New report shows major inadequacies in the way mining companies disclose information about environmental rehabilitation costs
20 June 2018 at 8:45 am
Neither the law, nor the accounting standards governing company disclosures, ensure the necessary transparency and accountability about financial provision for environmental rehabilitation, i.e. money that mining companies must set aside to rehabilitate environmental damage. This is the key finding of Full Disclosure: the Truth about Mining Rehabilitation in South Africa, the latest report in the Centre for Environmental Rights’ Full Disclosure series.
CER attorney, Christine Reddell, says: “We assessed the public disclosures of eleven JSE listed mining companies in relation to their financial provision for environmental rehabilitation. We found that the information provided about the costs of rehabilitation, and the companies’ ability to cover these costs, is inconsistent, unclear, in some cases unreliable, and not comparable between companies.
“This means that it is impossible to check whether the estimated costs of rehabilitation given by mining companies are accurate, whether enough money has been set aside to pay for it, and whether rehabilitation is actually being carried out. In other words, it is impossible for shareholders or taxpayers to hold companies or regulators to account.”
Mining causes extensive damage to the environment. The law requires mining companies, which profit from causing this damage, to set aside and ring-fence enough money to fix it. If a mining company fails to rehabilitate, the state is supposed to be able to access that money and carry out the rehabilitation itself. Rehabilitation is expensive, and when this system fails, it is the taxpayer who ultimately must pick up the tab.
“The recent controversy around the apparent mismanagement of two mine rehabilitation trusts (for the Optimum and Koornfontein mines) under the control of Gupta-owned Tegeta and the Bank of Baroda, was reported as another example of Gupta-related corruption. However, the truth about mining rehabilitation in South Africa, and about the management of the funds that are supposed to be set aside to pay for it, is that it is almost impossible to ascertain whether any mining company is fulfilling its legal obligations,” Reddell explains.
Unrehabilitated mines are dangerous, and cannot be used for any other productive purpose. The mine dumps left behind can contain metal particles which seep into the ground and contaminate the soil, dissolve in water causing acid mine drainage, and are carried through the air in clouds of dust. This exposes local communities to ongoing health risks,* and can continue for decades after operations have ceased. It is therefore crucial for mining companies to mitigate and rehabilitate negative environmental impacts if taxpayers are not ultimately to be faced with the costs.
However, it is clear from the situation on the ground that rehabilitation is often not happening at all. Our landscape is littered with unrehabilitated mining sites. This widespread problem is due, in large part, to the lack of transparency and accountability around financial provisioning for environmental rehabilitation.
Intellidex, a leading capital markets and financial services research company, conducted the initial assessments of the financial disclosures of the 11 listed mining companies. The CER’s Full Disclosure report is based on these assessments, our engagement with the companies assessed, and our own research and extensive work on mining, environmental regulation, and corporate reporting.
The eleven companies assessed are Anglo American Platinum, Atlatsa Resources, Eastern Platinum, Exxaro, Impala Platinum, Lonmin, MC Mining (formerly CoAL), Northam Platinum, Royal Bafokeng Platinum, Wescoal and Wesizwe Platinum.
Full Disclosure includes detailed recommendations. These recommendations are aimed at achieving transparency, consistency, clarity and comparability in company disclosures, and at supporting a legal system that ensures that mining companies fix and pay for the environmental damage they cause.
The Full Disclosure report ranks the quality of the public disclosures by the 11 companies, and also includes an animation describing the project and its key findings.
Orin Tambo, Senior Analyst at Intellidex, says: “We find the disclosures being made by mining companies largely inadequate, in that they do not provide meaningful comparative information about the costs of rehabilitation of environmental damage, and the money set aside to fund the rehabilitation when the mines cease operating. To be meaningful, disclosures should be at the level of each operation, and include detail on the types of instruments used. This will enable communities affected by mining to understand exactly how much money is being set aside for mining rehabilitation, and exactly how those funds are held. However, the lack of disclosure can be attributed to the regulatory and accounting reporting frameworks. Most companies interrogated in this study indicated that they would not object to disclosing or publishing more information if it becomes a regulatory or financial reporting requirement. The onus in our view lies with the Departments of Mineral Resources and Environmental Affairs, and IFRS, to patch up the gaps in their disclosure requirements. The DMR can also go a step further by publishing company submissions on its website.”
To view the CER’s latest Full Disclosure report, and to access previous reports in the Full Disclosure series, visit the Full Disclosure website: https://www.fulldisclosure.cer.org.za
*How mine dumps in South Africa affect the health of communities living nearby, The Conversation, 2 May 2018
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