International financial services and investment group Old Mutual states that, while the South African mining sector is experiencing trying times pertaining to labour issues, other issues in the industry, such as legislation around mine closure and rehabilitation, are being ignored, which creates uncertainty for the sector, the economy and investors.

“It is no secret that the mining sector is currently plagued by a host of significant issues, with mine closure being just one of many. Given the current focus on labour issues and the increasing tensions surrounding continued and prolific strike action, mining closures and rehabilitation of these closures simply aren’t viewed as high profile issues,” says Old Mutual Investment responsible investment head Jon Duncan.

He notes that legislation requires mines to submit an Environmental Management Plan as part of their mining applications. This plan requires the mines to include details on how financial provision is to be made to rehabilitate the environmental impacts and to decommission the mine. The nature of the mine determines the extent of ongoing rehabilitation that is required.

However, Duncan points out that legislation around financial provisioning, or liability, for mine closure rehabilitation is in a state of flux, which creates uncertainty for the industry and its investors. Further, he notes that mines not properly closed present a threat to the safe functioning of the ecosystem, with the most urgent risk being tailings, such as acid mine drainage, and the implications of this pollution.

“Ongoing monitoring and financial modelling are key activities necessary for the appropriate decisions being taken, considering the investment of assets and the funds expended on ongoing rehabilitation. The current approach to closure provisioning is largely undertaken through trusts, but in many cases these trusts are inadequately funded or overfunded, with both outcomes being suboptimal,” he highlights.

Duncan mentions that new technologies are also emerging and, as a result, impact on the nature of mining, rehabilitation activities and the costs involved. Contingent liabilities caused by abandoned mines surrounding the closed mine in question also contribute to uncertainty in this environment causing liabilities to be understated.

Duncan states that, in efforts to redeem themselves, the yearly financial statements of mining houses provide a snapshot of the closure provision for environmental rehabilitation and decommissioning, as well as a summary of trust assets that have been set aside for final and premature closure. In many instances there is a shortfall between the assets and the liabilities, with the shortfall in many cases covered by a premature closure guarantee offered by a banking institution or a short term insurer, he explains, noting that some mines avoid this by using a cash-based investment strategy, which may in the end lead to unnecessarily higher future payments made into the trust.

As a result, financial provision results in substantial assets that are set aside and it is mandatory for mines to ensure that the sum invested can support the ultimate objective of rehabilitation. The investment mandates for these assets are also a key consideration, which needs to be taken into account in the context of impacting factors.

“Old Mutual Investment Group understands long-term liability and efficient mechanisms for provisioning and we continue to bring this skill and financial insight to the mining sector in order to support the industry with more effective and efficient mine closure provisioning,” he says.

Duncan adds that it is important to note when considering the chal- lenges surrounding mining rehab-ilitation that miners cannot operate in this sphere without a superior level of efficiency.