Mine Closure - Mining and the Environment: From Ore to Metal - page 803

TABLE 21.2
Financial Assurance Options - Governments frequently apply the 'polluter pays' principles

Options Description Advantages Disadvantages

Third-party guarantee Include unconditional bank guarantee

and insurance bonds. All are required to
be unconditional and/or irrevocable

● Relatively inexpensive (usually between
1 and 1.5% of amount) for the operator
establish
● Has full backing of fi nancial institution (funds
available 'on demand')
● Transparent and operation-specifi c
● Cannot normally be unilaterally withdrawn
by the issuer
● Can be altered as requirements change

Often considered by fi nancial institution
to be part of working capital, thereby
reducing available operating funds

Cash deposit Normally deposited direct with

government and only usually accepted
for 'small' operations

● Provides an advantage to the government
which has direct control over funds and has
sole responsibility for making funds available
if required
● The cash is returned to the company,
normally on completion of closure works

● Providing cash 'upfront' is a fi nancial
impediment to the operator and
potential loss of income through
interest
● If operator goes bankrupt cash may
be classed as a company asset and
available to all creditors
● Government must have a system to
ensure segregation of funds for their
intended use

Letter of credit A form of third party guarantee which

normally has a one year term, usually
extended following review by the issuer.
If not extended the benefi ciary
(government) is notifi ed and has the
option of drawing down the full value

Relatively inexpensive for the operator to
establish

● Can be unilaterally withdrawn by the
issuer at the end of the credit term
● May restrict company access to other
credit

Trust fund Administered by a third party trus-

tee with a defi ned investment policy.
Intended to cover the costs of a specifi c
closure plan through a structured series
of contributions. Surplus funds are
returned to the operator

● The fund is visible to government (and the
public)
● Any surplus after completion of the closure/
decommissioning plan are returned to the
operator

● A transition period is required to allow
the operator to build up the fund
● Administrative requirements (similar to
a pension fund) can be cumbersome

Insurance Policy Several jurisdictions nominate this as

an acceptable method of providing
fi nancial assurance. No example has
been located of this being implemented

● Relatively inexpensive for the operator to
establish
● Less administration required than with a
cash trust fund

● Only valid if annual premium paid
● Recourse to fi nancial assurance often
takes place some years after operator
becomes inactive and is unable to pay
the premium

'Soft' options Examples of soft options include:

Financial strength rating (where a
company is rated as investment grade);
Self-funding; Financial test (e.g. balance
sheet test); Corporate guarantee based
on fi nancial grade; Parent company
guarantees; Pledge of assets

● Does not involve direct costs
● Relatively inexpensive for the operator to
establish

Does not provide the save level of
security as hard forms of assurance

Source:
Fleury and Parsons 2006

The type of instrument applied has been and continues to be a source of concern to gov-
ernments and mining companies alike. From the point of view of governments, it is critical
that funds be available for use in case the company defaults due to insolvency, liquidation,
take-over or other cause. From the point of view of companies, there is general opposition
to paying money into a fund when such money could be used to retire debt or for other