This chapter is taken from Lexology GTDT’s Practice Guide to Mining, examining key themes topical to the international mining community.
This chapter is a comparison of various countries’ legislation, including requirements to ensure companies have the financial capacity to assume the costs related to closure and remediation.
Mining is one of the economic sectors that contributes the most to world GDP, not only in developed countries but also in developing countries.2 Moreover, mining is one of the sectors with the greatest capacity for both direct and indirect employment.
In developed countries such as Australia and Canada, mining accounts for 10 per cent of their GDP, which sometimes doubles, or exceeds by 50 per cent, the GDP of developing countries. Mining also constitutes 10 per cent of GDP in developing countries such as Chile and Peru. However, in countries like Argentina, it amounts to 4 per cent of the GDP. When dealing with mines closures and establishing plans of action, analysing the impact of mining on each country’s economy and considering the economic differences of each country is of the utmost importance.3
In light of the foregoing, it may be concluded that the greater the impact on the GDP, the greater the dedication and rigour must be with which each country deals with mine closures. But often, the lack of specific regulation with respect to environmental, social and economic measures linked to the closure of a mining project prevents the growth of the mining sector owing to fears of environmental impact and, consequently, its effect on the GDP. A failed mine closure discourages both citizens and states that have no motivation or support to encourage mining development in their regions and that become responsible for an environmental liability that is difficult to deal with.
Environmental impact is considered, in many countries, to be one of the major drawbacks of mining. Still, measures adopted by those countries in this regard have not always been appropriate – most often, they were way below international standards or even non-existent. Sometimes, this situation led to a total prohibition of the mining activity, which consequently prevented the economic and social development related to it. In contrast, some countries have updated legal regimes based on past experience, which foster the creation of successful closure guidelines with constant state monitoring, vesting in the companies the obligation to update their plans and provide one that adjusts to meet high international standards.
The purpose of this chapter is not to compare systems from different jurisdictions, but to cast light on the main challenges that usually arise in connection with mine closures. It will also analyse the most effective solutions or processes available in different jurisdictions aimed at helping states, companies and individuals work together and arrive at a successful closure.
Good-practice mining closure principles
Most authors, legislation and guidelines from countries such as Canada and Australia, agree on the fundamental principle that mine closure plans must be part of the mining project from its beginning, allowing a successful rehabilitation and regeneration of the area. In fact, all specific legal regimes indicate that mine closures are processes that take place during the useful life of a mine. Mine closure should be considered even before its execution, and while the mining project is still operative. It includes both rehabilitation tasks that take place during the operation of the mine, which mitigate the effects of the mining activity while being performed, and post-closure activities, which are mainly monitoring activities.
Taking this into consideration, the following are a series of principles that make mine closures successful:
- the existence of adequate legal regimes that permit the successful closure and establish a rehabilitation process that includes not only environmental but also socio-economic elements;
- continuous state monitoring and assistance activities for the specific aspects of each mining project;
- the obligation of companies of cost reporting and updating the provision of closure plans;
- the existence of financial guarantees, which assure that the closure cost can be covered without making the state and the citizens liable for the damage; and
- total transparency and publicity of the companies’ closure processes and plans.
As pointed out by the Mineral Policy Institute, an Australian international civil organisation, closure processes may be either a ‘successful closure’ or a ‘legacy’.4 Australia, one of the countries with the highest mining activity and longest mining history in the world, has vast experience in the negative legacy that some projects have left owing to an incorrect mine closure, affecting the environmental and socio-economic situation of the area in which they operated. In this respect, there arose the need to promote basic principles and specific solutions in monitoring, updating and financing issues, which shall allow the creation of comprehensive legal frameworks appropriate for other countries’ realities.
Challenges and solutions
Requiring companies to repair the damage is not enough to have successful mine closures:5 specific regimes with clear objectives are needed. Below, the main challenges that each of the selected jurisdictions face and the solutions provided will be identified.
There are no specific national regulations in Argentina for mine closures. The Mining Code only establishes that the environmental report that companies must file with the mining authorities, which must be approved prior to the commencement of the activities, must include the ‘prevention, mitigation, rehabilitation, restoration or regeneration of the altered environment, as applicable’. Some provincial jurisdictions6 such as Catamarca and San Juan have attempted to determine some fundamental principles for mine closures, and have even attempted to regulate them, but have not been successful yet.
Argentina established a preliminary control where it is necessary, in order to obtain an environmental impact approval, to specify which measures will be adopted in case of closure. Nevertheless, the plans usually only refer to technical aspects of the closure (treatment of residues, construction dismantling and water quality monitoring, among other rehabilitation activities) without establishing deadlines, costs or estimates, etc. This (i) hinders the monitoring of the activities by the authorities, (ii) does not create real obligations for the companies because it does not establish progressive compliance with closure plans and cost follow-up, and (iii) does not consider the need to guarantee the financing of the closure plan.
