REPORT ON GUIDELINE DOCUMENT FOR THE EVALUATION OF THE QUANTUM OF CLOSURE-RELATED FINANCIAL PROVISION PROVIDED BY A MINE

Transcription

1 Golder Associates Africa (Pty) Ltd Reg. No. 2002/007104/07 JOHANNESBURG PO Box 6001 Halfway House 1685 South Africa Thandanani Park, Matuka Close Halfway Gardens, Midrand Tel + (27) (0) Fax + (27) (0) REPORT ON GUIDELINE DOCUMENT FOR THE EVALUATION OF THE QUANTUM OF CLOSURE-RELATED FINANCIAL PROVISION PROVIDED BY A MINE Report No : P Rev April 2004 Submitted to: Department of Minerals and Energy Private Bag X 59 Pretoria 0001 DISTRIBUTION: 2 Copies - Department of Minerals and Energy 1 Copy - Golder Associates Africa (Pty) Ltd 1 Copy - Library March P Directors : PN Hayter (Australia) FR Sutherland, C Swindells (Australia), JA Wates OFFICES IN JOHANNESBURG, PRETORIA, DURBAN, INDONESIA, HONG KONG, CHINA, THAILAND, PHILIPPINES, NEW ZEALAND, AUSTRALIA OFFICES ACROSS NORTH AMERICA, SOUTH AMERICA, EUROPE, ASIA, AUSTRALASIA, AFRICA

2 April 2004 A i P EXECUTIVE SUMMARY A new Minerals and Petroleum Resources Development Act (MPRDA), (Act No. 28 of 2002) will be promulgated. This Act will replace the Minerals Act of 1991 (Act No. 50 of 1991). The financial provision for the environmental rehabilitation and closure requirements of mining operations forms an integral part of the new Act, as was the case with the old Act. Sections 41(1), 41(2), 41(3) and 45 of the MPRDA deal with the financial provision for mine rehabilitation and closure. The personnel within the Department of Minerals and Energy (DME) Regional Offices are required to review and approve the quantum, that is, the monetary value of the financial provision that has been computed by the holder of a prospecting right, mining right or mining permit during the annual review as being sufficient to cover the environmental liability at that time and at closure of the mine. The Regional Office personnel have indicated the need to be empowered to undertake the review task by being guided by a new, generic guideline document that covers the determination of the quantum for rehabilitation and closure of mining sites. This guideline document entitled Guideline document for the evaluation of financial provision made by the mining industry has been developed to address this need, and is for use by the DME personnel in the Regional Offices. The guideline document is structured as follows: Section A: Background details and supporting information covers the introduction and background to the guideline document, a review of international practice to determine the quantum, an outline of the legal review and the investment strategy, and supporting information for the quantum calculations. Section B: Working manual for the assessment of the quantum covers the procedures that the DME Regional Office personnel will use on a day-to-day basis to calculate the quantum, and Section C: Appendices provides additional information on various aspects of rehabilitation and closure, including a review of international practice, legal review, investment strategy, generally accepted closure methods and worked examples. The structure of the guideline document is shown schematically on page iii. The objectives of the guideline document are: To improve the understanding of the financial, legal and investment aspects of rehabilitation and closure within the DME Regional Offices, To enable the DME Regional Office personnel to adequately evaluate/review the quantum for financial provision submitted by the mining industry. This review will cover both the financial provision for premature closure at any time (the current environmental liability) and the financial provision for end-of-mining closure (the future environmental liability), To provide the DME Regional Office personnel with a comprehensive and useful guideline on the legal aspects of rehabilitation and closure, as well as generally accepted closure methods, and

3 April P To provide the DME Regional Office personnel with generic guidelines on investment strategies that could be presented to role-players in the mining industry, if requested. The principles that have been adopted for this guideline document are as follows: Legal standing: The guideline document is to be used by the Regional Office personnel as a tool to assess the appropriateness of the quantum of financial provision submitted to the DME by the mining industry. The guideline document does not have any legal standing. The guideline document does not, therefore obviate in any way the holder of a prospecting right, mining right or mining permit from the legal requirement to annually assess his or her environmental liability and adjust his or her financial provision to the satisfaction of the Minister, Generic nature: The guideline document is generic in nature and cannot answer all possible questions or deal with all situations relating to financial provision, rehabilitation and mine closure. Further advice and/or experience may be required, based on circumstances that prevail at specific mine sites, to fully assess the quantum for financial provision. Standardised approach: The guideline document provides a generic approach to the determination of the quantum for financial provision by the DME, Complete picture: The guideline document covers the routine closure components that are generally required for the closure of a mine site. The DME Regional Office personnel should also be aware that site-specific conditions could prevail. Under these circumstances, specialist studies (and related closure costs) on aspects such as surface and groundwater pollution and remediation may be required. The outcome of these studies must be considered in the determination of the quantum to arrive at a complete picture of the quantum for financial provision. The methodology for computing the quantum is based on the assumption that a third party will be employed by the DME to undertake the necessary rehabilitation and remedial work, should the mining operation close prematurely. With the determination of the quantum for closure it must be assumed that the mine infrastructure has no salvage value. This is necessary as it is often difficult to determine the salvage value for the infrastructure. However, salvage value can be off-set if the mine can demonstrate that a formal arrangement exists covering demolition of the mine infrastructure and the payment to be received.

