Queensland’s mining sector set to experience significant changes to financial assurance and rehabilitation requirements with proposed reforms

Mining projects in Queensland typically require financial assurance (FA), a form of financial security/bonding provided to the Government to cover costs associated with environmental harm and rehabilitation, should the project not comply with environmental obligations.

In 2016, an independent review of Queensland’s FA framework was undertaken, which revealed that an increasingly small amount of land disturbed by mining is rehabilitated, causing over-reliance on the FA to remediate the environmental impacts of mining. Consequently, the Government committed to a number of reforms and on 4 May 2017, released the first 2 of 6 proposed discussion papers outlining proposed changes to Queensland’s FA and rehabilitation frameworks for the resources sector.

The reforms, if adopted, will have significant impacts for mining operational costs, decisions to place mines on care and maintenance and the structuring and timing of divestment of mines.

The proposed reforms

The Financial Assurance Framework Reform Discussion Paper (FA Paper)¹ is based around a ‘tailored approach’ to FA. The reforms contemplate the majority of operators contributing to a pooled fund with annual contribution rates of between 0.5 and 2.75%, rather than providing bank guarantees. For a number of companies, this will result in a significant increase in surety costs.

The reforms also involve:

• assigning FA arrangements to resource companies based on their size and level of credit/insolvency risk;
• undertaking more realistic calculations of rehabilitation costs and phasing out discounts on FA and use of company approved calculators;
• pooling FA into an interest-earning Rehabilitation Fund for certain resource companies;
• introducing new options for the delivery of FA, such as insurance bonds;
• clarifying the obligations of operators for sites in care and maintenance; and
• strengthening the assessment of financial capability of incoming mine owners/investors, including the potential introduction of a change of control trigger.

The State intends to remove the ability of a resource company to be sold, distinct from the assets, without the State having the power to reassess the conditions of the tenure and approvals. This will involve guidelines for what are acceptable counterparties.

The Better Mine Rehabilitation for Queensland Discussion Paper (Rehabilitation Paper)² currently applies only to site-specific mining operations and proposes a number of measures which complement those outlined in the FA Paper, to proactively mitigate rehabilitation risk. These measures include:

• using life-of-mine plans to outline operational and rehabilitation matters at all stages of mine life;
• improving assessment and reporting of rehabilitation performance with self-assessments, independent audits and checks by the regulator;
• enforcing progressive rehabilitation requirements in life-of-mine plans;
• setting clearer completion criteria for rehabilitation outcomes;
• introducing performance-based incentives for the management of rehabilitation; and
• enhancing data collection practices to improve analysis and reporting on rehabilitation performance.

Once legislative provisions are introduced to facilitate the Rehabilitation Paper, the framework is to be implemented in a staged approach. For existing site-specific mines, provision of a life of mine plan will be required on the first anniversary day following:

• one year after commencement of the legislative provisions for ‘higher risk’ existing mines; and
• two years after commencement of the legislative provisions for the remaining existing mines.

Next steps

The FA Paper and the Rehabilitation Paper were open for public consultation until 15 June 2017, with responses now being considered.

Additional discussion papers are expected to be released by late 2017, including papers on the:

• expanded range of surety providers;
• expansion of the Abandoned Mines Land Program; and
• improved management of sites in care and maintenance.

The various reforms are expected to begin taking effect by mid-2018.

Endnotes

1. Financial assurance framework reform.
2. Better Mine Rehabilitation for Queensland.

This article was written by Madeline Simpson, Special Counsel, Brisbane.