Opportunities abound for Canadian mining companies, but so do big risks. A sudden shift in the political landscape or public policy can drastically affect a mine's profitability. One accident or natural calamity could imperil an operation's future. The road to riches in mineral extraction is littered with hazards.Smart businesses are ahead of the curve when it comes to risk management. They take on risks with full knowledge and strategies. They have backup plans. And they have super-knowledgeable partners to help them navigate the risky terrain: insurance brokers and carriers who know all the ins and outs of risk management in their sector.
"Oh, it's definitely a partnership," Bernie Robertson agrees from his office at Knox Insurance Brokers Ltd. (KIBL) in North Bay. He says brokers offer the expertise in risk management that miners usually don't have, and they supply that expertise at a small fraction of what it would cost to have a full-time risk management expert working in-house at the mining firm.
Robertson, who lends his insurance experience and know-how to the Canadian Diamond Drilling Association as a board member, says good risk management is critical to mining and exploration businesses.
It's a three-way partnership among miners, insurance carriers and insurance brokers, says Cosmo Racano, Managing Director at Marsh Canada Limited in Winnipeg.
From his office in Toronto, RSA Insurance Assistant Vice-President (Energy) Michael Marino says pretty much the same thing. "We work as partners – insurance carriers, the brokers and clients," he declares. "We all work together to see what the best solution is for the client." RSA sells insurance through hundreds of brokers across Canada.
Marino says comprehensive risk management can be difficult to sell to some of the mineral sector's more daring operators.
"The junior mining companies, they're huge risk takers," he observes. "You've got to give them credit for, with the economy the way it's been in recent years, taking the risk and forging ahead.
"It can be hard to get them involved in risk management at that level because they're such risk takers, but it's essential these days that they have a focus on risk management. There are so many ways that you could be affected, especially on the D&O side (directors and officers), where you have a lot of obligations to shareholders and the liabilities can be huge.
He recommends coverage in 'professional liability' (claims of negligence or misrepresentation) and 'errors and omissions' (mistakes and oversights by professionals working for a company). Without insurance, problems in these areas could hurt shareholders and board members, or shut down a mine.
"You really have to be on the ball with all the changes taking place," he continues. "Risk management really does take time, but in the long run it really separates the winners from the losers."
The up-front investment is worth it, he says, because "it will help you sustain your business over the years."
Marino says much of risk management comes down to supply chain management. "The world's becoming smaller, there's specialization, who's supplying your power – you know, all these things come into play, and any one of them can take you out of business or set you down for quite a while. It may have nothing to do with your operation on its own.
"You basically have to look at a business continuity plan where you start right from the nuts and bolts at the beginning and take it all the way through from the supplier side right to where you supply to your customers. A customer going out of business or not being able to receive your product can be just as harmful to your business as losing a critical supplier."
Drawing up a business continuity plan involves determining and evaluating your critical suppliers, and where the biggest impacts would be in the event of an interruption in supply. Marino says a good business continuity plan "really captures all the risks when you work it through. You have the operational risks that you have to look at. There's reputational risk. There's environmental risk. You capture a lot of that when you go through the business continuity plan."
A good, experienced broker is invaluable in this process, Marino remarks. "Brokers are very familiar with dealing with this whole process. They help you evaluate your business, where you're vulnerable."
A broker can help you plan for possible supply-chain problems that aren't in the insurance policy, he adds. "There are insurance products out there that help you compensate for some of those supply-chain issues, but some of it currently is non-insurable – I mean, because they're risks that insurance companies don't supply coverage for."
Among the generally non-insurable risks is interruption in power supply. "Unless you have contingent business interruption insurance, and you cover the specific risk that applied to the power, you would be without coverage," says Marino. "So, as long as the power's down, you can't operate. That means you would be losing revenue."
In the expert opinion of KIBL's Robertson, the most important categories of risk management for Canadian mining are environmental, employment practices and tax liability. "I can help you with two out of three," he adds with a chuckle, "but my advice on taxes is to find a good accountant."
For Canadian companies' overseas operations, the most important category of risk is political.
"Resource nationalism is the foremost issue," says RSA's Marino, pointing to recent troubles for Toronto-headquartered Centerra Gold to illustrate. Centerra's Kumtor mine in Kyrgyzstan was the scene of large protests in May and June. Some protesters were calling for outright nationalization of the mine. A state commission has said Centerra is paying the government too little and causing great environmental harm.
"As governments are stretched for more revenue, they're going to look at different avenues." Marino says. "As well, the people, once they get more involved in those areas, their incomes are going up and they become more knowledgeable. … and risks multiply."
Foreign operations also risk getting tangled in local fraud and corruption, he adds. "When you're using third-party consultants in other countries, your D&O can be exposed to that. You don't always know what kind of negotiations take place between consultants and the various governments and other officials. So there's significant exposure out there in regard to anti-corruption law."
A good broker can be of invaluable assistance to a miner sorting out options in risk management and insurance.
Marsh's Racano points out that large insurance brokers such as Marsh have in-house engineers, environmental specialists and other experts who help find risk-management solutions for clients, he adds. A client might have a key piece of equipment that is crucial to operations; Marsh staff would see that and advise on a backup plan that can be effected in the event of a breakdown to ensure that operations resume as quickly as possible.
Equipment breakdown insurance is strongly recommended.
Seeing all the risk-management pieces come together through the carrier-broker-client partnership brings a feeling of satisfaction to RSA's Marino.
"We have a great partners that we work with," he says "That really helps. I like to see companies succeed – when they go all the way from the junior phase to operational. The group that we have here, we have longevity with our clients. We're in the business of staying around for a long time, through thick and thin."