4 April 2004 A iii P Section A Background details and supporting information Introduction and background Review of international practice Legal review Background information for the quantum Calculations Investment strategy Section B Working manual Assessment of the quantum Appendix C.1 Review of international practice Appendix C.2 Legal guideline Section C Appendix C.3 Generally accepted closure methods Appendix C.4 Investment guideline Appendix C.5 Template for assessing the quantum Appendix C.6 Worked examples Schematic layout of the guideline document

5 SECTION A BACKGROUND DETAILS AND SUPPORTING INFORMATION

6 April 2004 A i P SECTION TABLE OF CONTENTS PAGE 1 INTRODUCTION AND BACKGROUND Introduction Document applicability Financial provision Departmental requirements Purpose and limitations of the document Purpose Limitations Principles in practice Legal standing Generic nature Standardised approach Complete picture Remedial work to be undertaken by third party Salvage value Structure of the guideline document USE OF THE GUIDELINE DOCUMENT REVIEW OF INTERNATIONAL PRACTICE LEGAL REVIEW SUPPORTING INFORMATION FOR THE QUANTUM CALCULATIONS Risk ranking based on mineral mined Area sensitivity Generally accepted closure methods INVESTMENT STRATEGY GLOSSARY OF TERMS...16 LIST OF TABLES Table A.1 Table A.2 Summary of pertinent methodologies for calculating the quantum in the selected countries Closure components for determining the quantum for financial provision LIST OF FIGURES Figure A.1 Schematic indication of the environmental liability of a mining operation over time

7 April 2004 A P 1 INTRODUCTION AND BACKGROUND 1.1 Introduction A new Minerals and Petroleum Resources Development Act (MPRDA), (Act No. 28 of 2002) will be promulgated. This Act will replace the Minerals Act of 1991 (Act No. 50 of 1991). The financial provision for the environmental rehabilitation and closure requirements of mining operations forms an integral part of the new Act, as was the case with the old Act. The relevant sections within the Act that deal with the financial provision are as follows: Section 41(1), which requires that an applicant for a prospecting right, mining right or mining permit must, before the Minister approves the environmental management plan or environmental management programme in terms of section 39(4), make the prescribed financial provision for the rehabilitation or management of negative environmental impacts, Section 41(2) which provides that, if the holder of a prospecting right, mining right or mining permit fails to rehabilitate or manage, or is unable to undertake such rehabilitation or to manage any negative impact on the environment, the Minister may, upon written notice to such holder, use all or part of the financial provision to rehabilitate or manage the negative environmental impact in question, Section 41(3) which requires the holder of a prospecting right, mining right or mining permit to annually assess his or her environmental liability and increase his or her financial provision to the satisfaction of the Minister, and Section 45, which allows the Minister to recover costs in the event of urgent remedial measures. 1.2 Document applicability The Department of Minerals and Energy (DME) National Office personnel will update this document as follows: The Master rates will be updated on an annual basis, based on CPIX or a similar approved method. The first of these updates will take place in March 2005, and The overall document will be reviewed and updated every three years. 1.3 Financial provision The financial provision required by the holder of a prospecting right, mining right or mining permit (in terms of Section 41 of the MPRDA) to achieve the total quantum for rehabilitation and remediation of environmental impacts and associated damage as well as close-out must be provided for by one or more of the following methods: Approved contribution(s) to a dedicated trust fund as provided for in terms of Section 10(1)(cH) of the Income Tax Act, 1962; and/or