The province of San Juan, however, with several gold and silver projects, has been working on a specific bill regarding mine closures, which is aimed at adopting a series of principles that follow international standards. The purpose of the bill is that closure plans include the details of their implementation, the necessary budget, the costs of restoring the environmental liabilities and a description of how environmental areas will be rehabilitated. The bill further establishes that the amount necessary for the closure plan must be determined during the project’s useful life, and sets forth state monitoring after the mine closure, which will be funded with the guarantees established in the bill.
The debate on this bill in Congress is related to the closure dates of some projects in San Juan.7 This situation will most likely prompt a restructuring of the rest of the provincial legislation, which, if properly done, will generate a solid system applicable to the whole country.
Argentina is in the initial stage of developing its mine closure regimes and it should adapt its legislation to meet the environmental and socio-economic standards of more developed countries.
Chile, a country with great mining activity and tradition, has more advanced legislation. In 2011, specific legislation for mine closures caused an important development in mining activity,8 and included a series of principles that are considered to be correct and noteworthy:
- concrete criteria for a five-year audit of the closure plan and the creation of an auditor’s registry;
- adjustment system for the closure plan;
- determination of the way in which the plan will be complied with, which must always be progressive;
- establishment of liability criteria in connection with the closures and applicable penalties;
- determination of an audit process carried out by the authorities;9 and
- establishment of an express and mandatory guarantee system.
All projects are obliged to submit a closure plan that must:
- be approved and provide technical information, indicating the project’s useful life;
- establish measures for the physical and chemical stability of the place where it will take place;
- provide a closure plan cost estimate and measures to be adopted after closure;
- establish the amount of the guarantee;
- grant the guarantees as required by law (which will be addressed later on); and
- establish a promotion programme of the plan for communities.
Finally, Chile has also included a series of guidelines for assisting companies in preparing their closure plans.
Canada and Australia have been working on mining and mine closure challenges – especially since they have experience in projects with both successful and failed closure plans. All Australian states have a specific legal regime for mine closures, and most of them have their own guidelines that serve as an orientation method for creating closure plans and for their execution. An example of this is the 2005 guidelines of the government of Western Australia. Such guidelines are aimed at clarifying all stages of closure plan processes and their content, as well as providing information to companies regarding all the costs that must be taken into consideration.
As regards Canada, both its legislation as well as its guidelines are aimed at including all aspects of mine closures, and they state the following:
- the closure plan must include the costs and timeline of the closure tasks;
- the plan must establish strategies for mitigating the socio-economic impact, and a development plan after closure for employees;
- a financial guarantee system must be established;
- plans must be revised and updated in order to consider new technologies applicable to the closure; and
- there must exist a continuous monitoring process, and a transparent and informed closure process.
Canada has developed a continuous growth system in terms of having more comprehensive closure plans for all affected sectors and constantly updating them. There lies the biggest difference with regimes that remain in the past and do not respond to current needs and innovations. Canada, like many other countries, has examples of mining projects that after their closure have become museums, tourist attractions, scientific centres, recreational areas, parks or agricultural lands.10 A system composed of internal audits and monitoring by the authorities, updates of closure plans by companies, involvement of professionals in different areas and a system of financial guarantees – as we will later analyse – seems to be the way to achieve a successful closure plan.
One of the most important issues of mine closure is the answer to the following question: are mining companies financially sound once mining projects end so as to bear the costs of rehabilitation, restoration and reconstruction of the environment and of the socio-economic status of the affected community? The main related risk is that mines can be closed owing to mineral exhaustion (ie, the end of the mining project’s useful life), or, as in most cases, there may be an unforeseen or premature closure or abandonment of the mining project as a result of abrupt economic changes or other financial or regulatory issues that affect the planned circumstances of the project. Therefore, guidelines must be established on how to protect a country and its community from closures, and particularly from abandonments or unforeseen closures upon which, most often, the one that should face closure costs does not have the necessary resources.
Next, there will be a brief analysis of the measures taken in different jurisdictions around the world to face this issue.
A 2005 study compared the legal regimes of a group of countries such as Australia, Canada and the United States (among others) with the legal regimes of countries located in Africa, South East Asia and Latin America (among others). As regards the first countries, reference was made to the existence of specific legal regimes that include a system of guarantees (bonding procedures) to ensure comprehensive mining closures. In contrast, the other countries, which were mostly developing countries, had no specific legal regimes and did not oblige companies to provide financial guarantees for closure and subsequent monitoring activities. As outlined below, several years later, some jurisdictions made the decision to move forward in regulating the financing of mine closures in accordance with international standards, but there is still room for improvement.
