Regional Focus

South African miners follow a ‘polluter pays’ policy for restoring land damaged by spent mines, but a national think tank has raised concerns over the informality of the financial reporting rules. JP Casey looks at the report’s recommendations for change

Mine Rehabilitation in South Africa

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The Centre for Environmental Rights (CER), a South African non-profit organisation that advocates for environmental justice, has released its third Full Disclosure report, an analysis of mine rehabilitation funds in South Africa. The country operates a ‘polluter pays’ principle, where mining companies are permitted to establish new projects as long as they cover their environmental costs.

CER’s report ranks 11 mining companies according to the usefulness and clarity of their public disclosures of finances covering environmental rehabilitation, with Lonmin, MC Mining and Wesizwe Platinum said to have the least clear financial plans, and Atlatsa and Exxaro the most coherent.

However, CER’s report has found that the legal framework for publicising and using rehabilitation funds is itself flawed.

South Africa’s mining laws

South African law requires mining companies to set aside funds at the outset of a project for rehabilitation of the local area once the mine has reached the end of its life. If the company is unwilling to use these funds after a mine closure, the government can opt to take the money and conduct the rehabilitation work itself through the polluter pays principle, ensuring that taxpayer money is never spent on cleaning up after large mining companies.

However, detailed information on how the reclamation rate is determined, how it is set aside, and even how it can be accessed, is ambiguous. The International Financial Reporting Standards (IFRS) determines the extent and nature of financial information that companies are obligated to provide, and currently insists that companies provide a single, consolidated sum reflecting their ring-fenced funds. While this streamlines the reporting of environmental rehabilitation funds, it also contributes to a concerning lack of information in the mining sector.

Christine Reddell, a CER attorney who authored the report, said: “To a stakeholder looking at a consolidated figure when there are 20 operations, it's completely meaningless. That information is not going to enable you to understand whether enough money has been set aside.”

This confusion has created an environment where the responsibility is on individual companies to disclose as much or as little information as they like, rather than on the government to ensure that all companies are legally obligated to provide detailed documentation.

To a stakeholder looking at a consolidated figure…it's completely meaningless.

Christine Reddell, Centre for Environmental Rights.

Companies are said to lack ‘clear, understandable, comparable information.

CER’s full disclosure findings

The result of this vagary is evident in the Full Disclosure report. Lonmin, MC Mining and Wesizwe Platinum are placed on the bottom of the four ranks, as they provide estimated figures for their environmental rehabilitation projects, but little beyond this. All three companies are said to lack "clear, understandable, comparable information about the type and extent of environmental damage covered by these estimated liabilities" and "information about the way in which the funds set aside for rehabilitation are managed and protected".

Anglo American Platinum, Eastern Platinum, Northam Platinum and Royal Bafokeng Platinum are ranked on the third tier, as they provide what CER calls "standard disclosures", yet thave not published assessments of site-specific environmental impacts and the effects of these local variations on their rehabilitation policies. Impala Platinum and Wescoal sit at rank two, as they provide the same level of information as those on the tier below, while also publicising breakdowns of financial provisions for rehabilitation per operation.

Atlatsa Resources and Exxaro Resources were awarded the highest ranking, by not only providing all the same information as the companies on lower ranks, but, critically, also separating their damage assessments and rehabilitation funds by individual operations. Reddell said that "a one-line item in a balance sheet is meaningless without an understanding of per operation costs", and Exxaro provided context for its assessments in a supplementary report on the land disturbed by its operators versus the land rehabilitated by the company.

Exxaro also told CER that it consults with external experts on its rehabilitation projects every three years to ensure the funds set aside are proportionate to up-to-date estimates of the cost of any environmental repair work.

Companies are said to lack ‘clear, understandable, comparable information

Potential consequences and financial risk

These two detailed elements – per-operation costs and information on how assessments are completed – form the basis of CER’s recommendations for the future, and its warnings over the dangers of ignoring the report’s findings. Reddell referred to the Gupta family, which bought a Glencore mine in 2015 and was subsequently held responsible for confusion and fluctuations in the mine’s finances, as an example of the dangers of trusts protecting unknown and unknowable sums of money in mining operations.

“Particularly for trusts, there's no information provided in the financial statements as to the identity of the trustees and the beneficiaries,” she said. “You don't get access to the trust's annual financial statements, there's no information about how the funds in the trusts are accessed, so who has the power to access those funds?”

Reddell also stressed that failures in the rehabilitation funding system could have a knock-on effect on a range of groups within South Africa, potentially harming local inhabitants the most. “So if there isn’t enough money to rehabilitate and the company goes under, and the directors can't be found, then the state will ultimately have to pay for that rehabilitation,” she said.

“If the state can't – simply because it doesn't have the funds or there are simply too many abandoned mines for it to rehabilitate – then it's communities living next to these mines that are faced with the ongoing pollution and health risks that these abandoned mines pose.”

With a reported 6,000 abandoned mines in South Africa, it is unclear if the government would realistically be able to fund environmental rehabilitation on a large scale. The current system places significant pressure on companies’ abilities to effectively protect and deploy environmental rehabilitation funds, money that is currently often left unknown in both quantity and origin.

Failures in the rehabilitation funding system could have a knock-on effect on a range of groups.

You shouldn't only wait for things to become legal requirements.

Failures in the rehabilitation funding system could have a knock-on effect on a range of groups

Protecting industry and environment

The CER offers individual companies several recommendations to help increase the level of detail in their reports, such as disclosing financial information on every level of operation and the identities of the service providers that calculate the environmental impacts of operations.

Yet many of the group’s suggestions are aimed at the South African Government which, according to Reddell, has a responsibility to insist on greater transparency in how companies report their rehabilitations funds.

“We did write to all of the companies with questions and in their responses a lot of the companies said that if it became a legal requirement to provide the sort of information we were asking for, they would. That, in my mind, is a bit of a cop-out response – you shouldn't only wait for things to become legal requirements,” she said. “But at the same time, that comment is noted, so what we will obviously be focusing our attention on is to get the laws to make these requirements because then these companies will obviously have to do it.

“We hope that this report will feed into that process, identifying some of the weaknesses that we've assessed, and we've also done – as part of our work generally at the Centre for Environmental Rights – we have been contributing to a legislative review process.”

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