8 April 2004 A P A financial guarantee from a South African registered bank or any other bank or financial institution approved by the Minister, guaranteeing the financial provision required to implement the environmental management programme; and/or A cash deposit to be deposited at the office of the Regional Manager in whose region the application was lodged; and/or Any other manner the Minister may determine. The DME has, as of 01 January 2004, assumed responsibility for approving the contributions to trust funds. The South African Revenue Service (SARS) is in the process of developing a Memorandum of Understanding to take account of this and other changes in internal arrangements. The Department recognises the State s obligation to protect itself from risks and liabilities arising from unscheduled/premature closure but accepts that not all mines pose the same risk in this regard. To this end, the Department has implemented an alternate arrangement, where a mining company could be exempted, on the basis of a demonstrated good track record, from providing an amount sufficient to fund all uncompleted rehabilitation work required for closure of the mine at any given time. The mining company could be allowed to provide a lesser amount approved by the Director- General, Department of Minerals and Energy on the recommendation of the Director: Mineral Development (DMD). The essential requirements taken into consideration when applying the alternate arrangement are: An EMP that has been accepted for consideration by the DMD or has been approved, The mine is in compliance with the requirements of its approved EMP or draft EMP that has been accepted for consideration by the DMD and has submitted monitoring and performance assessment reports as stipulated in the EMP, and The mine has been in operation for at least 5 years and has a track record based on demonstrated compliance with applicable environmental legislation over this time period. In addition to the essential requirements, an application from a mining company for qualifying for the alternate arrangement will be assessed against the remaining operating or planned life of the mine (in years), the net earnings in Rands (after exceptional items), cash flow from operating activities, the nature of the completed and uncompleted rehabilitation work and the status of the latest financial provision. 1.4 Departmental requirements The personnel within the DME Regional Offices are required to evaluate/review and approve the quantum, that is, the monetary value of the financial provision that has been provided by the holder of a prospecting right, mining right or mining permit during the annual review as being sufficient to cover the environmental liability at that time and at close-out of the mine. The Regional Office personnel have indicated the need to be empowered to undertake the evaluation/review task by being

9 April 2004 A P guided by a new, generic guideline document that covers the determination of the quantum for rehabilitation and closure of mining sites. This guideline document entitled Guideline document for the evaluation of financial provision made by the mining industry has been developed to address this need, and is for use by the DME personnel in the Regional Offices. The guideline document will be used to evaluate/review the quantum for financial provision provided by the mining operation, to cover both the current environmental liability (in the event, however unlikely, of premature closure of the mine) and the end-of-life environmental liability. 1.5 Purpose and limitations of the document Purpose The purpose of the guideline document for the evaluation of financial provision is as follows: To improve the understanding of the financial, legal and investment aspects of rehabilitation and closure within the DME Regional Offices, To enable the DME Regional Office personnel to adequately evaluate/review the quantum for financial provision prepared and submitted by the mining industry. This review will cover both the financial provision for premature closure at any time (the current environmental liability) and the financial provision for end-of-mining closure (the future environmental liability), To provide the DME Regional Office personnel with a comprehensive and useful guideline on the legal aspects of rehabilitation and closure as well as generally accepted closure methods, and To provide the DME Regional Office personnel with generic guidelines on investment strategies that could be presented to role-players in the mining industry, if requested Limitations The guideline document has the following limitations: The guideline document has no legal standing and is prepared for use as a tool only, and There is no guarantee that the use of this guideline document by the role-players will make the closure process easier. There could however be significant benefits if the guideline document were to be used by both the DME and the mining industry, in order to align the assessment of the environmental liability for a mine. 1.6 Principles in practice The principles outlined in the sections directed the development of this guideline document.

10 April 2004 A P Legal standing The guideline document is to be used by the Regional Office personnel as a tool to assess the appropriateness of the quantum of financial provision submitted to the DME by the mining industry. The guideline document does not have any legal standing. The guideline document does not, therefore obviate in any way the holder of a prospecting right, mining right or mining permit from the legal requirement to annually assess his or her environmental liability and adjust his or her financial provision to the satisfaction of the Minister Generic nature The guideline document is generic in nature and cannot answer all possible questions or deal with all situations relating to financial provision, rehabilitation and mine closure. Further advice and/or experience may be required, based on the circumstances that prevail at specific mine sites, to fully assess the quantum for financial provision Standardised approach The guideline document provides a generic approach to evaluate/review the quantum for financial provision by the DME. This approach aims to avoid a situation of applying non-aligned empirical approaches and interpretations between DME regional offices Complete picture The guideline document covers the routine closure components that are generally required for the closure of a mine site. The DME Regional Office personnel should also be aware that site-specific conditions could prevail. Under these circumstances, specialist studies (and related closure costs) on aspects such as surface and groundwater pollution and remediation may be required. The outcome of these studies must be considered in the determination of the quantum to arrive at a complete picture of the quantum for financial provision Remedial work to be undertaken by third party The guideline document and the methodology for determining the quantum is based on the assumption that a third party will be employed by DME to undertake the necessary rehabilitation and remedial work, should the mining operation close prematurely. This assumption is in line with the adopted international approach Salvage value With the determination of the quantum for closure it must be assumed that the mine infrastructure has no salvage value. This is necessary as it is often difficult to determine the salvage value for the infrastructure. However, salvage value can be off-set if the mine can demonstrate that a formal arrangement exists covering demolition of the mine infrastructure and the payment to be received.

