BRIC countries will drive next commodity boom

Despite the recent slowdown and consolidation in the mining industry, the outlook remains bullish. That’s the view of Willie van Graan, business unit head – mining at global insurance broker and risk management company Aon. “As the economic situation stabilises and improves, mines currently on care and maintenance will be reopened,” says Van Graan. “Over the next five years we expect the next commodity boom to be driven by the expanding BRIC countries (Brazil, Russia, India and China),” Van Graan told FTW. “Exploration will have to become a focus again to ensure that no delivery bottlenecks occur when the world economy enters a new growth phase.” The recession has affected the industry in diverse ways. “Smaller exploration-type companies backed by private investors have started to be absorbed into established junior mining companies. As a result these smaller companies and marginal miners are being replaced by bigger more secure junior mining companies. “The major players slashed exploration budgets dramatically during the financial crisis and focused energies and resources on projects that were producing. Mines that were not profitable or were marginal were put on care and maintenance. However, a turn in the economy will bring about the reopening of these mines followed by renewed exploration activity.” With the diamond price dropping by 60% in just six months in 2009, diamond mining companies have been operating at very small margins or have become lossmaking companies. The spot prices for platinum, iron ore and coal also dropped significantly and this has resulted in massive job losses in the industry. “For the insurance industry, the job losses haven’t really affected the asset insurance of mining houses except maybe for business interruption insurance that was cancelled for operations that were put on care and maintenance. Whether an operation is on care-and-maintenance status or operating at full capacity the assets need to be insured,” said Van Graan. For the future, Africa remains the world’s largest untapped resource pool and a lot of the future exploration activity that will start after the global economy recovers will be focused on the continent, in Van Graan’s view. “The African continent will therefore be a major area of growth for all mining-related support services including insurance and risk management.”