The evolving power sector

Risks and insurance for energy sector

The evolving power sector
The energy industry is an ever-changing area; as new technology is developed harnessing natural resources, such as wind and solar, greater regulation is introduced in other areas, such as mining. High profile disasters, such as Horizon, the Chilean miners rescue and the post-earthquake and tsunami damage to the Fukushima nuclear plant result in growing concern from insurers and the general public.

Here, members of the Energy Team at Cooper Gay's London office provide an oversight of energy insurance.

Mining Section

Mining is a truly global industry and the cornerstone of human industrial development for thousands of years. Phil Young, mining practitioner at Cooper Gay assess the industry’s challenges and insurance.

The globalisation of mining has been demonstrated in recent years with the emergence of China as the major force driving the world’s economy and the dramatic effect this has on commodity prices.

With the industrial development of India also growing apace, mining has entered a new era.  Demand is rising and supply is increasingly
The cost base of the industry has also permanently changed as shortages of experienced labour take effect, requiring increased investment in new technologies such as remotely controlled vehicles and potentially even whole mines.

Type of Mines and Techniques

Mines are broadly divided into open pit and underground and subdivided into hard and soft rock for each.

Hard rock mining normally involves the use of explosives to break the rock so it can be removed for processing. This is used for gold and copper ores amongst others. Soft rock, such as coal, can be mined by highly mechanised machinery, which can even be used underground.

Open pit or open cast mining involves the use of large equipment mining such as 300 tonne haul trucks which can be fully loaded by equally huge loading shovels and the pits themselves can be several kilometres in length or width and approach a kilometre in depth.

Underground mining techniques are varied and depend on the mineral being mined. All underground mines have shafts or access tunnels that allow workers, machinery and tools to enter the mine and ore to be removed, as well as a ventilation system to circulate the air and keep the working environment at safe levels for the miners to operate, particularly at large depths.

Underground coal mines tend to be more highly mechanised because coal seams are substantial and often level (they only dip slightly) and so called longwall mining is relatively commonplace; huge machines shear off coal rather like a bacon slicer employed in many butchers and conveyors remove the coal to the surface.

Underground hard rock mines require the ore to be drilled using large machines. The holes that are produced will then be packed with explosives and set off using a controlled blast to produce broken rock. This is then removed by specialist machinery. Skilled workers are required to operate underground machinery, handle the explosives and maintain the underground equipment.

Another type of mining is solution mining, which in fact, is not mining at all. This technique is employed in the uranium and potash sectors, whereby large diameter wells are drilled and fluids are pumped into them, dissolving the mineral and bringing it to the surface for processing. The risks posed by this type of mining are more process related, such as casing failure and loss of the hole or gradual pollution caused by fluids bleeding away underground. This is continually monitored.


The processing of ores depends on the mineral being mined, but the norm for hard ore is crushing, screening, milling (or grinding) often using steel balls as the grinding medium, flotation (where the valuable ore is separated from the rest of the rock) to produce a concentrate (the valuable part) and tailings (the remainder). The process from milling onwards is a wet process and the tailings are stored in huge dams where much of the water is recovered for reuse.

The concentrate normally arrives at a smelter or refinery where it is processed to become metal or a metal product. Again, the process routes are varied but often involve high temperatures and/or high pressures.

The other frequently adopted technique, especially for copper, is leach, solvent extraction and electrowinning (so called SX/EW), where the ore is often crushed and placed on a heap and chemicals, such as dilute sulphuric acid are used to extract the valuable metal. The metal containing solution then enters the solvent extraction plant where the metal content of the solution is upgraded.

It eventually passes to the electrowinning section where the metal is recovered in an electrolytic process that can be likened to that of an automobile battery, whereby it employs positive and negative charged plates and the metal, such as copper, is recovered from the cathode end.Coal processing on the o her hand can require no more than washing of the product.


The risks involved with open pit (also called open cast) mining are much less than those faced by underground mining. Typical risks are natural perils, particularly flooding such as those seen in Australia in recent years; failure of the pit walls and machinery breakdown. These operations are highly mechanised so risks to people are greatly reduced and fatalities are incredibly rare.

The risks faced by underground mining can be categorised by those faced by all mines and those that are mineral specific. The risks faced by all underground mines are ground movement, roof falls, flooding, fire and machinery breakdown. Deep gold mines, such as those in South Africa are prone to rock bursts (where the rock actually shatters catastrophically due to pressure) which often kill or maim anybody in the vicinity.

The risks posed by the processing of hard ores tend to be centred on machinery breakdown, normally for crushers and large mills. Fire is ever present, often caused by electrical failures and the use of rubber liners in the vessels used, due to the abrasive nature of the ores.

The risks associated with smelters are centred on the process and the handling of very hot metals, such as metal breakouts from furnaces, fire and explosion risks, if the hot metal comes into contact with water in an uncontrolled way. Mechanical and electrical failures are also common.

Solvent extraction plants have significant fire risk since the process employs reagents dissolved in high grade kerosene; fire protection must be built in at the design stage.

Coal mines have an increased risk of fire and explosions due to the presence of coal dust, methane gas and creep or heave, where the ground may swell upwards as a pressure relief mechanism.

Insuring Mines

Many of the major operational risks faced by the mining industry are no longer insurable and companies must make alternative arrangements for managing these exposures. These risks include:

Loss or damage to mining facilities beneath the so called mine shaft collar (the surface). If a roof fell, for example, damage to mining equipment would be covered, but not the damage to the mine itself such as roof repairs, or removing the fallen material.
If a mine had pit wall failure, damage to equipment is covered, as per the point above, but not repair costs for the pit wall.
Flooding causes by an underground watercourse has been excluded for a number of years, but flood caused by surface waters entering the underground mine has been covered. However, recently mining insurers have excluded dewatering of both open pit and underground mines as a result of significant losses from events such as the Australian floods of recent years.
Failure for tailings dams is respect of property damage or business interruption.
Gradual pollution.
Closure costs.

Mining risks are underwritten by many of the large insurers such as Swiss Re, Munich Re, Chartis and FM, but International Mining Industry Underwriters (IMIU), based in London, is the sole dedicated property-only underwriter and is the market leader.

Whilst it has always been important for mining companies to demonstrate good risk management practices such as contingency planning and provision of critical spares, this importance has increased with the rise in commodity prices seen over the last few years. Even a small property loss of a few million dollars can now result in a large business interruption loss of over 100 million dollars!

The Cooper Gay Mining Team

The dedicated mining team at Cooper Gay has over 100 years of collective experience in handling the multitude of risks posed to mining projects and operations. The team promotes the implementation of good risk management practices at all stages of the mining process. In addition to its range of broking skills, it offers true enterprise wide risk assessments of both mining projects and operations, across the spectrum, from gold in Africa to potash in Canada and work with clients to provide unique risk management and insurance solutions.

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