11 April 2004 A P 1.7 Structure of the guideline document The guideline document is structured as follows: Section A: Background details and supporting information which covers the following: o o o o Introduction and background to the guideline document, A summary of the findings of the review of international practice to determine the quantum, A summary of the legal and investment guideline documents, and Supporting information for the quantum calculations. Section B: Working manual for the assessment of the quantum covers the procedures that the DME Regional Office personnel will use to calculate the quantum, and Section C: Appendices provides the following additional information: o o o o o o Appendix C.1: Review of international practice, Appendix C.2: Legal review, Appendix C.3: Generally accepted closure methods, Appendix C.4: Investment guideline, for use by DME Regional Office personnel, Appendix C.5: Template for assessing the quantum, and Appendix C.6: Worked examples. 2 USE OF THE GUIDELINE DOCUMENT A conceptual perspective of the worst case situation of the environmental liability of a mining operation over time is presented schematically in Figure A.1. It is recognised that there may be many variations of the conceptual perspective, depending on the nature of the mining operation. This perspective is however necessary to aid with the application of the guideline document. The key aspects of the perspective are as follows: The overall quantum of environmental liability will: o o increase rapidly in the early stages of mining, as the mining operation is established, since during these stages the most notable environmental impact is incurred, increase, remain static or decrease during the on-going mining operation, depending on the nature of mining and the nature of rehabilitation that is undertaken concurrently with the mine operations,

12 April 2004 A P o o decrease in the final years of mining to point A where mining is discontinued and the environmental liability is limited to those closure components that could not be undertaken during the operational period of mining, as defined in the Environmental Management Programme, and decrease over the care and maintenance period as the closure components are gradually addressed. The annual contributions to a trust fund are tailored for funding the final mine close-out. These contributions are calculated annually as (A-B)/C, where: A represents the amount determined by a suitably qualified person of the estimated costs to be incurred at the time that operations of the mine or part of the mine are discontinued in order to discharge the obligations imposed in terms of any law which relates to mining operations, B means the market value of the assets held by the company, society, association or trust in respect of that mine on the date of the determination of the estimated costs in symbol A, and C represents the estimated remaining life of that mine in number of years. It should be noted that the DME is considering the making of an initial deposit contribution to the trust fund at commencement of a mining operation (time = 0) and limiting the remaining life of mine to a maximum of 30 years. The holder of a prospecting right, mining right or mining permit is required to annually assess the total quantum of environmental liability for the mining operation (points D and A on the graph) and ensure that financial provision are sufficient to cover the current liability (in the event of premature closure) as well as the end-of-mine liability. This is referred to as the window approach as each assessment provides an indication of the environmental liability at that time only (Point D). The holder will also provide, on an annual basis, an indication of the end-of-life environmental liability (Point A). The DME Regional Office personnel will then, on an annual basis: Use this guideline document (and in particular the Working Manual in Section B) to review and approve both: o the quantum for financial provision that is applicable at that time (point D), as calculated by the permit holder, and o the quantum for final close-out of the mine (point A) Assess the relevant current market value of assets held in the trust fund, if applicable, Determine the portion of the quantum that must be covered by one of the other financial methods (such as a financial guarantee, cash deposit or other approved method).

13 April 2004 A P Environmental liability (Rands) KEY: Overall environmental liability Environmental liability covered by the trust fund at any time Environmental liability to cover under the alternate arrangement Closure of a portion of the mine D B A Mining close-out Care and maintenance Annual reviews ( window approach) Initial deposit (if applicable) Quantum covered by Trust Fund Quantum covered by other financial method Use of a portion of the trust fund for rehabilitation TIME (years) C Figure A.1 : Schematic indication of the environmental liability of a mining operation

14 April 2004 A P 3 REVIEW OF INTERNATIONAL PRACTICE International practice with regard to the determination of the quantum was reviewed, to gain an understanding of the international methodologies used to determine the quantum. Appendix C.1 contains the report on this review, reference E, entitled International practice in the determination of the quantum of financial provision for mine rehabilitation and closure. The executive summary of this report is, for convenience, included below. The review document outlines the international practice with regard to financial provision, particularly the methods employed to determine the relevant provision in the selected countries such as the USA, Canada and Australia. It was also attempted to review relevant methodologies in other developing countries, particularly in Africa. However, no useful information could be obtained. The approach adopted for the review included the following: An analysis of all relevant legislation and regulations in the selected countries relating to the closure of mining sites and the determination of the quantum for financial provision, and Discussion with knowledgeable persons within the selected countries on the applicability and use of the various methodologies to determine the quantum for financial provision. The practices and methodologies from the selected countries can be categorised as follows: Area-based, that is the quantum for financial provision is calculated by multiplying the area of the mining operations by a fixed standardised unit rehabilitation cost; and/or Project-based, where the costs of each component of rehabilitation of the mine site are determined and totalled for the life of the mine. The pertinent methodologies for calculating the quantum for financial provision in the selected countries are given in Table A.1.

