The effect of sanctions on the global mining industry

Western sanctions imposed on Russia and Belarus in response to the war in Ukraine have targeted Russia’s extractive and mining industry in an unprecedented way, with a mix of restrictions on Russian origin metals and other commodities, and an expansion of export restrictions to cover most mining equipment. Any global company – even with no operations in Russia and no direct transactions with Russian counterparties – is likely to find itself affected by these extensive measures.

Western allies have developed unique sanctions concepts to cut off Russia’s and Belarus’ mining sectors from equipment and expertise, foreign financing, and global commodities markets. These restrictions can broadly be summarised in four categories:

1. Imposition of restrictions on investment in Russian mining companies.
2. Extending trade sanctions to cover the direct or indirect supply of most types of mining equipment for use in Russia.
3. A prohibition on providing engineering and other specialist professional services to Russian companies.
4. Extensive import restrictions on Russian origin metals and other commodities, including iron steel, gold, and diamonds. Some Russian mining groups have also been targeted by asset freezes and US blocking sanctions.

Even those not directly involved in mining business with Russia have experienced the indirect effect of Western sanctions measures. An EU led drive to require EU exporters to agree “no re-export to Russia,” contractual commitments with counterparties has meant that international mining businesses throughout the world are facing new restrictions on certain types of equipment purchased from EU suppliers, even where the buyer is not technically required to comply with EU sanctions.

Western mining industry participants are also facing a surge in attempted sanctions circumvention and evasion schemes, with Russian mining groups going to great lengths to gain access to spare parts, replacements, and technical support for legacy Western equipment. This has, in turn, increased the compliance burden on anyone attempting to buy equipment from such manufacturers, and requires international buyers to, in some cases, prove the good-faith nature of their purchases. The weight of Western sanctions compliance obligations has also meant that some international groups have decided to comply voluntarily with some Western restrictions on Russia’s mining industry to ease access to Western markets.

Finally, the range of import restrictions implemented against Russian origin metals and other raw materials has also had a significant impact on commodities markets and the compliance burden on any companies processing raw materials. EU and UK end users and importers now even carry a burden of tracing the origin of certain processed mining products, as trade sanctions prohibit acquiring items manufactured in third countries from Russian or Belarusian iron, steel, gold, and diamonds, regardless of their share in the final product. The traceability rules are complex, and for processed Russian diamonds, they have remained uncertain for over a year.

While sanctions compliance has, in the past, been viewed as primarily a concern for financial institutions, the above developments have meant that companies operating in the mining industry sector must ensure that they have implemented sufficiently mature sanctions systems and controls, and are vigilant for potential trade and financial sanctions risks.

Read the article online at: https://www.globalminingreview.com/trade-transport/12022025/the-effect-of-sanctions-on-the-global-mining-industry/