Mining BI Insurance and the Impact of Changes in Ore Grade

  • Date19 October, 2021
  • Author Brad Ebel

Ore grade refers to the metal content of an ore deposit, and it is the value of the contained metals or minerals less the cost of extracting and refining that drives the economics of a mine site. There can be significant variation throughout a deposit, and there can be multiple deposits with different grades.

Many, and some would say most, mining business interruption losses are impacted by changes in ore grade. You might ask why this is an issue when the ore body is a limited resource, and the ore will eventually be mined. Great question! Click here to read more on this.

What can cause ore grade to change during a business interruption loss?

Closure of the underground mine due to a headframe failure, for example, can result in the mill being supplied by stockpile and open-pit ore of a lower grade. Ore throughput at the mill may be maintained, but the metal output can be dramatically affected by the reduced average grade of the ore processed. Clearly, the insured has suffered a business interruption loss. Seems pretty straightforward, right?

But what if the mine was entering an unusually high-grade stope that was projected to double metal output for the next three months before returning to a normal average? Once the shaft and skip are operational (signifying the end of the physical impact of the insured event), the next three month’s production will experience increased metal output due to the unusually high-grade stope. Is this to be considered makeup or mitigation?

There will be discussions around the insurance contract and the period of indemnity. If the policy considers beyond the physical repair period, is three months a reasonable period to consider post-repair? And how far past this period could or should the indemnity period be considered? The mine plan, both original and revised, needs to be an integral part of this analysis and discussion.

Looking the other way, what can cause ore grade to increase during a business interruption loss?

A fairly common cause of a change in ore grade is a loss of milling capacity. For example, a mill loses one ball mill in a SAG mill, dual ball mill circuit. One of the results of this will be a reduction in throughput ore volume. The mill manager will typically do everything possible to produce as much metal as possible and, in this situation, would typically cut back on lower-grade ore equal to the reduction in capacity. As a result, the mill will be processing a higher average grade of ore than forecasted and will be stockpiling the lower-grade ore being mined.

Are insurers entitled to consider this mitigation against the insured loss? This has been a contentious issue for many years, and there are interesting and persuasive arguments on both sides of the issue. Recently more and more policies contain wording addressing this to eliminate or minimize the impact of the high-grading. The typical wording results in actual production during the indemnity period being adjusted to assume the ore processed was the average grade that would have been processed absent the loss, not the high-grade average during the outage.

Although the wording resolves the impact of grade, it typically does not address the impact of ore type on volume processed or the impact of lower recovery rates on higher grade ore due to the unusual milling configuration, to name a few. These issues need to be explored and discussed in order to assess and analyze them and then give them proper consideration in the loss measurement.

There are many scenarios where a grade change can occur as a result of choices made by the mine operator during the loss. And grade changes can be directly caused by an insured event and the impact, both during the outage period and thereafter, must be measured and considered.

While we know in general the impact of ore grade changes on loss measurements, each loss scenario and the impact on operations is unique and has to be investigated, studied in-depth, and discussed with the mine personnel to arrive at a reasonable and proper measurement.

To quote Nietzsche, the devil is in the details.


The statements or comments contained within this article are based on the author’s own knowledge and experience and do not necessarily represent those of the firm, other partners, our clients, or other business partners.

Ask the author

We hope you enjoyed reading this content. If you have any questions about the subject matter, we welcome you to ask the author by clicking here.

Contact Author