15 April 2004 A P Table A.1: Summary of pertinent methodologies for calculating the quantum in the selected countries Country State Method used to determine the quantum USA Federal/Colorado Direct costs for rehabilitation (based on equipment hours multiplied by rate per hour) Indirect costs added (contingency, mobilisation, etc) Lump sum costs for specific closure components excluded unless specifically required Closure costs determined as a combination of: Direct and indirect costs (as for USA) Canada British Columbia Lump sum costs for specific rehabilitation components, and Post closure costs (capital and operating costs) Northern Districts Spreadsheet (RECLAIM) used to calculate costs Australia Queensland Western Australia Routine projects: Lump sum of $2,500 to $40,000, depending on area and risk Non-routine projects: Costs estimated from area disturbed and unit rates for activities Up to 75% discount on financial provision offered, depending on performance. Sliding scale of $ 5,000 per hectare for sites with low mobilisation costs to $15,000 per hectare for more remote/inaccessible areas 4 LEGAL REVIEW An overview of the requirements of the Minerals Act 50 of 1991 and the Mineral and Petroleum Resources Development Act 28 of 2002 regarding financial provision, environmental rehabilitation and closure is given in Appendix C.2. It also places the financial provision into context with respect to relevant constitutional considerations and the overall government policy currently prevailing in South Africa (Paragraph 2) as well as within a broader environmental legal framework. It must be recognised however that the legal review in the guideline can only be a summary of certain legal positions, is generic in nature and cannot answer all possible questions or deal with all situations relating to financial provision, rehabilitation and mine closure. Further advice may be required based on the circumstances that prevail at specific mines. It must also be noted that legislation can change. Hence legal review reflected in the guideline must be regarded as indicative only and is not a substitute for reference to legislation. Section 41(1) of the MPRDA requires that an applicant for a prospecting right, mining right or mining permit must, before the Minister approves the environmental management plan or environmental management programme in terms of section 39(4), make the prescribed financial provision for the rehabilitation or management of negative environmental impacts. Section 1 of the MPRDA defines financial provision as meaning the insurance, bank guarantee, trust fund or cash that applicants for or holders of a

16 April 2004 A P right or permit must provide in terms of sections 41 and 89 guaranteeing the availability of sufficient funds to undertake the agreed work programmes and to rehabilitate the prospecting, mining, reconnaissance, exploration or production areas, as the case may be. Regulation 34(b)(v), in terms of the MPRDA that deals primarily with the environmental management plan, requires that the environmental management plan must include an outline of the implementation programme, which must include the financial provision requirement in relation to the execution of the environmental management programme, including the determination of the quantum and details of the method of provision and revision thereof. Moreover, regulation 35(2)(d) stipulates that an environmental management plan shall be in the standard format provided by the Department and must contain the financial provision, which must include the determination of the quantum as contemplated in regulation 37 and details of the method(s) of provision and the revision thereof as contemplated in regulation 36. The methods for financial provision are set out in regulation 36 which stipulates that the financial provision required in terms of section 41 to achieve the total quantum for rehabilitation and remediation of environmental impacts, damage as well as final closure must be provided for by one or more of the following methods: an approved contribution as required in terms of section 10(1)(cH) of the Income Tax Act, 1962 (which must be in the format of Form S of Annexure II to the regulations); and / or a financial guarantee from a South African registered bank or any other bank or financial institution approved by the Minister guaranteeing the financial provision relating to the environmental management programme or plan (in the format of Form T of Annexure II to the regulations); and/or a cash deposit to be deposited at the office of the Regional Manager in who s region the application was lodged (in the format of Form U of Annexure II to the regulations); and/or any other manner the Minister may determine. Regulation 37(1) requires that the quantum of the financial provision to be approved by the Minister must be based on the requirements of the approved environmental management programme or plan and shall include a detailed itemisation of all actual costs required for: premature closure regarding: o o o the rehabilitation of the surface of the area; the prevention and management of pollution from the atmosphere; and the prevention and management of pollution of water and the soil;

17 April 2004 A P decommissioning and final closure of the operation; and post-closure management of residual and latent environmental impacts. It should also be noted that section 18(2)(c) and 24(2)(b) require that an application for renewal of a prospecting right and mining right respectively must be accompanied by a report reflecting the extent of compliance with the requirements of the approved environmental management programme, the rehabilitation to be completed and the estimated cost thereof. Section 41(2) of the MPRDA provides that, if the holder of a prospecting right, mining right or mining permit fails to rehabilitate or manage, or is unable to undertake such rehabilitation or to manage any negative impact on the environment, the Minister may, upon written notice to such holder, use all or part of the financial provision to rehabilitate or manage the negative environmental impact in question. Section 41(3) of the MPRDA requires the holder of a prospecting right, mining right or mining permit to annually assess his or her environmental liability and increase his or her financial provision to the satisfaction of the Minister. Regulation 37(2) also requires that the holder of a prospecting right, mining right or mining permit must annually update and review the quantum of the financial provision: in consultation with a competent person; as required in terms of the approved environmental management programme or environmental management plan; or as requested by the Minister. Any inadequacies with regard to the financial provision must in terms of Regulation 37(3) be rectified by the holder of a prospecting right, mining right or mining permit as: determined in an amendment of the environmental management programme or plan as the case may be; within the timeframe provided for; or as determined by the Minister. In terms of section 41(4), if the Minister is not satisfied with the assessment and financial provision contemplated in this section, the Minister may appoint an independent assessor to conduct the assessment and determine the financial provision. Section 41(5) of the MPRDA stipulates that the requirement to maintain and retain the financial provision remains in force until the Minister issues such holder with a closure certificate contemplated in section 43. However, the Minister may retain such portion of the financial provision as may be required to rehabilitate the closed mining or prospecting

