International firms seeking to operate or invest in these regions must have robust risk mitigation strategies in place to ensure these projects remain viable and stable. And, political risk insurance, is an increasingly vital element demanded by banks, sovereign wealth funds, private capital and other sources of foreign direct investment funds.
“As part of the move away from fossil fuels, we need to increase the supply of copper, cobalt, and lithium essential for producing electric car batteries and electrical infrastructure. However, the countries rich in these minerals are not rich in a history of political stability.”
Roddy Barnett Head of Political Risk and Trade Credit, Beazley
Mining on a knife edge
Security challenges are a key risk consideration for companies and investors looking to support the transition while keeping stable mines and staff safe from human rights abuses. Since our Risk & Resilience research first began in 2021, the perceived threat of war and terrorism risk among global business leaders has increased significantly, rising from 15% in 2021 to 25% now. The rise in violence over recent years is reflected in how C-suites view the threat posed by the fallout from unrest.
Geopolitics also come into play. The West heavily relies on critical minerals and metals in Africa, but China has solidified ties with several countries on the continent, and other areas of the world with critical mineral supplies and increased its ownership and investment in key mining sites. As the energy transition speeds up and the output of these minerals and metals becomes more important, these locations could become a focal point for tension between global superpowers.
“It is worth remembering that a lot of these assets and investment occurs in parts of the world where there is political instability.”
Alex Hill Focus Group Leader - Political and Terrorism Claims, Beazley
Navigating an increasingly dangerous environment
To navigate this volatile environment, firms and investors operating in the mining industry should have robust risk mitigation strategies in place. Insurance plays an important role in supporting and protecting the development of clean energy globally by providing coverage against a range of risks such as the cancellation of licenses, seizure of assets, and political violence. However, insurance alone is not enough.
Corporates need robust contingency plans in place, particularly in countries where there is volatility and unrest, and where permissions to operate can be withdrawn quickly and with little warning⁵. Furthermore, successful investors need good agents and partner firms on the ground who can support communities, and ensure good relations are maintained with local officials and political parties, as they can leverage their local knowledge and networks to help ensure that projects run smoothly.
Security risks can have a significant impact on the viability of mining initiatives as they can delay and damage projects. Having in-depth knowledge and information about local security issues and potential threats and their likely escalation risk should be a key consideration for firms investing in African critical metal and mineral mining projects.”
Thea Fourie
Head of sub-Saharan Africa, Global Insights and Analysis, S&P Global Market Intelligence
The information set forth in this document is intended as general risk management information. It is made available with the understanding that Beazley does not render legal services or advice. It should not be construed or relied upon as legal advice and is not intended as a substitute for consultation with counsel. Beazley has not examined and/ or had access to any particular circumstances, needs, contracts and/or operations of any party having access to this document. There may be specific issues under applicable law, or related to the particular circumstances of your contracts or operations, for which you may wish the assistance of counsel. Although reasonable care has been taken in preparing the information set forth in this document, Beazley accepts no responsibility for any errors it may contain or for any losses allegedly attributable to this information. BZCP050.
Security risks can have a significant impact on the viability of mining initiatives as they can delay and damage projects. Having in-depth knowledge and information about local security issues and potential threats and their likely escalation risk should be a key consideration for firms investing in African critical metal and mineral mining projects.”
