Our recommendations for changes to financial reporting and disclosure, as well as the legal framework, are aimed at:
- achieving transparency, consistency, clarity, and comparability in company disclosures; and
- supporting a legal system that ensures that mining companies fix and pay for the environmental damage they cause.
For financial reporting and disclosure
- Companies should clearly describe and distinguish the roles of management and independent experts in carrying out the specialist assessments which determine the costs of environmental rehabilitation.
- Companies should disclose the names of the service providers contracted to calculate the financial provision for environmental rehabilitation. The experience and expertise of individual consultants should also be disclosed. If it is not practical to do so in the annual financial statements (AFS), then the AFS should refer to the specific page on the company’s website where this information can be found. This disclosure will assist stakeholders in assessing the adequacy and accuracy of financial provision, and will encourage a culture of accountability amongst service providers.
- Companies should publish all assessments (including reviews) of financial provision for environmental rehabilitation on their websites. The AFS should clearly refer to the specific page on a company’s website where this information can be found.
- Companies should disclose all information relating to financial provision at the level of each operation.
- Companies should provide a clear, understandable commentary to explain any significant changes in the figures for financial provision for environmental rehabilitation, as they appear in the AFS from year to year.
- Companies should clearly explain how they account for financial provision for environmental rehabilitation for joint ventures.
- Companies (and auditors) should make it clear in the AFS that there is a difference between the financial provision (i.e. the amount that will be required to fix all the damage at the planned closure date), and the amount of funds that have actually been set aside to cover a portion or all of this liability.
- Auditors should provide assurance that, should an operation be prematurely closed, there are sufficient funds set aside to cover the rehabilitation costs associated with the damage caused to date.
- Auditors should reconsider the language used in the notes to the financial statements relating to the estimates of financial provision. These notes contain disclaimers to the effect that financial provision estimates require significant “management judgment”, and that the estimates are based on costs, legal requirements and technologies that are inherently uncertain. While there are inevitable uncertainties in determining future liabilities, these disclaimers create the misleading impression that the calculation of financial provision is judgment-based and non-scientific. In fact, financial provision calculations are based on laws that are currently in force, and on specialist technical assessments of the costs of fixing the damage that the company has caused, and plans to cause.
- Companies should provide a narrative description of the type and extent of damage caused by their operations, as well as what rehabilitation work has been undertaken in the preceding financial year, and whether or not this has impacted the company’s overall assessment of its liability for environmental rehabilitation. This description should include information about the most significant environmental risks posed by its operations, and the remedial steps taken to minimise these risks.
- Companies should disclose the following information about trusts that are used as the financial vehicle for rehabilitation funds:
- The identity of trustees and beneficiaries;
- The trusts’ annual financial statements;
- How the funds in the trust are accessed;
- Whenever funds from the trust are used for rehabilitation and/or closure of any operations; and
- Whether the funds are used for concurrent rehabilitation or reserved exclusively for the purposes of closure.
- Companies should avoid fragmented disclosures in relation to financial provision for environmental rehabilitation. Information should be easily accessible, and where it is not possible to have all information in the same location, it must be appropriately cross-referenced.
The International Financial Reporting Standards Board should consider amending financial reporting standards to support transparency and accountability in relation to disclosures of financial provision for environmental rehabilitation. IFRS 10 requires financial statements to present the assets, liabilities, equity, income, expenses and cash flows of a parent and its subsidiaries as those of a single economic entity. A number of the companies assessed referred to this requirement as a justification for not disclosing information about financial provision for environmental rehabilitation at an operations level. This information is much more useful to stakeholders when liabilities are broken down per site. The fact that there are a number of companies that already do this indicates that IFRS 10 is not a barrier to doing so, but the IFRS Board could assist in transparency and ease of use of information by recommending that this be done by all mining companies.
For the legal framework
- It is crucial that the language used in all laws regulating financial provision for environmental rehabilitation be clear and unambiguous. The laws should include clear, detailed definitions of the terms “mitigate”, “remediate” and “rehabilitate” in relation to mining operations.
- The law must specify that the assessment of financial provision must be undertaken by independent specialists.
- The law must require that the determination, review and any adjustments of the financial provision, as well any audits of such financial provision, are publicly accessible on the company’s website.
- The law must require that at any point in time there must be sufficient funds actually set aside by a mining company to cover the full costs of environmental rehabilitation (including the rehabilitation of latent and residual impacts), should any operation be prematurely shut down.
- The law must clearly specify that financial provision must be calculated based on a detailed itemisation of all activities and costs based on actual costs of implementation of the measures identified for rehabilitation. The outdated Department of Minerals and Energy Guideline Document for the Evaluation of the Quantum of Closure-Related Financial Provision Provided by a Mine should be scrapped.
- The law must specify that an environmental authorisation for prospecting or mining cannot be granted unless the applicant has provided proof of payment of the applicable financial provision to the issuing authority.
- The financial vehicles in which financial provision funds can be held lawfully must be appropriate for their purpose, and must ensure that the funds are properly protected, such that they can only be used for environmental rehabilitation.
- The law must clearly specify exactly who can access the funds, and under what circumstances, and must require proof that any funds withdrawn from a financial vehicle for rehabilitation have in fact been used for that purpose.
- The Departments of Environmental Affairs, Mineral Resources and Water and Sanitation should publish jointly a publicly available and easily accessible register of the funds set aside for environmental rehabilitation. The register should be updated in accordance with the legal requirements for review of financial provision, and should include:
- The name and licence number of each right holder;
- The financial vehicle/s and financial institution/s in which rehabilitation funds are held;
- The amount of available rehabilitation funds per right holder; and
- The amounts held for environmental rehabilitation in accounts administered by the Department of Mineral Resources, how those funds are invested, who has access to them and under what circumstances, and how they are apportioned.
- The law must specify that assessments of financial provision must include assessments of the costs of the pumping and treatment of polluted or extraneous water, and that these costs must be included in the calculation of the amounts set aside for environmental rehabilitation.