The developer of the $10 billion Roy Hill iron ore project has secured a unique insurance scheme which safeguards the project against construction delays and wage blowouts caused by cyclones on the volatile Pilbara coastline.
Under the scheme, devised by global insurance broker Willis Group Holdings and weather risk management group Endurance Global Weather, Roy Hill Holdings is protected from the financial impact of a named cyclone passing through a specified area encompassing the project's mining, rail and port operations.
The coverage has a total limit of $56 million and spans two cyclone seasons, covering the anticipated duration of the project's construction period ahead of the mine becoming operational in 2015.
The scheme's event coverage is based on the duration that a cyclone spends in the indemnification zone and the amount of cyclone-related rainfall recorded across weather stations.
It differs from regular indemnity cover in that there is no requirement for the insured to prove any loss or damage to assets from the cyclone; the indemnity is based purely upon the pre-agreed cyclone and rainfall indices.
“Traditional construction and property policies will cover the damage caused by a cyclone, but not the financial impact of project delays and additional wages where there is no damage to the insured assets," Willis deputy chief executive Steve Hearn said.
"This bespoke solution was designed to cover this traditionally uninsurable risk, which Roy Hill identified as a particular concern."
Roy Hill Holdings is 70 per cent owned by Gina Rinehart's Hancock Prospecting, with smaller stakes held by POSCO, Marubeni and China Steel Corporation.
The joint venture is in the process of securing about $7 billion in debt financing for the project, with the owners funding development of the project with equity injections in the meantime.
The project's insurance against damaging weather events is likely to make it an even more attractive prospect to debt financing providers, with media reports claiming Australia's big four banks are set to submit bids of up to $400 million to provide debt financing for the project.
Roy Hill chief executive Barry Fitzgerald said the company was pleased its insurance partners had been able to develop such a highly-tailored product to provide prudent risk management outcomes for the critical development phase of the project.
The Pilbara coastline is the most cyclone-prone region of Australia according to the state government, with an average of five tropical cyclones per year.
