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MINING FOR CLOSURE
is recommended that any reader unfamiliar with
financial surety issues and instruments carefully
review these documents. Of marked value in exam-
ination of these texts is the delineation of industry
practice at two distinct points in time, and the clear
evolution of both practice and general willingness
to engage in the financial surety discussion that is
displayed by industrial informants. His work docu-
ments a marked change in mining industry atti-
tudes to financial surety that has taken place over
the period 1998 to 2005. To extrapolate from these
changes, it appears certain that the application of fi-
nancial surety mechanisms will become both more
prevalent and more accepted in coming years.
Readers should be aware however, that these docu-
ments were written for and by an industry interest
group. As such, it is reasonable to assume that the
presentation of the case for financial surety is (inher-
ently) conservative in its representation of perform-
ance levels and surety requirements governments
can or should demand. When writing for such audi-
ences, the views of the less proactive, and less en-
vironmentally advanced among the member actors
may often be that which is represented. This stated,
it should be noted that ICMM, is a small organiza-
tion (16 company members as of mid-2005) of com-
panies that see themselves as industry leaders and
wish to be perceived as such by other mining stake-
holders. They claim, and their reasonably progres-
sive views lend weight to this, that they do not have a
“lowest common denominator” approach, but seek
to show leadership. The evolution of industry stance,
as represented by that group, in the period between
the two Miller assessments support this view.
These points aside, the following call from the Gov-
ernment of Ontario underlines a need to treat com-
ments critical of strict financial surety approaches
warily in the context of this document:
Other jurisdictions have expressed concern that the
introduction of provisions similar to those brought
in by Ontario would cause premature closure of ex-
isting operations and would also deter new invest-
ment from coming to the jurisdiction. Ontario is
proud that the 2002 Fraser Institute survey of ex-
ploration investment decision-makers rated it as the
best jurisdiction in the world for such investment.
Clearly our tough rehabilitation requirements have
not acted as a deterrent (Gammon, 2002, p4)
According to van Zyl (2000) another important
concept is that of
financial accruals
by mining com-
panies for closure. It is common to base accruals
on a unit production basis (such as $ per ounce of
gold produced). The total amount of the accrual
is estimated from the environmental closure cost
plus other liabilities specific to a mine such as land
holdings, personnel costs associated with the end
of operations, and so forth. Financial auditors can
perform annual reviews to determine the adequacy
of these closure funds.
The following (principally after van Zyl
et al
(2002a)
and Miller (1998)) should also be noted regarding
financial surety and closure cost accruals:
Conceptually, financial surety is in place dur-
ing the total life of the mine and will only be
released (in part or in total) after the regulatory
agencies have established that rehabilitation
has been completed to their satisfaction. How-
ever, the financial surety may not be a fixed
amount throughout the life of the mine, but
may vary as environmental issues develop at
a mine, as regulatory changes occur and com-
munity expectations change.
Closure cost accrual takes place over the life of
the mine based on a planned mine life, it is not
necessarily a linear function as it may vary also
over the mine life; and,
In the US and some other countries, the finan-
cial surety is not available to a mining operation
for closure work at the end of the mine life. It
may be released shortly after the work has been
done, but the mining company must be a going
concern in order to perform, or contract some
entity to perform, the required activities.
A few mining companies have established
sinking funds to pay for the closure of a mine.
Money from a sinking fund will be available in
cash to pay for closure while an accrual is an
accounting allowance that is not liquid. How-
ever, it must be noted that while sinking funds
may be attractive because they are liquid, in
the case of a bankruptcy these become part of
the assets of the company and will not be avail-
able to pay for closure.
Additional notes on (previously) preferred man-
ners in which to manage closure guarantees and
the clear direction of future expectations are in-
cluded in Box 2.
Table 1 provides a summary of policy guidelines
developed by Miller (2005) for the ICMM in 2004.
A number of proviso statements, justifications for
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