Over the past decade, the global geopolitical landscape has grown increasingly unstable, presenting significant challenges for industries like mining that operate in politically volatile regions. Heightened uncertainty complicates everything from securing financing to managing supply chains and mitigating regulatory risks. In this context, robust risk management strategies, including political and credit risk insurance, have become critical for mining companies. These solutions not only safeguard against losses but also enhance project viability, attract investment and improve access to capital in high-risk jurisdictions.
According to EY’s recent report, Top 10 risks and opportunities for mining and metals companies in 2025, one of the primary concerns for the mining industry is access to capital, primarily driven by escalating operational costs and the ongoing challenges of maintaining profitability.
Given financial pressures stemming from inflation, project delays and commodity price volatility—to name a few—strong capital discipline and efficient cash flow management will be paramount for mining companies that wish to meet the demand for critical minerals and metals. To address the financing requirements related to the significant pipeline of critical minerals mining developments, financial executives will need to be innovative, leveraging diverse sources of capital and adjusting their risk management strategies to meet evolving investor expectations. Robust credit and political risk management strategies, which effectively “de-risk” assets and optimize cost of capital and returns, will allow miners to allay board, shareholder and lender concerns around these financial metrics.
Political risk management strategy
A comprehensive political risk management strategy is multi-faceted due to numerous components. Several key elements include:
» Dynamic risk assessment: A proactive, continuously updated risk framework is crucial. This involves regularly testing assumptions through scenario planning to anticipate potential geopolitical shifts and adjust company policies accordingly.
» Legal and fiscal protections: Robust agreements and mining contracts are necessary to ensure legal and fiscal stability and protection of assets. These agreements often include provisions for access to international arbitration in the event of disputes.
» Social licence: Building strong relationships with local communities and governments is vital for ensuring ongoing support and reducing the risk of social unrest or political challenges.
» Political risk insurance (PRI): PRI is a powerful tool used by miners to protect the balance sheet and project cash flows against losses resulting from political risks such as trade disruptions, political violence, currency controls, expropriation and regulatory interference.
While the risk mitigation benefits of PRI are well understood by miners, there has historically been limited focus on its quantifiable benefits. Often, miners only considered PRI’s cost, leading to its perception as a burden on project cash flows. However, a recent S&P Global study showed that PRI can offset the country risk premium included in an investor’s cost of capital, thereby improving project valuation and internal rate of return.
PRI is now more than a “check-the-box” exercise for equity and debt investors. By incorporating PRI into the valuation of assets and project returns, financiers can allocate capital more judiciously to emerging market projects. This often brings back into scope projects which, in the absence of PRI, might have otherwise failed to meet investor risk appetites and target hurdle rates.
Credit risk management strategy
In addition to political risks, miners must also navigate the complexities of credit risk, especially in the wake of volatile commodity markets, inflationary pressures and elevated interest rates. Ensuring adequate liquidity to meet working capital requirements is a primary challenge for miners, a task made more difficult by stressed global credit conditions.
Trade credit insurance (TCI): TCI protects miners against payment defaults on receivables and can be an essential tool for improving financial stability. By insuring receivables, miners can often secure better financing terms from lenders—as insured receivables, pledged as loan security, represent better collateral for the lender. This, in turn, can increase miners’ borrowing capacity and unlock additional working capital.
Moreover, TCI is critical for maintaining strong trading relationships with key offtakers. In situations where payment default risk is minimal, but credit concentration is a concern (i.e., reliance on a few key buyers), TCI can provide mining companies with more confidence to extend additional credit, enabling them to continue trading with these important clients.
Prepayment financing: Offtakers often extend prepayment agreements to miners as a means of securing long-term supply. However, these agreements come with inherent risks, and these buyers may seek to hedge against potential losses resulting from non-repayment of advances in cases of non-delivery. Additionally, offtakers’ own internal credit limits on their mining suppliers can impose further restrictions on the availability of prepayment financing. TCI provides an effective solution to mitigate these challenges, offering security for both miners and offtakers.
The mining industry is facing a rapidly changing geopolitical and financial environment, characterized by heightened political risk, rising costs and an unpredictable global market. In this context, miners must adapt by implementing robust risk management strategies that address both political and credit risks.
PRI, which was once viewed merely as a protective measure, has emerged as an increasingly valuable tool in mobilizing capital for mining projects, particularly in politically unstable regions. Similarly, TCI can be essential for managing liquidity, securing favourable financing terms and maintaining commercial relationships.
Chantal Brazeau is senior vice-president and national practice leader of trade credit and political risk at BFL CANADA Risk and Insurance Services Inc.
