Finex 2012
Mark Tyler

A great variety of perils in mining
Headline – grabbing perils are not always the worst....
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Potential perils
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War and insurgency
Revolution and insurrection
Terrorism
Expropriation or confiscation
Frustration of contract
Wrongful calling of guarantees
Business interruption
Changes in regulation or law
Currency inconvertibility
Inability to repatriate funds
Criminal activity
Government and administrative inefficiency
International pressure

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Exploration finance is materially different from construction finance
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Exploration risks are such that project financing is the least of one’s worries
What one does doing exploration is often difficult to unwind when it comes time to build the mine
Conduct exploration as if one were going to finance a mine

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Government risks Instability risks
Firm specific risks
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Discriminatory regulations
• "Creeping" expropriation
• Breach of contract
• Sabotage
• Kidnappings
• Firm-specific boycotts
Country specific risks
• Mass nationalizations
• Regulatory changes
• Currency inconvertibility
• Mass labour strikes
• Urban rioting
• Civil wars
• International conflict
Source : Robert Egge

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Political risk doesn't include
Sovereign risk country (although this may induce political risk)
– creditworthiness of host
Company specific labour issues (hard to tell when it is a simple labour issue)
Environmental issues

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Commercial PRI
Brokers
Arthur J. Gallagher & Co.
» BMS Group » Craven
» Union Sime Darby Limited
» Heath Lambert Group
» International Risk Solutions
» Jardine Lloyd Thompson
» RFIB Group Limited
» Montgomery Moore RE
» Petro-Chem Insurance Group
» AON
» HSBC Insurance Brokers
» Marsh Inc.
» BPL Global
» City Brokers Ltd.
» Texel Finance Ltd.
» Strathearn Insurance Brokers
» Rattner MacKenzie Limited
» New World Insurance
» Gras Savoye S.A., France
» Cooper Gay & Company, Ltd.
» BK International Insurance Brokers Ltd., United States
» Willis
» Dinçer & Dinçer Sigorta ve Reasürans Brokerliði Ltd.
» Alec Finch Group Ltd.
» Central Insurance Group, Ltd.
» Rasini Vigano Ltd.
» Anika Insurance Brokers SDN BHD
» Prudent Insurance Brokers Pvt. Ltd.
» Worldwide Insurance Services Enterprise Ltd.
» Honan Remunerator
» Glenrand M-I-B
» A. Forbes Risk Services UK Ltd.
» Apex Global Partners
» The Addis Group
» Schlader Consult
» Political Risk Management
» Proteccion Dinamica Agente de Seguros y de Fianzas,
» HKMB International Insurance Brokers
» TFC Brokerage ASIA
» FirstCity
» Alliant Insurance Services, Inc.
» Glencairn Limited, United Kingdom
» Platus
» International Risk Consultants
» Lockton Companies International

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ECA/DFI insurers
Asian Development Bank
Bulgarian Export Insurance Agency (BAEZ)
China Export & Credit Insurance Corporation (SINOSURE )
Companhia de Seguro de Créditos, S.A. (COSEC)
Compañía Española de Seguros de Crédito a la Exportación
(CESCE)
Compagnie Française d'Assurance (COFACE )
Credit & Export Guarantee Fund (KREDEX) - Estonia
Croatian Bank for Reconstruction & Development (HBOR) -
ECICS Limited - Singapore
Eximbank of Romania
Export Credit Guarantee Agency - Oman
Export Credit Guarantee Corporation of India Ltd (ECGC)
Export Credit Guarantee Corporation of Zimbabwe (ECGC - Z)
Export Credit Insurance Corporation (KUKE) - Poland
Export Credit Insurance Organization - Greece
Export Credits Guarantee Department (ECGD )
Export Development Canada (EDC )
Export Finance & Insurance Corporation (EFIC) - Australia
Export Guarantee & Insurance Corporation (EGAP) - Czech
Export Guarantee Fund of Iran
Export-Import Bank of Thailand (Thai EXIMBANK)
Export-Import Bank of the Slovak Republic
Exportkreditnämnden (EKN) - Sweden
Finnvera Plc - Finland
Garanti-Instituttet for Eksportkreditt (GIEK) - Norway
Hermes – Germany
Hungarian Export Credit Insurance Ltd (MEHIB)
Inter-American Development Bank
Inter-Arab Investment Guarantee Corp (IAIGC)
Investment Guarantee Agency (IGA) - Bosnia-Herzegovina
Islamic Corporation for Insurance of Investments and Export Credit
(ICIEC)
Israel Export Insurance Corp Ltd (ASHRA)
Istituto per i Servizi Assicurativi del Credito all'Esportazione (SACE )
Jordan Loan Guarantee Corp. Ltd (JLGC)
Kazakhstan State Insurance Corporation for Export Credit
Korea Export Insurance Corporation
Malaysian Eximbank (MEXIM)
Multilateral Investment Guarantee Agency (MIGA )
Nippon Export and Investment Insurance (NEXI)
Oesterreichische Kontrollbank Aktiengesellschaft (OEKB) - Austria
Office National du Ducroire (ONDD) - Belgium
Overseas Private Investment Corporation (OPIC) - USA
Serbia & Montenegro Export Credit Agency (SMECA)
Slovene Export Corporation Inc (SEC)
Taipei Export-Import Bank of China (TEBC) – Taiwan
US Exim
Uzbekinvest National Export-Import Insurance Company

