By Jack Caldwell - Mining Engineer - Robertson GeoConsultants

For a fascinating review of an aspect of mining not generally read or talked about, download a copy of the Spring 2012 Willis Mining Market Review. It has ninety-two pages of information and great photos on risks and insurance against risks in the mining industry.

We tend to read the news that is made bland or sensational by journalists. Seldom do we get insight, as we do in this review of the aftermath of the tornado, flood, earthquake, or kidnapping. In summary, the experts on both sides gather and try to get the insurance companies to pay.And to gather from this review they pay a lot, something like $95 B in mining claims in 2011.

Which is why some insurers are dropping mining clients. The insurers preferto service companies that have:

a) A clear understanding and ability to mitigate the effects of Contingent Business Interruption (CBI) exposures. This involves understanding the chain of customers and suppliers at multiple levels and mitigating the potential impact of losses to them by maintaining critical stocks and by identifying alternative suppliers. Bottlenecks in the supply and production chains will likely be subject to more penal terms and conditions by underwriters. With equipment suppliers reporting healthy order books, lead-in times to replace damaged or lost equipment are likely to lengthen further.

b) A pro-active approach to minimizing the effect of weather-related events to their operations. Assets with large product and ore stockpiles are most likely to be looked upon favorably by (re)insurers, as will those with designated ‘sacrificial pits’ to allow for continued operations. In open-pit mining, the ability to exploit seams from higher benches immediately after wet weather, thereby allowing the lower part of the pit to become a sump, has been reported to be very successful in minimizing periods of force majeure.

c) Sound risk engineering and innovative risk avoidance measures form an integral and core part of their business. On a number of occasions in 2011, and in the face of potential loss incidents, various insured’s showed commendable alacrity in ensuring the continuity of their operations, and great attention was given to business continuity plans. With commodity prices remaining both high and volatile, this attitude will be of particular importance to excess of loss underwriters.

The review has much in a similar vein. The more interesting human part is the story of kidnappings of mining people. A terrible story to tell. The worst country-for-mining-kidnapping list goes thus: Nigeria, Pakistan, Mexico, Afghanistan, Venezuela, India, Philippines, Iraq, Honduras, Colombia, Brazil, Guatemala, Turkey, Kenya, Malaysia, Yemen, Argentina, Nepal, Sudan, and China.

Don’t get too nervous; ninety-seven percent of mining kidnappings last year were in Nigeria. So you are relatively safe in most other places.Incidentally, the review notes that ten percent of kidnappings resulted in the death of theperson kidnapped.

The review notes that there were over 10,000 kidnappings of the general populace in Mexico in 2010. I am not vacationing there!

On the really serious side, the review includes a magnificent article by Nader Mousavizadeh of Oxford Analytica on Resource Nationalization. He writes well, is vastly intelligent, and opened my eyes to a troubling but real trend. Get the review if only to read this article.