A higher bond rate means higher costs of conducting mining and
exploration activities in WA.
The rate of environmental bonds on Western Australian mining
tenements is set to increase at the beginning of 2011, meaning that
the costs of conducting mining and exploration activities in this
State would rise accordingly.
What are environmental bonds?
Environmental bonds were introduced as a form of security in WA
in the late 1980s, to insulate the State against financial
liability if mine operators failed to meet the rehabilitation
requirements of their tenements. Environmental bonds are
administered by the Environment Division of the Department of Mines
and Petroleum (DMP).
Under the Mining Act 1975 (WA), the Minister for Mines
and Petroleum may require the holder of a prospecting licence,
exploration licence or mining lease to lodge with the mining
registrar a security for compliance with the conditions imposed in
relation to that lease or licence. Failure to lodge a security can
lead to the forfeiture of the tenement.
The following types of environmental bonds may be required:
Security - for low impact mining or exploration activities,
with limited ground disturbance, where the calculated bond amount
is on the lower end of the scale;
Bank guarantee - for smaller mining and exploration
operations, utilising limited infrastructure; and
Unconditional performance bond issued by a financial
institution - where there is significant, or potentially
significant, ground disturbance and infrastructure in place and
therefore the calculated bond amount is significant.
Calculating environmental bond amounts
Bond amounts are calculated by reference to a minimum set of
bond rates and criteria published by the Western Australian DMP
that reflect the estimated cost of rehabilitation. The mining
security is traditionally set at approximately 25% of the total
estimated cost of rehabilitation.
A December 2006 review of environmental performance bonds in
Western Australia noted that other Australian jurisdictions hold
securities representing 40-50% of the total estimated cost of
rehabilitation. The Western Australian Government appears to accept
a higher level of financial risk exposure concerning rehabilitation
of mining operations than other States and Territories.
Despite the observations in the review, in mid-2008 the State
Government enacted a moratorium on bond rate increases to help the
resources sector weather the global economic crisis. The moratorium
resulted in the standard environmental bond rates remaining
unchanged until the end of 2009. With adverse economic conditions
persisting, the State Government has extended the existing
moratorium until the end of 2010.
A new policy on environmental bonds
As the moratorium is due to expire at the end of 2010, the State
Government is in the process of developing a new policy with regard
to environmental bonds.
In an announcement made by the DMP on 27 July 2010, Environment
Director Dr Phil Gorey stated that a key consideration is that any
change will not unnecessarily constrain development in the sector.
However, Dr Gorey then observed that the moratorium was a temporary
measure and higher bond rates are needed to bring Western Australia
into line with the rates applicable in other States and
The DMP has formed a taskforce to review mining securities and
make suggestions for reform of the application, tracking,
enforcement and relinquishment of bonds.
DMP has stressed that it will take a collaborative approach and
consult with industry representatives and other stakeholders in the
lead-up to announcing the new policy, which is scheduled to be
released before the end of 2010. An industry-based Mining
Securities Liaison Committee has been established, which will
comprise industry representatives and officers within the
Environment Division of the DMP. The purpose of the Committee is to
provide a forum between Government and industry concerning the
Mines and Petroleum Minister Norman Moore has observed that the
Government would not impose conditions that would discourage
investment in Western Australia. However, Dr Gorey acknowledged, in
accordance with previous DMP statements, that "higher bond
rates were inevitable to more accurately reflect public
expectations on mine site closure and rehabilitation".
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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