The transition of a mining project from construction to the operational phase is complex, and insurance is just one of m
RISK FOCUS MINING BULLETIN DECEMBER 2016
Project transition in the mining sector The transition of a mining project from construction to the operational phase is complex, and insurance is just one of many considerations the project team must factor in. For mining companies the challenges of transition are frequently exacerbated because major projects are often expansions or developments to existing operations and facilities, such as new pit developments, additional crushing or grinding equipment, or expansions of ship loading facilities.
This means that the construction activity can be taking place in close physical proximity to existing infrastructure, with complex operational interdependencies and with significant physical damage, business interruption and liability
KEY CONSIDERATIONS FOR ALL PROJECTS
developing a detailed transition plan
In JLT Mining’s experience there are
should also be given to which insurers
some considerations common to all mining construction projects with
is critical. If projects are likely to occur regularly, then strong consideration are in a position to lead both construction and operational policies to ensure
implications should a loss occur.
potential solutions described below:
Anticipation, clear communication and
When to handover?
What constitutes handover?
a detailed knowledge of the potential pit-
Prior to handover, clear agreement
falls in this transition is therefore required
between the mining company,
Underwriters may not consider a project
from the insurance broker. In this bulletin
broker and the construction and
we address some of the key mining
operational lead insurers is essential if
specific considerations that may occur.
an orderly handover is to be established. Defining ‘Practical Completion’ and
consistent understanding of risk.
‘handed over’ until signed Substantial Completion Certificates (SCC) or similar documents are provided, or if certain machinery has run continuously for a set period (usually 72-100hrs) at full load.
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JLT MINING | Risk Focus | December 2016
Whatever the basis, it must be understood and agreed well ahead of the handover. Particular care must be taken if any equipment could be considered prototypical, as there may be variations or restrictions in the testing
PROJECT SPECIFIC CONSIDERATIONS In addition there are further considerations which may vary significantly from project to project
• Underwriter appetite: Timely and comprehensive risk engineering information can be used to generate underwriter appetite and competitive tension for the operational risk ensuring the most
and commissioning clauses imposed by
and these are summarised below:
operational underwriter.
Protracted handover
Loss of profits?
If handover is likely to be protracted
Declines, underground expansion
The testing and commissioning of new
then most construction policies can be
and earthworks
extended to include a year of operational
To what extent will the nature of the
plant, be it a ship loader or a mill, is likely to involve the throughput of saleable ore which will contribute to the mine’s financial targets for the year ahead.
cover. However, bear in mind that this may not include some key operational technical coverages, such as the port
cost effective insurance policies are implemented.
project / expansion be covered by a construction policy? Understanding what actually constitutes insurable property
If this is the case, and as an alternative
blockage or utilities extensions.
to traditional delay in start-up (DSU)
Engineering
understanding of what their policy may
‘accelerated handover clause’ to ensure
Engaging with operational risk
underwriters may want to include
that the operational property policy can
engineers well ahead of the handover
roadways and haul roads within an ‘open
respond to the business interruption
can provide three key advantages for
pit and mine workings’ exclusion but it
element of a construction loss.
the operational policies:
can be argued that the civil works for
Is a specific construction all risks (CAR)
• Limit validation:
cover, consider introducing an
policy warranted? Sub-limited cover for small construction projects can be negotiated into operational property policies.
Loss scenarios can be estimated ahead of handover to inform limit setting for the operational policies. • Risk recommendations:
is critical if a client is to have a realistic respond to. For example, construction
roadways are included in the scope of works and therefore need to be covered.
CONCLUSION The completion of every mining
A broker will need to investigate these
These can be identified early and
construction project will have its
thoroughly to avoid committing the
incorporated into the final stages of
individual challenges. However, with
mining company to a new policy that
construction. As well as making sure
a specialist broker’s support, the
could otherwise be avoided.
that the new asset is protected from
transition from construction to
the very beginning, this avoids costly
operational risks coverage should be
Insurable interest?
retro-fits, such as fire suppression
seamless; duplications and potential
Do the lenders requirements or joint
systems in elevated conveyors or
gaps in cover will be eliminated and
venture interests in the mine change
blast walls around transformers.
relationships with the insurance market
when operations commence? If so, then this should be reflected in the operational property policies.
will remain robust and healthy.
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JLT MINING | Risk Focus | December 2016
JLT Mining is a specialist broking team, with an exclusive focus on risks spanning the entire mining project lifecycle. We manage a large and established client base of mining companies, contractors, traders, and financiers, across a range of commodities and regions. Acknowledged as placement leaders, our brokers know how to position complex mining risks to deliver the broadest coverage terms, for the best possible rate. We deliver local service, but with global reach, by leveraging JLT Group’s network of 10,000 specialists across 135 countries. Our in-house claims division has collected over GBP3bn since 2010, while our consultancy team helps clients identify, understand, and mitigate risk more effectively. Our objective is simple: to provide a competitive advantage by enhancing our clients’ resilience and empowering them to take risks.
CONTACTS Harry Floyd Partner, Property JLT Mining, London +44 (0)207 466 1305
[email protected] Hugh McManus Partner, Construction JLT Mining, London +44 (0)207 558 3248
[email protected] JLT Specialty Limited The St Botolph Building 138 Houndsditch London EC3A 7AW www.jltspecialty.com
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This publication is for the benefit of clients and prospective clients of JLT Specialty Limited. It is not legal advice and is intended only to highlight general issues relating to its subject matter but does not necessarily deal with every aspect of the topic. If you intend to take any action or make any decision on the basis of the content of this bulletin, you should first seek specific professional advice.
