Publication Name

MINING FOR CLOSURE

the industry position, and deeper explanations have

been removed from the original.

In closing, it appears that financial assurance for

mine closure and reclamation has progressed

rapidly in recent years and will become more and

more accepted in coming years. It is absolutely nec-

essary to stress however, that its success is depend-

ent upon the soundness of the governing bodies

that put such mechanisms in place.

2.3.2

seveso ii and its implica-

tions

The Seveso directive

was first put in place in

1982 to help prevent and control major accidents

involving dangerous substances. The directive

was adopted in direct response to, and received its

name from the

Seveso accident

in 1976 at a chemi-

cal plant manufacturing pesticides and herbicides.

Although no immediate fatalities were reported,

kilogramme quantities of dioxin(s), a substance

lethal to man even in microgramme doses were

widely dispersed. More than 600 people had to be

evacuated from their homes and as many as 2000

were treated for dioxin poisoning.

In order to broaden the scope of the Directive, and in

particular to include the storage of dangerous sub-

stances, the Seveso Directive was amended twice, in

1987

by and in 1988.

It was then replaced in De-

cember 1996, by the Seveso II Directive

in order

to achieve a further widening of its scope and better

risk-and-accident management. Important changes

Box 2

Accounting provisions and “good practice”

(Nazari, 1999)

International practice in the absence of regulatory

requirements

In the absence of other regulatory requirements,

accounting provision is preferred by the mining

industry to address mine closure liabilities. This

practice is an

accounting transaction

which allows

a company to make non-cash provisions for future

mine closure costs. However, this does not result in

any actual cashflow for the purpose of accumulat-

ing closure funds or payment of related expenses.

Unless the company has chosen to set aside actual

funds for closure, when the project approaches the

closure date, closure liabilities are likely to exceed

the project’s and the company’s tangible book val-

ues, assuming the typical scenario of a ring-fenced

special purpose mining company which is operat-

ing one mining project. Any attempts to raise ad-

ditional funds for closure at this stage by selling

the company’s assets would be unlikely to raise

sufficient funds to meet the closure requirements.

A ‘one-project-company’ may declare bankruptcy

at this stage rather than attempting to raise and

invest additional funds for the terminal stage of

the project with no prospect of a return on such

an investment. Declaring bankruptcy would ‘exter-

nalise’ the costs associated with mine closure and

result in the financial burden being passed on to

the authorities. Government funding may well be

inadequate to mitigate potential long term envi-

ronmental and safety impacts.

‘Good mining industry practices’ in Australia, Cana-

da, and the USA, for example, are typically guided by

industry stewardship, i.e. “self-policing” as a result

of good corporate governance, by following com-

pany policies and reflecting shareholder, employee,

and NGO pressure, relatively recent regulatory

frameworks, and sophisticated financial and insur-

ance markets to integrate and address mine closure

activities and their financing. In these countries,

accounting accruals alone are typically no longer

considered adequate to mitigate the risk of non-per-

formance of mine closure activities. Instead, com-

panies are required to secure the funding by pro-

viding guarantees for mine closure funds prior to

commencing construction and operation, and prior

to generating any cashflow from the operation. The

available guarantee options include bonding, corpo-

rate surety and guarantees, letters of credit, depos-

its of cash or gold, insurance and other methods.

Key considerations during the selection process by

both industry and regulators include the costs asso-

ciated with each option, the credit-worthiness, and

the track record of the owner/operator.

39. This discussion is summarised from

http://europa.eu.int/

comm/environment/seveso/.

40.

Council Directive 82/501/EEC on the major-accident hazards of

certain industrial activities (OJ No L 230 of 5 August 1982)

41. Directive 87/216/EEC of 19 March 1987 (OJ No L 85 of 28

March 1987)

42. by Directive 88/610/EEC of 24 November 1988 (OJ No L 336

of 7 December 1988)

43.

Council Directive 96/82/EC on the control of major-accident haz-

ards (OJ No L 10 of 14 January 1997)