range up to 9% per and that it has sufficient annum of face value of funds to cover the costs the liability If the guarantee is low Minimal administration relative to the required rehabilitation cost then the mechanism will not Ties up capital in the provide sufficient statutory deposit incentive to avoid the (opportunity costs) rehabilitation obligation Funds unavailable for rehabilitation Borrowing power of mine operator reduced (medium to small firms) Company Low level of assurance as Will depend on financial Low cost to company. Insufficient incentives on guarantee only backed by balance position of company the mine operator to Administration costs sheet of the operator. It assume risks and to meet incurred in verifying the can be difficult to access its rehabilitation firms’ financial position. accurate information obligation about the true financial health of the company. Many jurisdictions will no longer accept a Company Guarantee as an adequate form of financial surety Surety Depends on the financial liquidity and Relatively inexpensive As for bank guarantee (insurance) strength of the insurer accessibility but more expensive than bond bank guarantee But could have similar assurance strength as Costs could be high for bank guarantee small companies without track record Minimal administration required Trust fund Highly transparent. Liquid and accessibility Requires ongoing Mining company will However, risk that within reasonable administration and sound have the incentive to investments may timeframes third party management ensure sound depreciate in through and hence incurs ongoing management of the fund poor or risky investments administration costs Less certainty value Requires review and audit of funds held May take time to build up required financial assurance where significant funds are required Sinking fund Less assurance as fund Sound liquidity and Depends on the mix of As for bank guarantee levels are built accessibility mechanisms used. Typically involves some form of trust fund and hence requires ongoing administration, sound third party management incurs ongoing administration costs In many a large proportion of the
range up to 9% per annum of face value of the liability Minimal administration required Ties up capital in the statutory deposit (opportunity costs) Funds unavailable for rehabilitation Borrowing power of mine operator reduced (medium to small firms) and that it has sufficient funds to cover the costs If the guarantee is low relative to the rehabilitation cost then the mechanism will not provide sufficient incentive to avoid the rehabilitation obligation Company guarantee Low level of assurance as only backed by balance sheet of the operator. It can be difficult to access accurate information about the true financial health of the company. Many jurisdictions will no longer accept a Company Guarantee as an adequate form of financial surety Will depend on financial position of company Low cost to company. Administration costs incurred in verifying the firms’ financial position. Insufficient incentives on the mine operator to assume risks and to meet its rehabilitation obligation Surety (insurance) bond Depends on the financial strength of the insurer But could have similar assurance strength as bank guarantee liquidity and accessibility Relatively inexpensive but more expensive than bank guarantee Costs could be high for small companies without track record Minimal administration required As for bank guarantee Trust fund Highly transparent. However, risk that investments may depreciate in through poor or risky investments Less certainty value of funds held May take time to build up required financial assurance where significant funds are required Liquid and accessibility within reasonable timeframes Requires ongoing administration and sound third party management and hence incurs ongoing administration costs Requires review and audit Mining company will have the incentive to ensure sound management of the fund Sinking fund Less assurance as fund levels are built Sound liquidity and accessibility Depends on the mix of mechanisms used. Typically involves some form of trust fund and hence requires ongoing administration, sound third party management incurs ongoing administration costs In many a large proportion of the As for bank guarantee
NERA-Latrobe-coal-resource-strategic-management-Final-Report-05022016.docx