18 April 2004 A P operation in respect of latent or residual environmental impacts. Furthermore, section 43(6) requires that, when a closure certificate is issued, the Minister must return to the holder in question such portion of the financial provision as the Minister may deem appropriate, but may retain any portion of such financial provision for latent or residual environmental impacts which may become known in the future. Further sections of the MPRDA relevant to the financial provision include sections 45 and 46. Section 45 allows the Minister to recover costs in the event of urgent remedial measures. Section 46(1) provides that if the Minister directs that measures contemplated in section 45 must be taken to prevent pollution or ecological degradation of the environment or to rehabilitate dangerous occurrences, but the Minister establishes that the holder of the relevant reconnaissance permission, prospecting right, mining right, retention permit or mining permit, as the case may be, or his or her successor in title, is deceased or cannot be traced or, in the case of a juristic person, has ceased to exist, has been liquidated or cannot be traced, the Minister may instruct the Regional Manager concerned to take the necessary measures to prevent further pollution or degradation, or to make the area safe. In terms of section 46(2), these measures must be funded from the financial provision made by the holder of the relevant reconnaissance permission, prospecting right, mining right, retention permit or mining permit in terms of section 41, where appropriate, or if there is no such provision or if it is inadequate, from money appropriated by Parliament for that purpose. Financial provision are also addressed in the document, in terms of the MPRDA, as follows: Section 43(g)(v) requires that an application for a closure certificate in terms of section 43(3) of the MPRDA must be accompanied by an environmental risk report, which must include agreeing on management measures to be implemented for the potential significant risks, which must include the financial provision for long-term maintenance. Section 45(h) requires that a closure plan in terms of section 43(3)(d) of the MPRDA, forms part of the environmental management programme or environmental management plan, as the case may be, and must include details of financial provision for monitoring, maintenance and post closure management, if required. Section 55(8)(a)(iv) stipulates that the decommissioning, closure and post closure management of residue deposits must be addressed in the closure plan, which must contain cost estimates and financial provision for closure and post-closure management.

19 April 2004 A P 5 SUPPORTING INFORMATION FOR THE QUANTUM CALCULATIONS For the purpose of this guideline, the risk posed by a mining operation considers the following: The risk posed by the mineral mined/processed, and The risk posed by the location of the mine relative to the environmental sensitivity of the area. 5.1 Risk ranking based on mineral mined The nature of the mineral mined and/or processed could pose different potential for adverse impact on the receiving environment. The risk class for each of these minerals, reflecting the potential adverse effects, has been determined using a risk-ranking matrix. This risk is expressed as a combination of: The probability of occurrence of the impact, which ranges from Not expected to happen/highly unlikely to Expected to occur/frequent, and The consequence of occurrence the impact which ranges from No impact/very low to Acute effects at regional level/catastrophic. The consequence of occurrence relates to the potential impact on water, land, air and human health. The identified risk classes can be categorised as follows: Class A (High risk): a high probability of the occurrence of the impact with a severe consequence, Class B (Medium risk): a moderate probability of occurrence with a manageable consequence, Class C: (Low risk): a low probability of occurrence with a negligible consequence. A primary risk class for a mine has been defined based on the type of mineral mined/processed, as shown in Table B.12 at the end of section B. The primary risk class is influenced by the following: Type of mineral mined/processed (12 types of primary minerals mined/processed are identified), The size of mine (in tons per month), either large or small, and

20 April 2004 A P The presence on site of either: o o mine and mine waste only, or mine, mine waste, processing plant and processing plant waste. Table B.13 provides the risk ranking for those minerals typically associated with quarrying and not generally referred to as mining. The primary risk class can be adapted upwards based on the additional risks posed by other secondary minerals also recovered, in addition to this primary mineral, as a saleable byproduct (not trace elements). Table B.14 provides details on the secondary risk class arising from additional saleable by-products. 5.2 Area sensitivity The mining operation can be located in either a Low, Medium or High sensitivity area in terms of its biophysical, social and economic setting. The sensitivity of the area can be determined at a regional level, based on one or more of the following information sources: Chapter 2 of the EMPR for the mining operation, Regional closure strategies, and Strategic Environmental Assessments (SEA s) undertaken in the regional within which the mine is located or, This sensitivity can be determined based on criteria provided in Table B.3 in section B. 5.3 Generally accepted closure methods Table A.2 identifies the closure components that are applicable for determining the quantum for financial provision. These closure components were derived in consultation with the mining industry as well as general experience. Appendix C.3 provides details on generally accepted closure methods related to each of the above closure components. The Master rate and multiplication factors used in section B of the guideline document are based on these closure methods.

