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Dealing with mining legacies: from bonds to a central mining rehabilitation fund in Western Australia

Gorey, P., Morrison-Saunders, A., Doepel, D., Mtegha, H. and McHenry, M.P. (2014) Dealing with mining legacies: from bonds to a central mining rehabilitation fund in Western Australia. In: Mine Closure 2014: 9th International Conference on Mine Closures, 1 - 3 October, Johannesburg, South Africa

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The responsible management of the rehabilitation and decommissioning of mine sites and the affected environs requires an effective regulatory, policy, and financial securities framework in place. While mining jurisdictions may have confidence in the adequacy of their policy and regulatory systems, financial security mechanisms (posted by mining companies in the form of unconditional performance bonds) are often also used to minimise negative mining-related outcomes. In theory, such mining securities ensure sufficient funds are available to a government to rehabilitate mine sites in the event operators fail to meet their mine rehabilitation and closure obligations. However, four major challenges are often encountered with these mechanisms: 1) They are commonly insufficient to cover appropriate mine closure activities and environmental remediation in the case of a default; 2) Bonds are tied to individual tenements and not damages outside of the designated zone; 3) Mining companies bear significant administrative costs associated with the creation and posting of bonds, and; 4) They do not solve the problem of historical abandoned mine sites. Conventional environmental bond mechanisms also create disincentives to mining company investment (particularly small companies) and little financial benefit for governments (benefits are largely captured by the banking sector). While Western Australia has long been considered as a sophisticated and advanced mining intensive jurisdiction, as of 2011 the state environmental bond system was estimated to cover less than 25% of the total obligation of mine site rehabilitation costs that may be required. These concerns led to the creation of an innovative policy approach: the Mining Rehabilitation Fund Act 2012. This paper discusses the background to the significant inefficiencies in the previous arrangements (which remain typical across the developed world), how they expose governments and mining companies to significant environmental obligations and financial challenges, and how they disincentivise mining activity. The paper also summarises how the Mining Rehabilitation Fund (MRF) anticipates and underwrites the full closure costs for mine rehabilitation, how it is a cost-neutral source of funds for governments to remediate existing abandoned mines, and how it ‘frees up’ mining company capital. It is estimated that after only ten years the MRF will cover the full clean-up cost of even the largest mine in Western Australia should any complete default occur as a worst case scenario. The interest earned by the government on the principal MRF funds will also be available for rehabilitation and remediation of previously abandoned mines, additional environmental monitoring, and impact assessment and remediation research and development. The paper concludes with how such a system may be adaptable to the African context.

Publication Type: Conference Paper
Murdoch Affiliation: School of Engineering and Information Technology
School of Veterinary and Life Sciences
Publisher: The University of the Witwatersrand
Copyright: © 2014 The University of the Witwatersrand
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