Argentina has no obligation to mining companies to grant any guarantee or insurance to face the costs of a closure of their mining project. However, it provides that ‘for the purpose of preventing and remedying the alterations that mining activities may cause in the environment, companies shall constitute a special accounting provision for such purpose’ – funds that may be deducted from the tax burden.11 However, as provided by law, the annual amount of such fund will be fixed at the companies’ discretion. As it can be seen, Law 24,196 is not enough to ensure successful closures.
However, without specific relation to mining activity, Argentine environmental regulations do provide that the companies performing activities that may generate environmental risks shall obtain environmental insurance. Currently, the only type of insurance is the surety environmental insurance of collective incidence. The relevant authorities are still working on the implementation of other guarantees, such as environmental responsibility insurance, environmental trusts, environmental funds or self-insurance. However, Argentina has faced a new challenge: this kind of insurance cannot be easily obtained in the local insurance market, owing to the difficulties in defining the potential cost and finance of the insurance. Again, the implementation of Law 24,196 is insufficient to ensure successful closures. The alternatives may be easier to obtain, such as self-insurance, which is useful when those performing risky activities are economically and financially solvent.
Some Argentine provinces are working on other guarantee or insurance instruments. For instance, the province of San Juan is following international trends as regards bonding systems − as is the case with Chile, Canada and Australia, described below – and has been working on a bill to face this problem. The bill requires mining companies to provide guarantees by means of term deposits, public securities , trust funds, surety policies or the organisation of reciprocal guarantee companies. In addition, the San Juan bill provides that companies must establish an environmental fund amounting to 30 per cent of the aggregate financial guarantee funds.
In Chile, companies must have in place an instrument that guarantees the value of implementing the closure for the period of the mine’s operation, and following up and monitoring for the post-closure stage. Chile also requires that the guarantee amount be updated and adjusted over time to assure all costs are being covered.
Among the guarantees the Chilean law lists we can identify:
- sight deposit certificates;
- sight guarantee bank statements;
- certificates of deposits of less than 360 days;
- standby letters of credit issued by specific banks; and
- other instruments, including:
- assignment of the mineral sales contract entered into with the National Mining Company;
- pledge on export return; and
- solidary bond of a controlling partner.
As described above, the experience in Chile in the preparation of the law and its implementation has provided some lessons for other jurisdictions.12 One of the main challenges of the law was to define the life of the mining project. The financial guarantee has its roots in this point, considering that it is necessary to determine the reserves that the project has in order to define how long the closing process will last and the amount of the associated costs. The Chilean law defines the life of the mining project as: ‘The calculation that is made based on proven reserves, certified by a Competent Person in Mining Resources and Reserves, in relation to the annual levels of mineral extraction.’ The conflict that Chile had to face was that there were inconsistencies between the term established by this law and the term indicated by permits granted by other environmental authorities that determined a different mine life. This entailed the possibility that if a shorter term of mine life was considered, all expenses associated with the closure will not be adequately covered and guaranteed.
Canada and Australia
Canada and Australia lead the list of countries with a more rigorous and deep consideration of what mining closure entails. The concept behind the guarantees system that these countries impose is based on ensuring that the cost of successful rehabilitation can be covered, regardless of the financial or legal issues that the company in charge of the project may have. This guarantee must represent the estimated cost of rehabilitation works, and must be presented at the time of submission of the closure plan. As mentioned above, each of the states of Australia and Canada is responsible for mine closure (eg, Ontario, British Columbia and Manitoba, among others, in Canada; and New South Wales, Western Australia and South Australia, among others, in Australia). The legal regimes of the majority of Canadian and Australian states, as well as the guidelines we mentioned, require the filing of a financial guarantee. For instance, the Ministry of Energy, Northern Development and Mines in Ontario published the following forms of financial assurance on its website:13
- letter of credit;
- bond of a guarantee company;
- mining reclamation trust;
- pledge of assets; or
- any other guarantee acceptable by the applicable authority.
However, both Canada and Australia go a step further and not only determine the obligation to provide these guarantees, but also propose that cost analysis needs to be based on a transparent and verifiable planning of the tasks to be carried out, which allows for the identification of the cost of the closing and post-closing activities. In this case, this aim has been accomplished by issuing guidelines that allow for the establishment of specific responsibilities for companies and monitoring bodies, and fix general principles that cannot be disregarded in any closure plan. For example, the mining closure guideline for Western Australia, as of 2015, from the Department of Mines and Petroleum, makes special reference to these kind of provisions.
In this regard, it reads as follows:
The financial provisioning process and methodology has to be transparent and verifiable, assumptions and uncertainties have to be clearly documented, and they have to be based on reasonable, site-specific information and data throughout the life of the project. The closure cost estimates must be regularly reviewed to reflect changing circumstances and levels of risk. This will ensure that the accuracy of closure costs is refined and improved with time, and will assist with management and mitigation of high-risk issues.