21 April 2004 A P Table A.2: Closure components for determining the quantum for financial provision Component No. Description 1 Dismantling of processing plant and related structures (including overland conveyors and powerlines) 2(A) Demolition of steel buildings and structures 2(B) Demolition of reinforced concrete buildings and structures 3 Rehabilitation of access roads 4(A) Demolition and rehabilitation of electrified railway lines 4(B) Demolition and rehabilitation of non-electrified railway lines 5 Demolition of housing and facilities 6 Opencast rehabilitation including final voids and ramps 7 Sealing of shafts, adits and inclines 8(A) Rehabilitation of overburden and spoils 8(B) Rehabilitation of processing waste deposits and evaporation ponds (basic, salt-producing waste) 8(C) Rehabilitation of processing waste deposits and evaporation ponds (acidic, metal-rich waste) 9 Rehabilitation of subsided areas 10 General surface rehabilitation, including grassing of all denuded areas 11 River diversions 12 Fencing 13 Water management (Separating clean and dirty water, managing polluted water and managing the impact on groundwater, including water treatment) 14 2 to 3 years of maintenance and aftercare 6 INVESTMENT STRATEGY Appendix C.4 contains information on investment considerations. This information is provided for guidance only and to assist the mining industry toward sound financial management of the funds allocated to rehabilitation. The information provided is not exhaustive, but provides a basic level of guidance towards sound financial management.

22 April 2004 A P 7 GLOSSARY OF TERMS Definitions marked with a * have been taken from the Minerals and Petroleum Resources Development Act (MPRDA), (Act No. 28 of 2002). Closure Closure refers to the process leading to the issue of a closure certificate in terms of section 12 of the Minerals Act (No. 50 of 1991) or in terms of section 43 of the Minerals and Petroleum Resources Development Act (No. 28 of 2002). Closure certificate* The holder of a prospecting right, mining right, retention permit or mining permit must apply to the Regional Manager for a closure certificate, within 180 days of the occurrence of closure, as defined above. No closure certificate will be issued unless the Chief Inspector and the Department of Water Affairs and Forestry have confirmed in writing that the provision relating to health and safety and management of potential pollution to water resources have been addressed. Competent person A competent person means a person who: is qualified by virtue of his or her knowledge, training, skills and experience to organise the work and its performance, and is familiar with the provision of the Act and other related legislation which apply to the work to be performed, and has been trained to recognise any potential or actual problem in the performance of the work. Environment* Environment is defined in section 1 of the MPRDA as meaning the environment as defined in the National Environmental Management Act, 1998 (Act No. 107 of 1998), which defines environment as the surroundings within which humans exist and that are made up of the land, water and atmosphere of the earth, micro-organisms, plant and animal life, any part or combination of the above and the interrelationships among and between them, and

23 April 2004 A P the physical, chemical, aesthetic and cultural properties and conditions of the foregoing that influence human health and well-being. Environmental Management Plan* A plan to manage and rehabilitate the environmental impact as a result of prospecting, reconnaissance, exploration or mining operations conducted under the authority of a reconnaissance permission, prospecting right, reconnaissance permit, exploration right or mining permit, as the case may be. Environmental Management Programme* An approved environmental management programme contemplated in section 39 of the MPRDA. Financial provision* The insurance, bank guarantee, trust fund or cash that applicants for or holders of a right or permit must provide in terms of sections 41 and 89 of the MPRDA guaranteeing the availability of sufficient funds to undertake the agreed work programmes and to rehabilitate the prospecting, mining, reconnaissance, exploration or production areas, as the case may be. Holder* In relation to a prospecting right, mining right, mining permit, retention permit, exploration right, production right, reconnaissance permit or technical co-operation permit, means the person to whom such right or permit has been granted or such person s successor in title. Mine* When used as a verb, means any operation or activity for the purposes of winning any mineral on, in or under the earth, water or any residue deposit, whether by underground or open working or otherwise and includes any operation or activity incidental thereto. Mineral* Means any substance, whether in solid, liquid or gaseous form, occurring naturally in or on the earth or in or under water and which was formed by or subjected to a geological process, and includes sand, stone, rock, gravel, clay, soil and any other mineral occurring in residue stockpiles or in residue deposits, but excludes Water, other than water taken from land or sea for the extraction of any mineral from such water, Petroleum, or

