How to insure against revenue and profitability losses as a result of mine strikes where there is no physical damage to property on the mine may depend on the structure of the mining company and the expected life-of-mine, says insurance firm Marsh Africa senior risk consultant Debbie Geraghty.

There has been an increase in the number of mining companies taking South African Special Risk Insurance Association (Sasria) cover to insure against losses during strikes. Improvements have also been made to the Sasria cover after the often-violent strikes last year and in the wake of recent strike activity.

However, Sasria cover is only triggered if mine property has been damaged during a strike, which is not always the case. This can expose a mine to financial risks and impairments if its insurance and funds are inadequate.

“More mining companies are taking Sasria cover post-Marikana, as the vulner- abilities of mining companies were highlighted during this time. Even mines that had no history of strike activity were affected during this time. This led to a greater understanding of their risks and, hence, the use of additional insurance mechanisms to protect themselves,” she explains.

However, additional insurance vehicles, beyond the insurance provided by Sasria and financial institutions, may be required to reduce risks and secure mining companies from losses and cash-flow impairments, Geraghty highlights.

“Mining majors often create special-pur- pose vehicles wherein they sequester funds to tide them over during turbulent and testing times to ensure the long-term viability of the company and reduce risks from temporary threats.

“However, junior miners may not have the equity to create such special-purpose vehicles and may also pay higher insurance premiums at financial institutions, owing to their higher risk profile. “Subsequently, junior mining companies face significant risks, despite the need to foster the growth of junior mining companies,” she says.

While the risks of the mining industry are well known and often trumpeted, managing the risks effectively can enable sustainable and profitable investments in the industry.

The gold price – about $1 230/oz in November – is subdued, and costs such as wages and financing are increasing. Mining companies must, therefore, grapple with several risks, all of which can increase costs for insurance in a risky financial environment.

“We invite junior and major mining companies to talk to us to define their risks and address these risks in the most appropriate manner, depending on the nature of the operation. Marsh has a global presence and experience and can provide the advice and insurance portfolio required to reduce the risks that miners face,” concludes Geraghty.