Although government has shown a willingness to consider the concerns raised by industry regarding the recently promulgated Financial Provisioning Regulations under the National Environmental Management Act (Nema) and softening some of the “hard edges”, greater urgency in establishing a clear final position is needed, says global energy and resource specialist consultancy Venmyn Deloitte.

This position, says Venmyn Deloitte MD Chris de Vries, must balance the need to deal with legacy environmental issues and the long-term viability of the mining industry in South Africa.

Venmyn Deloitte sustainability solutions leader Sarah Magnus notes that industry and government need sufficient time to finalise the aspects of the regulations which are still being debated, which, in part, is why government recently published proposed amendments to the regulations, which seek to delay the date for compliance with the regulations to February 20, 2018.

Proposed Amendments
On September 9, the Minister of Environmental Affairs published the proposed amendments to the regulations for public commentary, following their promulgation on November 20, 2015.

The regulations deal with the financial provision for prospecting, exploration, mining or production operations and have shifted the governance of managing closure and rehabilitation liability from the Department of Mineral Resources (DMR) to the Department of Environmental Affairs (DEA). Historically, the requirements for addressing rehabilitation liability fell under the Mineral and Petroleum Resources Development Act (MPRDA).

Magnus explains that the regulations under Nema were developed to include leading best practice for closure developed by countries such as Australia and Canada, and enable South African mining companies to better define the cost of mining.

However, major areas of concern have been highlighted over the past ten months since the regulations were promulgated.

These include the potential for duplicate funding; the method for determining the different classes of liabilities, specifically the determination of latent impacts; the validity of financial vehicles used to fund the different liabilities; the role of the independent auditor; insufficient timeframes to transition to compliance; and time and cost implications.

The proposed amendments to the regulations promulgated by the Environmental Affairs Minister seek to address the various concerns which have been raised by several stakeholders in the mining industry. Magnus explains that the amendments that have been put forward include amending the funding requirements stipulated in the regulations to enable existing rehabilitation trust funds to meet the objectives for which they were created, and deleting the Trust Fund and Guarantee templates.

Also proposed is amendment of various definitions, roles and requirements for funding, as well as the changing of care and maintenance provisions to apply to all holders of mining rights, notes Magnus.

De Vries highlights that the proposed amendments have failed to address the apparent nonalignment of the regulations with the Income Tax Act, institutional mechanisms to manage remaining rehabilitation funds after closure certificates have been granted, the specific procedures that the auditor must perform and the level of assurance required when signing off the financial aspects of documentation that must be submitted to the DMR yearly.

The establishment of a task team to address the remaining concerns for the regulations has yet to be finalised. “The task team is crucial in ensuring the success of the regulations and its establishment should be a priority for the DEA,” states De Vries.

Consequence

De Vries says the new regulations in their unaltered form are unlikely to provide to the regulatory departments with more authority for enforcement. “However, there are existing regulations in South Africa which govern the use of funds earmarked for mine rehabilitation, tax considerations on extracting such funds, and exchange-control regulations governing the transfer of money to foreign jurisdictions.”

De Vries notes that South Africa’s environmental laws are among the best in the world and that there are various mechanisms available to industry and the public to ensure that these laws and regulations are enforced.

Magnus adds that the regulations provide more prudent and timely requirements for mining companies to make financial provisioning for rehabilitation. The additional funding requirements in particular require careful consideration, as there are various strategies that can be employed.

“There is also greater emphasis on the involvement of independent consultants and reviewers to promote compliance. We are working with our clients and industry to understand what practical solutions can be brought to the table,” she outlines.

“The potential negative financial implications which may arise from the implementation of the Financial Provisioning Regulations on the mining industry should also be carefully examined,” De Vries highlights.

“These consequences include likely increases in the rehabilitation liability carried on the balance sheet and the yearly cost of rehabilitation and compliance. Mining companies will also have to plan for the increased financial provisioning burden and the resulting potential adverse impact on their liquidity, debt covenants and capital raising opportunities.”

Magnus points out that the old regulations contained under the MPRDA were advanced at the time of their release in 2005, but that the understanding of the impact of mine closure has advanced significantly and this is reflected in the new regulations.

“An excellent example is the separation of the different types of rehabilitation obligations arising from mining activities into three different classes: annual rehabilitation obligations; final rehabilitation, decommissioning and mine closure obligations; and latent and residual impacts.”

This segregation, she explains, enables mining companies to identify opportunities for rehabilitation during the life of a mine, better prepare for the obligations that will arise during the decommissioning and closure phases, and understand the likelihood of latent risks such as acid mine drainage.