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Commercial PRI providers
ACE Underwriting Agencies Limited
AEGIS Insurance Services, Inc.
ATRADIUS
Advent Underwriting Ltd.
African Trade Insurance Agency (ATI)
American International Group (AIG) Global Trade &
Political Risk
Amlin Underwriting Ltd.
Argenta Syndicate Management Ltd.
Ascot Underwriting Ltd.
Atrium Underwriters Limited
Beazley Furlonge Ltd
Benfield
Brit Syndicates Limited
Catlin Underwriting Agencies Ltd.
Chaucer Syndicates Limited
Chubb Political Risk
Credit Guarantee Insurance Corporation of Africa Ltd
Eksport Kredit Fonden (EKF)
Faraday Underwriting Limited
Garant
Hiscox
Liberty Syndicate Management Limited
Limit Underwriting Limited
Lloyd's
Managing Agency Partners Ltd.
Markel International Limited
Miller Insurance Services Limited
Novae Syndicates Limited
PwC Deutsche Revision AG
Sovereign Risk Insurance Ltd (SOVEREIGN)
St Paul Travelers Syndicate Management Ltd
Talbot Underwriting Ltd.
Watkins Syndicate
Wellington Underwriting Agencies Ltd.
Willis RE
XL London Market Ltd.
Zurich Emerging Markets Solutions (ZURICH) - USA

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Easy to insure
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Direct agreement with the host state o Not with the government o Some countries have legislation to permit this for each license – otherwise very difficult to achieve o Should survive change in law
Agreement should be in some predictable legal system
(English, New York, Ontario ...)
Preferably disputes should be settled by arbitration
Clearly spell out tenure
Include fiscal stability
Provide for off-shore proceeds accounts and ability to hold foreign currency
Spell out environmental responsibilities and rights

Can still insure change of law but it becomes necessary to prove that changes adversely affect the licence holder
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Mineral rights are an inalienable property right
( essential for royalty finance)
• Conditions to be granted right to mine should be clearly defined
• Approval should be the default
• Stability should be guaranteed – especially tax and regulatory framework
• Should have as many “gold standard agreement” terms as possible – in particular clear up transfer pricing issues
• Exploration almost always in terms of a mining code, not a direct agreement
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Bilateral investment protection agreements
• Multilateral institutions
‒ Insurers
‒ Lenders
• Bilateral institutions
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Insurers
Lenders
• Influential lending banks
• Powerful multinational partners
• Influential local partners
• Local government shareholding

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Multilateral lenders
ADB

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EDC
Bilateral lenders

Equity markets will price in political risk but will generally accept it
Nevsun case study
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Many financiers operate out of jurisdictions with laws against corruption in foreign countries
Will include prohibitions on encouraging corruption in loan agreements
Might make it difficult for the mining company to operate

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Source : Fraser Institute

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Hard to insure against unscientific or arbitrary environmental rulings – new focus on social impacts makes it even worse
Bureaucratic processes can be interminable in jurisdictions where government agency rulings can be challenged in court
Really difficult jurisdictions have expropriated properties using environmental pretexts
Consider working with Equator principles in mind

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Prohibition on doing business with a particular country
Prohibition on using (mostly US) currency in dealings with a particular country
Hard to insure
Try to spread the risks – finance from various sources, different off-takers etc

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• Begin with the end in mind
Financing in a difficult jurisdiction isn't always clear cut
Have alternatives
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