Mining companies operate in an inherently uncertain environment. Few have much influence on the markets in which their commodities sell, and most are price takers subject to the vagaries of the global economy. In addition, mining companies need to comply with sometimes uncertain policy frameworks, while striving to improve safety, support local communities and increase operating efficiency. Is the insurance industry positioning itself to manage evolving needs of both their current and potential clients in mining, in response?
Most of us think about insurance as something you purchase but hope you never need, a bit like taking an umbrella to the beach. When it comes to insurance guarantees however, the reality is somewhat different. As a provider of world-class trade and commercial insurance products, Lombard actively assists in the management of risk across the value chain, supporting sustainable business growth.
“There has never been a time when insurance companies have had a bigger role to play than now. This is because the business of mining is inherently a risky one, and the number of challenges is only increasing,” comments Pieter Venter of Lombard Insurance Company, in response, as he draws attention to the way his organisation is adapting to the ever-evolving needs of mines.
Covering the whole mining value chain
Venter points out that Lombard has considered all the various elements that add up to a successful mining business – each integral to the success of the whole. And so, the company has developed solutions for a number of links in the mining value chain, spanning from development, construction, and operation through to mine closure and rehabilitation. These solutions are constantly updated to suit changing circumstances.
The first critical step in the development of a new mine is obtaining a license to operate. In terms of South African legislation, mining companies are required to make financial provision for the rehabilitation of areas on which mining activities are conducted, and this provision has to be provided as a condition prior to getting the license.
While in the past rehabilitation trusts were the vehicle of choice, today rehabilitation guarantees are considered the sure-fire way for mining companies to manage their financial provisioning for closure and rehabilitation. The benefit of an insurer providing these guarantees is that although the guarantee is delivered upfront, the mining companies have a longer period over which the actual provision can be set aside, thereby easing cash flow constraints at this critical early stage.
When it comes to the construction of the mine, Lombard can provide guarantees for delivery and performance by the contractor to the mine owner, which assists the owner in ensuring delivery of the project on time and within budget. “We can facilitate guarantees covering advance payments to the contractor to purchase material, performance guarantees to cover the employer against the risk of non-delivery, and retention guarantees to cover potential defects identified post completion,” confirms Venter.
In partnering with a construction contractor, Lombard employs a detailed underwriting process covering not only the financial strength of the contractor, but also applies their team’s extensive industry experience in a rigorous, step-based approach that explores every aspect of a contractor’s ability to perform against a contract. This rigorous third-party review provides an additional level of comfort to the mine owner.
Commercial operation and cash flow management
As the mine enters its operational phase a host of new operational challenges present themselves. These include financial concerns such as trading accounts with suppliers, as well as operational concerns related to the movement of goods and equipment – often including the complexity of cross-border logistics.
To assist mining companies in managing their cash flow, Lombard provides cover for account payment guarantees for critical supply items such as electricity, transport and fuel, enabling miners to free up cash flow and negotiate better terms.
When it comes to managing logistics, Lombard offers the full spectrum of guarantees required by Clearing and Forwarding Agents, Warehousemen and Transporters, both cross-border and in the South African market. “Our team prides itself on great knowledge of the industry.
We also make it our business to stay up to speed with the latest regulatory and industry developments, and are active participants in relevant industry forums, such as the South African Association of Freight Forwarders (SAAFF) – ensuring our clients benefit from our informed expertise,” says Timothy Thom from Lombard’s General & Commercial division.
Supporting new entrants
“When it comes to mining rehabilitation guarantees we analyse every guarantee based on the precise nature of our client’s needs, considering not only financial strength but also their technical ability to delivery and the nature of the resource they are mining,” specifies Venter. In the case of junior miners or single operations, particular attention is paid to the technical merits of the operation, including size, grade and the life of a mine. This assessment enables Lombard to take an informed view of the mining operation when underwriting.
Furthermore, Lombard has an appetite for taking on calculated risks in previously underserved sections of the market, underpinning the knack of seeing opportunities in areas where others see challenges. Beyond the scope of its offering, the company extends guarantees to small-scale mining operations.
“We have introduced environmental rehabilitation guarantees for a small-scale miners operating under mining permits with a short life span and typically smaller balance sheets”, Venter underlines. With these guarantees Lombard aims to support new entrants in the mining space and ultimately contribute to economic growth and job creation.
Covering Sub Saharan Africa
Thus far, Lombard’s mining rehabilitation guarantees are predominantly focused on the South African market. According to Venter however, the company is actively looking at opportunities in the broader African market, including for example Zambia and Botswana. Lombard’s other product ranges, including construction, logistics and trade credit already have a cross-border reach. “We have an established network of partnerships across more than twenty African countries” confirms Venter.
Promoting good business between good people
Lombard’s business is about more than insurance, assures Venter: “Our approach is tailored to each individual business need. We work to free up your company’s cash flow, allowing you to use capital more efficiently to sustain your business growth. We truly partner with your business to ensure success. We support honest, human relationships between contractors and their employers built on the belief that trust is good business.”
In the challenging world of mining, both in South Africa and the African continent, Lombard is ready to go the extra mile to support the industry across the value chain.
Written by Jimmy Swira