Mining rehabilitation regulations nearing finality but one stumbling block remains

25 February 2022

The Minerals Council South Africa, representing the mining industry, and the Department of Environmental Affairs have been consulting and negotiating since 2015 regarding proposed changes to regulations relating to financial provisioning for the rehabilitation and remediation of environmental damage caused by reconnaissance, prospecting, exploration, mining or production operations.

Once finalised, these regulations – which fall within the ambit of the National Environmental Management Act (NEMA) – will completely replace the current Financial Provisioning Regulations, 2015.

“Over the past seven years there has been a considerable meeting of minds between the mining industry and lawmakers, with consensus reached on most of the issues; however, the one remaining stumbling block, relating to provision for residual and latent defect, is a major one,” says Richard Eales, Managing Executive at Guardrisk Insurance.

The concept of residual and latent damage is a relatively new addition to the agenda and requires mine owners to make provision for all damage that occurs after the mine has closed. The method of making this provision, as well as the way that it is calculated, is still an issue of contention and it is on this that the mining industry and the department are seeking to find middle ground.

In its current form, the quantum of the provision will necessarily increase and it will need to be reviewed and assessed annually by an independent auditor.

“Regardless of the outcome of the amendments to the regulations, Guardrisk’s offering of structured, tailor-made solutions for financial provisioning remains relevant, providing mine owners with an efficient and cost-effective means of ensuring compliance. Our guarantees are accepted by the Department of Mineral Resources,” says Eales.

However, mining rehabilitation guarantees provided by companies like Guardrisk terminate at mine closure. Once the mine closes there is no longer an insurable interest and the contract ends.

If the concept of residual and latent damage goes ahead in its current form mines will have no option but to provide for this liability through S37A trusts. At a time when the industry is only just starting to show tentative green shoots of recovery this could be a major setback.

The three main local insurers that provide mining rehabilitation guarantees (of which Guardrisk is one) have spearheaded engagement with the lawmakers on behalf of the insurers, seeking to facilitate a solution that works for all parties.

After several delays, the implementation of the regulations is planned for June 2022. The mining and financial services industries were last invited to comment in October 2021, and the department has undertaken to make a further proposal which will be opened for comment early in 2022. Indications are that this will be the final opportunity for comment, after which the regulations will be finalised and implemented.