Legislation requires that during the life of a mine, or premature closure or at final closure, all mining operations in South Africa need a financial provision to be in place, to guarantee that sufficient funds are available, to undertake the rehabilitation of environmental damage caused by mining activities.
Traditionally, mining companies made use of the following methods to give the requisite financial provision to obtain their environmental authorisations and subsequent licence to mine:
These traditional methods are cumbersome, expensive and a cashflow drain on mining companies.
We offer mining companies, a cost effective alternative solution to the traditional methods of providing the financial provision, in the form of a bespoke Mining Rehabilitation Guarantee(MRG),that is accepted by the Department of Mineral Resources(DMR) and is in compliance with the Regulations published under the National Environmental Management Act,No107 of 1998(NEMA.
The MRG is in the form of an insurance instrument that is both cost effective and cash flow friendly, as it allows for the annual release of any overfunded rehabilitation portion back to the mining company and can replace any existing financial provision currently in place under the traditional methods mentioned above.
The MRG is underwritten by accredited South African insurance companies, that are registered with the Financial Services Board to issue guarantees. The MRG is reinsured by reputable and internationally recognised reinsurance companies, Swiss Re and/or Munich Re which, depending on the particular mining operations balance sheet, will typically cost between 0,5% -2,5% per annum (cost of guarantee) excl vat. The mining operation would typically, be required to invest 10% (or less) per annum of the MRG value(investment)into a local or international Linked Investment Service Provider(LISP) at a risk profile that the mining operation is comfortable with.
As the quantum in the mining operation’s Environmental Management Program(EMP) is revised annually, so too will the MRG be adjusted accordingly.
Both the cost of guarantee and investment are paid into a contingency policy and are therefore tax deductible. The investment and its growth, remains the property of the mining operation, which will be used to undertake the rehabilitation of the environmental damage.
Should a rehabilitation provision of a R100 million be required by a mining operation and the negotiated cost of the MRG is 1,5%, an amount of R1,5 mill per annum is payable for the MRG and an amount of R10 mill will be invested in a tax deductible contingency policy on an annual basis.