As part of the CIME Minerals Seminar Series at Curtin University, Professor in Mineral Economics Dr Pietro Guj has outlined a proposal to improve both environmental accountability and the bottom line for mining companies.
The Mining Rehabilitation Fund (MRF) is designed to be an efficient alternative to the current Unconditional Performance Bond (UPB) system.
As it stands, the UPB ties up approximately $860 million in industry funds and attracts between 0.5 and 3 percent in related bank fees.
Comprised of cash-backed bonds, it is an inefficient use of capital for business.
Even more, environmentally, it represents only 25 percent of potential rehabilitation sites.
“[UPB] creates incentive to abandon rather than rehab sites,” Guj said. “The state is exposed to significant risk.”
The MRF would focus on the rehabilitation liabilities of individual companies, creating more fairness in payment. Instead of bonds, an annual fee would be charged as a percentage of self-assessed and continually updated liability.
Guj has calculated this fee at 1.5 percent of the current Total Cost of Liability (TCL) of mining sites, estimated at $3.452 billion.
With a real rate compound interest of 2.3 percent, the MRF would reach 8.3 percent of TCL in six years.
This target is equal to the top four current bonds under the UPB system, which represents 8.3 percent of TCL – enough to cover a major rehabilitation.
“There are currently 85,000 abandoned mine sites in WA,” he said.
“Historically there have been a fairly large number of defaults with modest average cost.
“But there is always a probability, albeit low, of a major default occurring and the minimum fund balance should be adequate to protect the state against such an eventuality.”
Assuming this trend of modest costs continues, future MRF surpluses would be used to treat abandoned sites and as rebates to companies completing satisfactory final rehabilitation.
Guj viewed this as a clear environmental incentive.
As for concerns about companies self-assessing potential liabilities, industry guidelines are being developed and the Department of Mines and Petroleum would have the power to audit companies suspected of poor compliance.
MRF funds would be invested by the State Treasury into low-risk securities and the program would apply to all mining under The Mining Act (except Uranium).
“Government plans to increase UPB rates would place unbearable financial pressure on industry,” Guj stated.
“This system is equitable, affordable and transparent.”
Rob Payne is a writer for ScienceNetwork WA