rehabilitation costs must be deposited well before the end of the operation of the mine. Insurance Depends on the financial Sound liquidity and May require smaller Mine operator has scheme strength of the insurer accessibility dollar commitments incentive to minimise in terms of premiums rehabilitation and hence Risk that policies will not than other mechanisms insurance costs be renewed e.g. a cash trust fund May be better suited to Limited experience or Minimal administration addressing low availability in practice – once established probability, catastrophic due to reluctance of events or used in insurers to May be expensive for combination with other environmental liability smaller companies mechanisms risks More vulnerable than Highly liquid Significant capital is tied Can provide a practical Cash Deposit other instruments to loss, up for the duration of the assurance instruments theft or diversion to mine life, particularly for where other options are alternative uses large mining projects not available or appropriate e.g. for small mining projects Fund pool Strong assurance as Sufficient liquidity Higher cost and Weaker incentive on mine shared across administrative complexity operator to meet sector/region than other forms of rehabilitation obligation assurance as fund requires However, would not be Can result in responsible ongoing administration adequate if there are large companies subsidising claims while the fund reduce government irresponsible ones pool is being built up or if administration costs WA & QLD considering there are multiple, Reduced overall cost options within the pooled simultaneous defaults across the sector relative fund model to address (which may have low to individual assurance this risk e.g. initial probability) requirements/costs refundable fee; bank guarantee required where history of compliance Unit levy Less assurance as fund Sound liquidity and Relatively low cost As for bank guarantee levels are built accessibility Pledge of High risk with low level Low liquidity and Low cost to mining Insufficient incentives on assets of assurance accessibility company the mine operator to assume risks and to meet Assets may become liquid form of Cost involved in its rehabilitation valueless in the event of assurance. obtaining third party obligation an operator default or valuation of assets bankruptcy Sources: As for Table 6.1. Common to all of the instruments, there needs to be a sound basis for determining the rehabilitation costs. Fundamental to this is that the rehabilitation plan is sufficient, but practical and cost effective. Concerns are raised in the literature that assurance levels should be prudent in light of all reasonably foreseeable risks, but they should not insist on protection against extreme, unlikely events that would add significantly to assurance costs.
rehabilitation costs must be deposited well before the end of the operation of the mine. Insurance scheme Depends on the financial strength of the insurer Risk that policies will not be renewed Limited experience or availability in practice – due to reluctance of insurers to environmental liability risks Sound liquidity and accessibility May require smaller dollar commitments in terms of premiums than other mechanisms e.g. a cash trust fund Minimal administration once established May be expensive for smaller companies Mine operator has incentive to minimise rehabilitation and hence insurance costs May be better suited to addressing low probability, catastrophic events or used in combination with other mechanisms Cash Deposit More vulnerable than other instruments to loss, theft or diversion to alternative uses Highly liquid Significant capital is tied up for the duration of the mine life, particularly for large mining projects Can provide a practical assurance instruments where other options are not available or appropriate e.g. for small mining projects Fund pool Strong assurance as shared across sector/region However, would not be adequate if there are large claims while the fund pool is being built up or if there are multiple, simultaneous defaults (which may have low probability) Sufficient liquidity Higher cost and administrative complexity than other forms of assurance as fund requires ongoing administration reduce government administration costs Reduced overall cost across the sector relative to individual assurance requirements/costs Weaker incentive on mine operator to meet rehabilitation obligation Can result in responsible companies subsidising irresponsible ones WA & QLD considering options within the pooled fund model to address this risk e.g. initial refundable fee; bank guarantee required where history of Unit levy Less assurance as fund levels are built Sound liquidity and accessibility Relatively low cost As for bank guarantee Pledge of assets High risk with low level of assurance Assets may become valueless in the event of an operator default or bankruptcy Low liquidity and accessibility liquid form of assurance. Low cost to mining company Cost involved in obtaining third party valuation of assets Insufficient incentives on the mine operator to assume risks and to meet its rehabilitation obligation Sources: As for Table 6.1. Common to all of the instruments, there needs to be a sound basis for determining the rehabilitation costs. Fundamental to this is that the rehabilitation plan is sufficient, but practical and cost effective. Concerns are raised in the literature that assurance levels should be prudent in light of all reasonably foreseeable risks, but they should not insist on protection against extreme, unlikely events that would add significantly to assurance costs. compliance