Arctic Mining: Commercial Rationales and Risks

(from Lloyd’s Report 2012: Arctic Opening – Opportunity and Risk in the High North)

The reasons for mining company interest in the Arctic are broadly similar to those of oil and gas companies: the Arctic has been much less geologically explored than other parts of the world and consequently there is the potential for discovery of world-class deposits. However, the challenges and drawbacks are also similar: remoteness, lack of infrastructure and the potential of disruption to production schedules causing logistical bottlenecks and increasing costs. While maritime transport to mines may become easier, mining activity away from the coastline may become less accessible.

Political risk around mining varies around the Arctic depending on the level and volatility of political support for mining and the legal regime under which it takes place. In some respects, however, political risk is lower than for oil and gas projects, given the lower profile of Arctic mining. Strict environmental regulations can pose major operational and technical challenges for mining, and tightening of regulation could affect the economics of some projects. Tax and royalty regimes, as with oil and gas projects, are critical to investment decisions. There are considerable risks of environmental damage from mining, though these tend to be more easily localized than the regional damage that can be caused by oil and gas accidents. However, from a corporate perspective mining risks are no different from environmental risks in other places.

Charles Emmerson, Glada Lahn, 2012, Arctic Mining: Commercial Rationales and Risks, Lloyd’s.©