Demo Gold is a Ghanaian mining company that has been operating on-land deep pit gold mining in Africa since its incorporation. Aiming at increasing the value of shareholders, the directors have signed an agreement with the governments of Tonga and Tuvalu to begin excavating an area of seabed in the Pacific Ocean for ores of copper, gold and other valuable metals.
The idea of mining mineral deposit in the seabed has for many decades been considered as unrealistic because of engineering challenges. However, the recent boom in offshore oil and gas operations has come with it the development of a few advanced deep sea technologies which can be used in mining mineral deposits in the seabed.
Required:
ii) Advice the directors of Demo Gold on THREE (3) likely sources of risk relating to the seabed mining operation. For each point, suggest a way through which the risk could be avoided or minimized. (6 marks)
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Likely sources of risk relating to the seabed mining operation.
Likely sources of conflicts relating to the operating of the sea-bed mining include the following:
- Potential reduction in shareholders’ value
- Exposure of employees to risk
- Destruction to marine life
- Loss of livelihoods of the people living in the area
- Technology or system malfunction
- Political risk in the foreign environment
- Economic risk
- Currency risk
(Any 3 points for 3 marks)
Ways through which the risk could be minimized or eliminated.
- Potential reduction in shareholders’ value:
The directors should manage the risk of the new business failing by hedging against mineral price, buying an insurance policy to cover operational risks, and taking political risk insurance. - Exposure of employees to risk
The company should invest in safe machinery
The directors should disclose to employees any safety issues
Employees should be trained on offshore mining as it is somehow different from on-land mining the employees are familiar with
The company should maintain a compensation scheme for employee injuries - Destruction to marine life
The company should invest in machinery that would not emit gasses that are harmful to marine life.
The company should carry out refinery operations onshore and avoid discharging untreated waste directly into the sea - Loss of livelihoods of the people living in the area
The company should provide compensation to the people who may be displaced
The company should facilitate skill development in fish farming and provide seed capital for them to engage in fish farming - Technology or system malfunction
Procuring high quality and well tested equipment and systems with proper after sales service and performance guarantees - Political risk in the foreign environment
The company should take political risk insurance - Economic risk
Through proper economic forecast and risk management in the economic variables - Currency risk
Use currency hedging tools to manage that
(Any 3 points for 3 marks)