Paying tomorrow’s bills
From early next year SA mining companies will have to set aside millions of rand for new mine rehabilitation provisions.
The discovery in recent years that old gold mines were seeping acidic water highlighted gaps in SA’s mining legislation. Water pollution and other negative effects emerged only long after the original mines that caused them had shut down.
As a result the responsibility for repairing the damage has fallen on the state, which has been trying to persuade the remaining mines to pay for it, while devising new legislation to ensure that mines clean up after themselves in future.
Sarah Magnus, environmental social governance leader at Venmyn Deloitte, says the previous regulations governing mine closure set out detailed requirements, such as sealing shafts and re-vegetating mining areas. But they did not detail how damage arising many years after closure, such as water pollution, should be managed.
The regulations (under the Mineral and & Petroleum Resources Development Act, or MPRDA) required only that mining companies set aside funds for immediate and final closure requirements. This entailed understanding the cost if the mine closed unexpectedly and the cost if the mine closed permanently. They had to calculate these costs — such as demolishing mining infrastructure, filling pits and rehabilitating the land — every year.
Funds for closure and rehabilitation could be set aside in a current account, through a financial guarantee from a bank, or by setting up a trust fund.
Every year mines have had to report on their rehabilitation plan and show they have set aside enough money for it.
With effect from November 20 last year, the financial provision regulations moved from the MPRDA to the National Environmental Management Act (Nema), though enforcement remains with the department of mineral resources. Under Nema, significant changes were made.
Chamber of Mines head of environment Stephinah Mudau says there was industry consultation on the new regulations but the fundamental issues the industry raised were not taken into consideration. Another change in relation to trust funds was introduced after the consultation process.
The Nema rehabilitation requirements are principles-based, not prescriptive as the MPRDA ones were, Magnus says. Apart from immediate and final rehabilitation provisions in cash, guarantees or trusts, mining companies now have to make a separate provision specifically in a trust fund for latent and residual effects of mining for at least 10 years after the mine closes.
Under the new regulations, mining companies have to undertake three basic risk assessments for closure planning every year: one for immediate closure, one for final closure and one for residual and latent effects, which have to be carried out by an independent specialist and signed off by an external financial auditor. These services will be expensive, but the purpose is to ensure that companies do not over- or under-provision.
Magnus says Venmyn Deloitte is urging its clients not to leave these calculations and provisions to the last minute. The firm has spent months drawing up an agreed-upon procedure to ensure an objective process is followed.
Mudau says the chamber has five main areas of concern. The first is that there is double-funding, since mining companies already carry out ongoing rehabilitation as part of operational expenses but are now required to set aside cash, guarantees or trust funds for ongoing and daily environmental management as well. The second concern is that some mining companies have already made a single rehabilitation provision in a trust fund and will have to restructure it by setting aside money in a new trust specifically for latent and residual effects. Accessing the money in the existing trust fund has income-tax implications.
The third concern, Mudau says, is uncertainty around the transitional arrangements and whether the implementation date is the end of this year or February 19 next year, which is exactly 15 months after promulgation. Fourthly, the requirement for a separate financial audit of the provisions recommended by the independent environmental assistant practitioner adds unnecessary costs. Finally, the regulations include clauses on care and maintenance which are already provided for in the MPRDA.
Magnus does not believe the new regulations are onerous. Other mining countries, like Canada and Australia, also require their mining companies to make financial provisions for latent and residual effects, she says. But it would be preferable if the regulations allowed companies to build up their latent and residual trust fund over time, rather than having it all in place by February.
Mudau says the environmental affairs department has undertaken to have further discussions with national treasury, the SA Revenue Service and the mineral resources department on the trust fund issues and their tax implications. The department has also promised to issue a clarification note, though that will not have any legal standing.