24 April 2004 A P Peat. Mining area* In relation to a mining right or a mining permit, means the area for which that right or permit is granted. In relation to any environmental, health, social and labour matter and any latent or other impact thereto, includes: Any adjacent or non-adjacent surface of land on which the extraction of any mineral and petroleum has not been authorised in terms of the MPRDA but upon which related or incidental operations are being undertaken and, including: - Any area connected to such an area by means of any road, railway line, power line, pipeline, cable way or conveyor belt, and - Any surface of land on which such road, railway line, power line, pipeline or cable way is located, and All buildings, structures, machinery, mine dumps or objects situated on or in that area which are used for the purpose of mining on the land in question. Mining operation* Any operation relating to the act of mining and matters directly incidental thereto. Mining permit* A permit issued in terms of section 27(6) of the MPRDA. Mining right* A right to mine granted in terms of section 23(1) of the MPRDA. Post-closure management The ongoing management of residual environmental impacts for a specified period as determined after closure in terms of section 43(1) of the MPRDA has been obtained. Rehabilitation Rehabilitation means, in relation to the surface of land and the environment, the execution by the holder of a prospecting permit or mining authorisation of the environmental management programme referred to in section 39 of the MPRDA to the satisfaction of the Director: Mineral Development

25 April 2004 A P Sustainable development* The integration of social, economic and environmental factors into planning, implementation and decision making so as to ensure that mineral and petroleum resources development serves present and future generations.

26 SECTION B WORKING MANUAL FOR THE ASSESSMENT OF THE QUANTUM

27 April 2004 B i P SECTION TABLE OF CONTENTS PAGE 1 INTRODUCTION AND BACKGROUND Introduction Structure of the guideline document PROCESS TO BE FOLLOWED INPUT TO THE PROCESS PROCEDURE TO DETERMINE THE QUANTUM FOR FINANCIAL PROVISION Step 1: Determine primary mineral and saleable mineral byproducts Step 2: Determine risk class Step 3: Determine the area sensitivity Step 4: For Class A or B mines and preferred route for Class C mines Step 4.1: Determine level of information Step 4.2: Determine the closure components Step 4.3: Determine the unit rates for closure components Step 4.4: Determine and apply the weighting factors Step 4.5: Identify areas of disturbance Step 4.6: Identify closure costs from specialist studies Step 4.7: Calculate closure costs Step 5: Optional route for Class C mines Step 5.1: Determine minimum rate per hectare for closure Step 5.2: Determine overall area of mining operation Step 5.3: Calculate closure costs Step 6: Commission independent review (if required) Summary of procedural steps to calculate the quantum LIST OF TABLES Table B.1 Table B.2 Table B.3 Table B.4 Table B.5 Table B.6 Table B.7 Table B.8 Table B.9 Table B.10 Table B.11 Table B.12 Summary of input data required to determine the quantum Mineral mined/processed and saleable by-products Criteria used to determine the area sensitivity Closure components applicable for type of mine Unit rates for closure components Weighting factor 1: Nature of terrain Weighting factor 2: Proximity to urban development Specialist studies that should be requested by the DME Regional Office personnel Template for Level 2: rules-based assessment of the quantum for financial provision Rates (per hectare) to determine the quantum for financial provision (Class C mines) Recommended procedure to determine the quantum for financial provision Primary risk class for type of mineral mined/processed

28 April 2004 B ii P Table B.13 Table B.14 Primary risk class minerals related to quarrying Adapting primary risk class based on the nature of saleable by-products LIST OF FIGURES Figure B.1 Process flow diagram for the assessment of the quantum for financial provision

29 April 2004 B P 1 INTRODUCTION AND BACKGROUND 1.1 Introduction The methodologies to evaluate/review the quantum for financial provision form the basis of this guideline document. Different levels of assessment have been proposed, based primarily on the risk posed by the mineral being mined or processed. A degree of flexibility has been allowed for in the methodologies, to take account of varying situations/circumstances. However, as mentioned above, some site-specific knowledge and/or experience is likely to be required to adequately assess the quantum for financial provision for a specific mine. The process to be followed to determine the quantum for financial provision, and the related input data required is described below. 1.2 Structure of the guideline document The guideline document is structured as follows: Section A: Background details and supporting information which covers the following: - Introduction and background to the guideline document, - A summary of the findings of the review of international practice to determine the quantum, - A summary of the legal and investment guideline documents, and - Supporting information for the quantum calculations. Section B: Working Manual for the assessment of the quantum (this document) covers the procedures that the DME Regional Office personnel will use to calculate the quantum, and Section C: Appendices provides additional information on the: - Appendix C.1: Review of international practice, - Appendix C.2: Legal review, - Appendix C.3: Generally accepted closure methods, - Appendix C.4: Investment guideline, - Appendix C.5: Template for assessing the quantum, - Appendix C.6: Worked examples. 2 PROCESS TO BE FOLLOWED Figure B.1 indicates the process to be followed in the assessment of the quantum for financial provision for closure.