R30 billion is just the start of South Africa’s mining hangover



Posted on 15 August 2012
In response to the environmental risks posed by abandoned mines, mining companies are legally required to set aside money to clean-up mining operations before they are officially closed. Research published in a new WWF report indicates, however, that mining companies are not fulfilling this obligation adequately. In 2009 the Auditor General estimated the bill for cleaning up existing abandoned mines to top R30 billion. This figure will continue to grow unless mining companies and governments act quickly to close loopholes in the process to fund clean mine closure.

The incidence of acid mine drainage (AMD) and the high number of derelict and ownerless (D&O) mines, as well as dangerous sinkholes and collapsing entry points, particularly in the Witwatersrand gold fields, have effectively brought the consequences of inadequate environmental rehabilitation in the mining sector into sharp focus.

The newly released Financial Provisions for Rehabilitation and Closure in South African Mining: Discussion Document on Challenges and Recommended Improvements report, commissioned by WWF-SA, recognises that Mining in South Africa is a key element of economic development. However, ongoing concerns regarding environmental degradation in mining areas, the high number of ownerless and abandoned mines, and the incidence of AMD have highlighted the need for improved environmental maintenance and rehabilitation in the mining sector. In addition to this, there is growing public concern that those who profit from mining are not footing the bill for environmental damage caused by their operations.

The report, launched today (15 August 2012), was written by a team of experts from the University of Cape Town’s School of Economics and Department of Accounting, Independent Economic Researchers and other independent consultants.

WWF-SA commissioned the report in order to examine how South Africa is failing to; assess how much money will be needed for mine clean ups, including long term water treatment; secure and report on the funding available to rehabilitate specific mines; and ensure that the funding is available over the time scales needed for clean-ups. The report also gives an assessment of the current regulations and practice of mining companies and recommends solutions to the current short-falls.

According to WWF’s Freshwater Programmes Senior Manager, Christine Colvin, “Mining companies are legally obliged to set aside money to rehabilitate mined areas and clean-up pollution in the long term. However, this system is currently failing South Africans. The estimated bill for cleaning up the AMD in the Witwatersrand is over R2 billion. Tax payers are expected to foot most of these costs, as the polluting mines have in many cases stopped operating.”

Key concerns highlighted in the report around the current practice of financial provision estimation include:
  • High levels of variation with regard to the quality of Environmental Management Plans or Programmes (EMPs) and inadequate consideration of longer term water quality issues in particular;
  • EMPs with inadequate or no rehabilitation plans at all, making it difficult to trace the links that should be clearly present between these plans and calculations of financial provisions;
  • Master rates contained in the 2005 Department of Mineral Resources (DMR) guidelines are not adjusted for inflation, resulting in significant underestimations of adequate financial provisions; Lack of concurrent rehabilitation and clear incentives to rehabilitate, resulting in higher longer term and more significant risks, particularly with regard to water quality impacts, and
  • Indications that a number of mines are not making adequate financial provisions for closure (uncertainty with regard to the adequacy of financial provisions appears to be greatest in relation to providing for adequate post closure water treatment and management). This is supported by targets set in the two most recent strategic plans of the DMR, which explicitly recognise that more needs to be done to ensure greater compliance with financial provision requirements.
In order to address these concerns, the report recommends the addition of more stringent provisions accompanied by regular updating of DMR guidelines for the evaluation of the quantum of closure-related financial provisions, and augmented and structured use of the independent review mechanism as a standard, default approach when assessing the adequacy of financial provisions. It also calls for improved public access to data and information on financial provisions, together with the enhancement of the South African Code for Reporting of Exploration Results, Mineral Resources and Mineral Reserves (SAMREC) to allow for greater clarity on how environmental liability costs need to be taken into account, including potential links to the DMR guidelines for the evaluation of the quantum of closure-related financial provisions, and integrated authorisation/sign-off of EMPs from environmental and water authorities.

According to one of the authors of the report; Dr Hugo van Zyl of Independent Economic Researchers, “Addressing the environmental costs of mining is clear policy priority. However, the systems for making proper financial provision for closure and reporting on them in company accounts need significant improvement.”

Colvin adds; “South Africa’s mining industry is the one of the largest in the world and mining accounts for nearly a fifth of the country’s Gross Domestic Product. While jobs and revenue generated by mining are essential to the South African economy, the costs of mining borne by the environment, mine neighbours, downstream water-users and the tax payer are an unacceptable consequence of a poorly managed sector.

“Additionally, the impacts of abandoned mines on the environment are often felt by rural communities who do not have access to basic municipal services (such as piped and treated water supply), and are therefore directly reliant on natural resources for their food and water. These communities are the most vulnerable. For these reasons we urge government to act now to prevent further degradation of our rivers and aquifers”.  
Mining companies are not fulfilling their obligation to set aside money to clean up operations before they are officially closed.
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