Involving the Public - Mining and the Environment: From Ore to Metal - page 137

Project Insurance
The standard Project Insurance at the construction stage would cover: (1) loss or damage to
the project; (2) third party liability (this would also cover environmental liabilities to certain
limits); and (3) marine cover (particularly if large items of equipment needed for the project
are to be transported by sea). The cover would normally extend to anything mentioned in
the project's detailed description. This may include housing if this is a part of the project.
Project insurance is usually bought via insurance brokers, and banks may employ a special
advisor to help them in i nding the best balance between cost and cover.
While the insured party is the owner of the mine, the lending banks are heavily
involved in drafting the policy and liaising with the insurers. No policy will come into
effect if it is not approved by the lending banks. The banks are also named as parties to
the insurance policy and the policy is assigned to them. In case of a claim, the proceeds go
into a special bank account and the lending bank(s) decide how they should be distributed
between the interested parties. A minimum insurance schedule is written into the loan
agreement. Banks also frequently insist on a sponsor's guarantee - a pledge by the project
owners that in case of the project not proceeding to completion, the loan will be paid back
by the project owners. Therefore, technically speaking, banks are not insured, but from
the practical point of view they are well covered.

Operational Insurance Programme
When a project moves to the operational stage, it is covered by an Operational Insurance
Programme which typically covers: (1) property damage; (2) theft; (3) business interruption
(7 to 14 days of lost production might be covered under 'business interruption'); (4) mechani-
cal breakdown; and (5) third party liability (property damage and bodily damage). It is not
clear if events like a 'business interruption due to social disturbance caused by environmental
concerns' would be covered. In general, most insurers would require that any damage suf-
fered be 'sudden' and 'accidental'. Gradual events (like increasing pollution of a river by
tailings) would not be covered. In theory, specialized Environmental Cover is available cov-
ering a broader range of situations including gradual events, but it is very rarely (if ever)
contracted.

It is not clear if events like a
'business interruption due to
social disturbance caused by
environmental concerns'
would be covered.

Political Risk Insurance (PRI)
Political Risk Insurance (PRI) is taken directly by banks, either through private sec-
tor insurers, through ECAs or multilateral institutions like MIGA. The cost is normally
recovered in fees from the sponsors. PRI would usually cover: (1) war; (2) terrorism (not
clear if environmental terrorism would be covered); (3) coni scation; and (4) local currency
non-conversion risk. There is also a possibility of insuring against licence suspension by
the host government but, in most cases, this is an optional extra.
In case of a large consortium of lenders, insurance matters are usually delegated to one
of the consortium members (known as an 'insurance bank' or 'technical bank' or 'facility
agent'). Such a bank appoints a specialized insurance adviser to liaise with insurance bro-
kers and sponsors. The insurance adviser also makes sure that any compulsory insurance
requirements of the host country are met. The insurance cost for an average project is esti-
mated to be around 5 per cent of the project value.
Many mining projects are developed without PRI schemes. National schemes are too
small to cope with the massive investments required for a mining project. Another dif-
i culty is the increasingly typical multinational consortium involved in large mining
projects. The consortium approach may make it more difi cult to arrange political risk
insurance, since some members may be entitled to obtain guarantees while others may not.

Many mining projects are
developed without PRI schemes.