Managing Liabilities for Site Remediation
To prevent governments from becoming responsible for the remediation of mining sites and to reduce the financial burden on taxpayers, many governments have taken measures to ensure that leaseholders fulfill their responsibilities for decommissioning and remediating their mines.
Some governments have set up remediation funds to which mining companies must regularly contribute. These funds are used to remediate legacy sites as well as any new abandoned site (as the result of a company going bankrupt, for example).
Other governments require private companies to provide sufficient financial assurances to guarantee that there will be enough resources to remediate their active sites once operations cease. Examples of financial assurances are securities and bonds, letters of credit, certificates of deposit, and cash; the assurance must be a real financial asset, not a promissory note. These financial assurances are released only once a government is satisfied that a site has been remediated as expected. A generic financial assurance process is described in Figure 3.
The Main Steps of the Financial Assurance Process Over the Life of a Mining Operation
The main difference between remediation funds and financial assurances is that a fund can be used to clean up any decommissioned mining site, whereas a financial assurance provided by a company can be used to clean up only a particular site leased by that company if it can’t meet its remediation responsibilities. Another difference is that financial assurances are returned to companies once they have met their remediation obligations, whereas fund contributions are not refundable.
While financial assurances do not provide a revenue stream, they do mitigate the risk of governments inheriting liabilities for sites abandoned by private companies. By establishing financial assurances requirements, governments can protect taxpayers from new liabilities for site remediation.
The effectiveness of remediation funds and of financial assurance programs depends on a number of design and implementation factors. The funds or programs must be based on adequate risk assessments and on reliable estimates of remediation costs. Risks and costs will vary based on the type of mineral extracted, the type of mining operation (open pit or underground mining), and the size of the mine, among other factors.
Sufficient resources must also be made available to:
- collect financial assurances,
- assess the adequacy and completeness of remediation plans submitted by private companies,
- monitor progress on remediation work,
- attest that remediated sites have met all applicable standards and requirements, and
- regularly update estimates of future remediation costs.