To provide our clients with the expertise and services, Dentons has partnered with our mining industry partners to share information and knowledge from specialty sectors such as risk and insurance management. Dentons is pleased to share this perspective from Marsh Credit Specialties.
Geopolitical dynamics, such as potential increase in tariffs and export restrictions, are creating potentially heightened political risks in the mineral sector. These factors can affect supply chains, prices, product availability, and return on investment for mining projects. As critical minerals remain essential for modern technologies and the energy transition, stakeholders must understand evolving geopolitical risks and implement effective solutions to help mitigate them.
Six ways geopolitical risks are impacting the mineral sector
Geopolitical risks in the mineral sector can be categorized in six key areas:
- Resource nationalism. Countries are increasingly asserting control over or demanding a larger share of profits from the extraction of their mineral resources, often leading to export restrictions or regulatory changes. For instance, Indonesia has banned nickel ore exports to promote local processing, while Chile is moving towards nationalizing its lithium industry. Such governmental actions can create uncertainty for foreign investors, impact investor returns and drive up costs further down the supply chain.
- Concentration of production. Critical mineral production is concentrated in several countries. For example, Australia and the Democratic Republic of Congo (DRC) are the leaders in lithium and cobalt production, respectively. This concentration heightens vulnerability to political instability and regulatory changes in these regions, potentially impacting investments.
Additionally, concentration of production can amplify the impact of political instability on prices and the availability of critical minerals. For example, political instability in the Sahel region has challenged the development of new mines and the operation of existing ones. New mining operations take time to develop and so reliance on a few suppliers is a critical risk. - Concentration of processing. China processes over 65% of global lithium and 87% of rare earth elements, giving it substantial influence over pricing and availability. China’s past and current export restrictions during diplomatic disputes have led to supply chain disruptions. Events like China’s rare earth embargo on Japan in 2010 and recent export controls on the US in 2024 demonstrate how that such disputes can create risks for other nations or companies.
- Regulatory landscape. Companies are having to keep up to date on the changing regulatory landscape in the critical minerals sector. While regulations aim to protect critical minerals and communities, and encourage greater transparency, they can potentially lead to operational challenges. For example, the EU Critical Raw Materials Act is designed to protect critical raw materials supply chains and reduce dependence on external suppliers.
- Macroeconomic factors and price volatility. Geopolitical risks can lead to sharp spikes in critical mineral prices, which can have broad consequences. For example, increases in the production costs and sale prices of batteries and electric vehicles could potentially slow the pace of electrification. The highly fluid nature and application of tariffs in different sectors are also causing disruption and concern.
- Stakeholder expectations. Mining companies are aiming to balance the interests and expectations of various stakeholders, including investors, governments, regulators, customers, and communities, in relation to their ESG commitments. Building stakeholder trust and recognizing financial incentives are important for enhancing companies’ reputations, operations, and investment opportunities.
How mining organizations can manage geopolitical risks
Given these geopolitical and macroeconomic risks, organizations in the mineral sector should consider comprehensive risk mitigation strategies, (including insurance solutions). To this end, some considerations include:
- Diversify supply chains to reduce dependency on specific countries or regions. Firms should identify key gaps in their supply chains and diversify wherever possible. In scenarios where diversification is limited, companies may benefit from adopting alternative risk management solutions.
- Regular risk assessments should consider recent geopolitical developments, macroeconomic trends, regulatory developments, and community impact to help anticipate and prepare for potential disruptions.
- Invest in technology for better supply chain visibility to build resilience against disruptions. AI-driven tools like Sentrisk can improve supply chain visibility, helping companies detect and address risks in real time.
- Insurance portfolio optimization can help protect against emerging risks. In addition to traditional coverages, consider how political risk, contract frustration, and credit insurance can protect your mining projects, supply chains, and investments.
Preparing for an uncertain geopolitical outlook
As the mining industry evolves, it will likely continue to encounter geopolitical risks alongside opportunities for growth. The sector’s essential role in global technological advancement and sustainability efforts highlights its importance to the global economy and the need to understand and mitigate risks to be successful. By implementing robust risk mitigation solutions and strategic risk management practices, organizations can effectively navigate this complex landscape while protecting their investments.
What specific insurance solutions are available?
- Political risk insurance can safeguard investors against losses from government actions that negatively impact investments, such as expropriation, license cancellation and breach of contract.
- Contract frustration insurance can cover financial losses for both pre- and post-delivery risks (such as unpaid and contractually due invoices) resulting from a contract not being fulfilled or cancelled due to unforeseen political events.
- Mark-to-market credit insurance can protect traders in the event a large price swing results in buyer or supplier insolvency.
If you have any questions about this topic, please reach out to
Anton Antonov, Senior Vice President, Marsh Credit Specialties.
This post includes general commentary and is not intended to be taken as advice regarding any individual situation and should not be relied upon as such.
