Technical report

New South Wales Auditor-General’s report performance audit: mining rehabilitation security deposits

Department of Planning and Environment

11 May 2017
Description

This audit was undertaken when the Department of Industry, Skills and Regional Development was responsible for ensuring land disturbed by mining activities is rehabilitated in accordance with the relevant development approval, including the administration of mining rehabilitation security deposits. On 1 April 2017, this responsibility was transferred to the Department of Planning and Environment (the Department).

This audit assessed whether the Department maintains adequate security deposits to cover the liabilities associated with mine closures, including rehabilitation. Companies authorised by the Department to undertake mining activities must provide a security deposit to cover the full costs of rehabilitation in the event of default by the company. Rehabilitation is the treatment of disturbed land or water to establish a safe, stable, non-polluting and sustainable environment.

Mining companies must provide an estimate of rehabilitation costs for each site. The Department provides a Rehabilitation Cost Calculation tool to assist companies calculate the deposit amount. Companies are also required to ensure that the cost estimate is in accordance with the approved Mining Operations Plan (MOP). The MOP is intended to be a mine rehabilitation and closure plan, and forms the basis for the estimation of the security deposit. The Department reviews the estimates and determines the deposit for each site.

Security deposits are an option of last resort. The Department has other legislative and regulatory tools which it normally uses to promote compliance with rehabilitation requirements before accessing a security deposit. It can direct action by the mining company, issue fines and even have the Minister revoke a mining lease. To date, the Department has never had to access a security deposit for a state significant development mine site.

Conclusion

The Department holds security deposits for mining rehabilitation consistent with the amounts it has requested from mining companies, and it should be able to claim on a deposit if a mining company defaults on its rehabilitation obligations. The total value of deposits has increased from $500 million in 2005 to around $2.2 billion in 2016, covering around 450 mine sites. The Department’s management of the security deposit process has improved in recent years, and it has well advanced plans for further improvement, including a revised cost calculation tool.

The Department’s policy is that each mine’s security deposit should cover the full costs of rehabilitation for that mine. The security deposits the Department holds are not likely to be sufficient to cover the full costs of each mine’s rehabilitation in the event of a default. The rates and allowances in the current cost calculation tool have not been updated since 2013 and some activities required for effective rehabilitation are not covered, or not covered adequately.

Security deposits also do not include sufficient contingency given the substantial risks and uncertainties associated with mine rehabilitation and closure, particularly in the absence of a detailed closure plan. This risk is exacerbated by the limited independent verification of mining company claims about the size of the outstanding rehabilitation task, which remains the case despite recent improvements to monitoring and review procedures and practices.

There is also no financial assurance held over the risk of significant unexpected environmental degradation in the long-term after a mine is deemed to be rehabilitated and the security deposit is returned. A security deposit is not an appropriate vehicle for covering this risk.

Security deposits are close to calculated value and should be accessible if needed

The value of securities held by the Department aligns with the latest approved rehabilitation cost estimates. This contrasts with the situation found by investigations in Victoria and Queensland, where deposit amounts held fell below the calculated costs.

Publication Details
Publication Place: 
Sydney
Published year only: 
2017
36
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