Key insurance considerations for junior mining operations

With new commodities being discovered regularly and industry experts stating that the mining industry is experiencing an economic boom not seen in decades, Canadian mining operations are well positioned to reap rich investment and business opportunities.

While this is good news for major industry players, junior operations have much to gain as well. But new opportunities for growth and development also bring new risks to manage and mitigate. Having been in the business for decades, most major mining companies may already understand the multiple risks involved in their daily operations, but junior companies may not be as aware of important insurance considerations early on. These oversights could affect the continuity of the operation and significantly impact the opportunity to attract new investors and enhance shareholder value. From initial testing and smaller-scale stages of exploration, junior operations differ from one another and are inherently exposed to an array of different risks.

In a volatile and ever-evolving industry like mining, below are some key insurance considerations that will help juniors to effectively manage and mitigate risk while optimizing business results:

Errors and Omissions, and Professional Liability

Professional liability insurance is an important consideration for any company, especially junior mining operations. Since general liability insurance policies do not offer protection against claims arising out of business or professional practices such as negligence or misrepresentation, this type of insurance is applicable to professionals or organizations with expertise in a specific field – like mining. For a junior operation, the professional liability policy would provide coverage to the board of directors and officers from inaccurate filings or statements relevant to public trading. Claims of this kind could force a mine to shut down and as a result cause shareholders to suffer.

An errors and omissions policy, on the other hand, protects an operation when professionals like engineers or geologists are in the course of in-field activity. This policy is particularly important as the risks of mispricing of equities can be significant in the earlier stages when data is not yet proven on a company’s mineral assets. For example, if a geologist inaccurately appraises the value of a mineral property, this policy provides coverage from the impact the error could have on the junior mining company and its investors.

Claims related to professional liability and errors and omission can not only be long and exhausting but very expensive too, so it is important that any junior consider this coverage early on to avoid severe repercussions and threats to its bottom line.

Commercial General Liability

Commercial general liability offers coverage in the course of day-to-day business activities and focuses on two main areas: personal injury and property damage to third parties.

In the case of a junior mining company, risks can range from not grading a road properly and causing an injury to hitting a pipe and flooding private property. Within commercial general liability, it is also advisable to include coverage for non-owned automobiles and equipment.

This policy is highly relevant to juniors since ensuring a safe working environment is usually a key performance indicator used to determine shareholder value.

Equipment Breakdown
Insurance (EBI)

Since general property policies do not cover equipment breakdown coverage, any time a company operates very specific and expensive equipment like electrical generators, compressors, pumps, crushers, grinding mills, process equipment and mobile equipment, it should consider having Equipment Breakdown Insurance (EBI) policy. This policy covers any damages to production machinery which could lead to additional business expenses and lost income. The potential impact of a major loss to an operation’s equipment fleet can be more far-reaching than one might expect – it could impact a company’s ability to retain current and future project mandates, not to mention costly financial penalties related to project delays.

Protecting the equipment means investing in the profitability of the business. The investment in EBI coupled with a business interruption and equipment maintenance procedures will help avoid major equipment costs and losses that could lead to more severe ramifications down the road.

Additional considerations

Selecting the right insurance partner is just as important as selecting the right insurance product. For this reason, it is important that juniors have a clear understanding of their current and future needs – whether it means expanding across the country or developing overseas.

By providing the necessary coverage options and advice at every stage, the right partner can enable a junior mining operation to proactively leverage risk driven opportunities and reach its business goals one safe step at a time.