SIAS Global In Action

The Power of SIAS Global's Kairos and Advanced Analytics

George W. Thompson   •   July 19, 2024

Issue No. 1

Managing the probable maximum loss on a failing gold mine

Underwriting Scenario

Recently, a gold mine operating for decades in a remote area of Nevada shut down all operations due to the loss of financial support from its banks and parent organization. Regulators were requiring a significant increase in the posted security guaranteeing final reclamation. Regulators indicated a full penal sum forfeiture demand was forthcoming if the bond was not increased.

Before engaging SIAS, our client had previously issued a $15 million hard-rock reclamation bond for the mining company secured by $6 million in collateral. Meanwhile, regulators were looking for a substantial penal sum increase of $6 million to be in place immediately. So, under a very tight timeline, our client asked us to provide an assessment of the permitted area.

Our Findings

Once engaged by our client our proprietary satellite imagery analysis and Kairos data confirmed that the site had been minimally active for years. No active mining or reclamation was taking place, and the potential economic recovery of ore from the primary heap leach pad was questionable, which made the property of limited value to attract potential investors. It also appeared that most of the heavy mining equipment needed for reclamation had been removed from the site.

Our Recommendations

We recommended to our client not to waste time and money visiting the site. Based on our imagery classifications, duration of exposure, and amount of mine-influenced water present at the site, the estimated cost to reclaim exceeded the current bond penal sum and increasing the bond made no sense. No tangible opportunity existed for saving money by the surety entering into a reclamation agreement with the regulators and performing the reclamation utilizing a third-party contractor. The best strategy for the surety was to liquidate the deposited collateral and tender a payment to the obligee for the entire penal sum of the bond and post a loss reserve for the difference between the collateral and the penal sum of the bond.

In less than a week, the SIAS team put its resources into action and arrived at a comprehensive analysis and a workable strategy that saved our client significant claim adjustment expense dollars in the face of a potential maximum loss scenario.

SIAS Global . . . your “eyes” in the sky and “boots” on the ground, experts in remote analytics.

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