Western Australia not only determines the obligation to provide a bond but also to contribute yearly 1 per cent of the annual cost of mine rehabilitation to the Mining Rehabilitation Fund (MRF).
The following is set forth by the Mining Department of this state:
Money in the fund is available to rehabilitate abandoned mines across the State in circumstances where the tenement holder/operator fails to meet rehabilitation obligations and every other effort has been used to recover funds from the operator. Interest earned on fund contributions will be used to fund the administration of the MRF and will also be used to undertake rehabilitation works on legacy abandoned mine sites throughout the State. . . . The MRF account balance and levy percentage will be monitored on an ongoing basis to ensure that the fund is appropriately managed to meet current and emerging rehabilitation liabilities, as well as administrative costs.
The guarantees system that seems very effective brings with it a very important challenge. The requirements of a guarantee must come with a strict regulation that establishes clear terms to measure and establish the costs of rehabilitation, and a sanctioning regime that promotes compliance with an adequate closure plan. The guarantee system, as set forth in most jurisdictions – by which only a percentage and not the full cost of the rehabilitation tasks is covered – may dissuade companies from performing a successful closure since, in the case of the rehabilitation cost exceeding the amount of the guarantee that would be lost if the closure was not performed, many companies may opt for abandoning the mine instead of responsibly and successfully closing it.
In line with the above, the Western Australian system, which combines guarantees with the rehabilitation fund, seems to be an interesting solution to adopt in other jurisdictions. This system combines on the one hand, a guarantee that covers almost the totality of the rehabilitation costs, and on the other hand, a contribution to the fund that may be used either for abandoned projects or a closure process, or for the rehabilitation of future projects in case they cannot be rehabilitated by the operating company in the future.
The great issue to solve is the additional challenge of the developing economies, which do not have the conditions for granting instruments to cover the legal minimums required, added to the lack of profitability for insurers, given the specialisation and the resources that the operation demands. Also, the countries should remember the need to monitor the progress of implementing this system and analyse the different offers of coverage presented in the market, a task that must be carried out directly by the states, and that would only be possible with solid institutions and a clear objective to ensure that successful closure costs will be covered.
In the past, mining closure was not the top priority of companies, and countries did not have proper legislation and guidelines to address and enforce remediation activities, and technical and social issues of a mining closure. Legacy examples can be found and identified all over the world, and all of them affect the reputation of the industry. Once the resources were exhausted, projects shut down and limited remediation was performed, a negative legacy was left for the community and a burden for the tax payers. This situation was also common in other industries, but mining is quite often judged with different parameters.
Since then, a lot of progress has been made. As described in this chapter, during the past 20 years, most mining developed countries issued rigorous mining closure legislation and guidelines. Not only the countries but also the companies themselves have paid specific attention to environmental issues and closure mitigation. The improvements of legal regimes include requesting different financial guarantees to assure remediation; addressing technical and social issues; the participation of affected communities; and addressing post-mining life.
However, there is still a lot to be done. Mining can generate a lot of progress and sustainable development, especially in areas without alternatives and in developing countries. But closure legislation is not the same for all countries and, if the rigorous principles that apply in Canada, Australia or other developed countries are not applied in the rest of the world, the industry will still be affected. The lack of proper closure in developing countries (which could be holding the next reserve of minerals) may generate social instability, political unrest and even a plain prohibition to mining. Companies, financial institutions and mining organisations should work in coordination with developing countries not only to put in place the proper closure legislation and guidelines, but also, and no less importantly, to train local authorities on the analysis of the particular issues of each closure and in the enforcement of such rules. For example, the World Bank has been assisting countries in issuing changes to improve mining investments and promote environmental care. Why not replicate it in other sections of mining activity, by either financing technological innovations for proper rehabilitation practices or other kinds of developments?
In addition, the life of communities after mining closure is still an issue. Most closure plans and legal regimes provide limited guidelines or solutions to deal with the social and economic impacts on communities near mining projects. Mining projects close not only owing to mineral exhaustion but also owing to the lack of economic feasibility (change in commodities prices) or as a result of administrative decisions that complicate any intended action. All closure plans should determine a term of three or five years prior to the estimated closure to work jointly with authorities and communities on future labour opportunities, and on the reutilisation of mining land for agriculture, tourism or any other activity that could imply an opportunity for the community. Some royalties generated by the project should contribute to special trust funds to support training for new jobs or new business opportunities.
Finally, no closing can succeed if the environmental and social obligation did not start on the first day of operation. To ensure this, specific government agencies shall be appointed, an audit system must be regulated and enforced, mining plans should be public and communities must have the right to give their opinions. Figures on mining remediation costs and guarantees amounts should be public, and reviewed and updated periodically, jointly by the applicable government agency and the company. If the project is healthy, remediation closure issues should be easier to address.