Mining Rehabilitation Guarantees
Through Insurance and/or Other Funding Solutions
Legislation requires that all mining operations within South Africa must make financial provision to guarantee the availability of sufficient funds to undertake rehabilitation and remediation of the adverse environmental impacts of mining activities both during the life of the mine and at closure.
Mining Rehabilitation Guarantees
Through Insurance and/or Other Funding Solutions
Legislation requires that all mining operations within South Africa must make financial provision to guarantee the availability of sufficient funds to undertake rehabilitation and remediation of the adverse environmental impacts of mining activities both during the life of the mine and at closure.
Why choose Doulos?
Financial Services Provider
We partner with registered Financial Services Providers with Experience in Mining Guarantees
DMR Accepted
Our guarantees are accepted in full by the Department of Mineral Resources
Cash Flow Release
Cash flow release from existing funds tied up or provision of cash flow friendly guarantees for new or existing rehabilitiation requirements.
Efficient Process
We pride ourselves on keeping the process fast & efficient for our clients.
Tier 1 Institution
Tier 1 Financial Institution and Insurer supported
Financial Services Provider
We partner with registered Financial Services Providers with Experience in Mining Guarantees
DMR Accepted
Our guarantees are accepted in full by the Department of Mineral Resources
Cash Flow Release
Cash flow release from existing funds tied up or provision of cash flow friendly guarantees for new or existing rehabilitiation requirements.
Efficient Process
We pride ourselves on keeping the process fast & efficient for our clients.
Tier 1 Institution
Tier 1 Financial Institution and Insurer supported
Solution Example
Important fact
Our solution is able to issue guarantees to the DMR through its contingency policy structures that it currently has in place. These guarantees are issued in the approved manner prescribed by the DMR and are accepted by the DMR.
All premiums paid into the facility i.r.o the guarantee structure remain the assets of the contingency policy and will ultimately be returned to the contingency policy owner at a point in time.
Our solution will only consider issuing of a guarantee in cases where the life of mine is a minimum of 10 years and the guarantee value is greater than R1 million.
All premiums are tax deductible and our solution has an “Advanced Tax Ruling” from SARS issued on a class action binding basis for this type of business.
All premiums paid to the contingency policy are classed as insurance premiums and as our solution has a Level 2 BBBEE rating and is rated as a value added supplier. The mine can claim 156.25% or R156.25 of every R100 spent towards their own BBBEE preferential procurement scores.
In the suggested structure our solution takes a pure credit view on the mine and assumes this as a risk between the value of the cell and the guarantee value. Our solution does not require any surety.
On termination Continued...
The insured and insurer have the option to renew at the end of the policy period for a further period of three years. Where such renewal does not take place, the original guarantee must be returned to the insurer. On receipt of the original guarantee the insured is entitled to a performance bonus equal to the experience account balance.
Where the guarantee is not returned the insurer will cancel the guarantee. If at this or any other stage the guarantee is called on, the insurer will request from the insured, additional premium equal to the guarantee amount called on less any premium paid.
Doulos Mining Rehabilitation Guarantees
Lionel Pienaar at 083 325 2016
Background
In terms of the Mineral and Petroleum Resources Act (2002), the Department of Mineral Resources (DMR) requires that an annual calculation of the closure liability of a mine be performed. This calculation should determine the liability at closure taking into account the financial liability:
• as planned in terms of the Environmental Management Programme (EMPr)
• and/or should there be a premature unplanned closure.
The Act allows for four methods for which this liability can be funded, these are as follows:
- Section 10 (1) cH Trust- more recently a S37A trust
- Guarantee (insurance, bank or other)
- Cash
- Other
Most mining operations in South Africa currently make use of the Section 10 (1) cH Trust or S37A trust. The trust allows annual payment to be made in terms of a formula, which is described in the Trust Deed. This formula takes into account total closure liability, life of mine and current funds available dedicated to rehabilitation. However, these contributions need to be approved by SARS. In terms of new legislation, the DMR now also need to approve these payments. The Trust does not allow for premature or unplanned closure.
The Trust is fairly prohibitive in terms of its investments. There is also always the risk of over-funding the Trust. Where this does happen it is a fairly complicated procedure to remove the over-funded amount from the Trust.
The intention behind the Trust is to fund for the liability over the life of mine. However, at any one time during the life of the mine there is a gap between the funds available in the Trust and the actual environmental rehabilitation liability. The DMR now requires that mining companies provide for this gap.
Contributions to the Trust can either be ceased and the Trust value frozen, or the guarantee can be used in combination with the Trust which would result in lower payments being made to the Trust on an annual basis and therefore reducing the risk of over-funding.
Doulos Mining Rehabilitation Guarantees
Contact Lionel Pienaar at 083 325 2016
Background
In terms of the Mineral and Petroleum Resources Act (2002), the Department of Mineral Resources (DMR) requires that an annual calculation of the closure liability of a mine be performed. This calculation should determine the liability at closure taking into account the financial liability:
• as planned in terms of the Environmental Management Programme (EMPr)
• and/or should there be a premature unplanned closure.
The Act allows for four methods for which this liability can be funded, these are as follows:
- Section 10 (1) cH Trust- more recently a S37A trust
- Guarantee (insurance, bank or other)
- Cash
- Other
Most mining operations in South Africa currently make use of the Section 10 (1) cH Trust or S37A trust. The trust allows annual payment to be made in terms of a formula, which is described in the Trust Deed. This formula takes into account total closure liability, life of mine and current funds available dedicated to rehabilitation. However, these contributions need to be approved by SARS. In terms of new legislation, the DMR now also need to approve these payments. The Trust does not allow for premature or unplanned closure.
The Trust is fairly prohibitive in terms of its investments. There is also always the risk of over-funding the Trust. Where this does happen it is a fairly complicated procedure to remove the over-funded amount from the Trust.
The intention behind the Trust is to fund for the liability over the life of mine. However, at any one time during the life of the mine there is a gap between the funds available in the Trust and the actual environmental rehabilitation liability. The DMR now requires that mining companies provide for this gap.
Contributions to the Trust can either be ceased and the Trust value frozen, or the guarantee can be used in combination with the Trust which would result in lower payments being made to the Trust on an annual basis and therefore reducing the risk of over-funding.
Our Solution
Why Doulos?
While Doulos is the provider of one type of solution, there are other solutions available.
This table is an illustration of the fundamental differences between the Doulos solution and other possible solutions we have encountered in the market place:
Doulos solution
With Doulos we have structured a product whereby the insurer would provide the DMR with a guarantee in the prescribed format equal to the liability as determined in an annual closure costing calculation.
In conjunction with this guarantee, the insurer would structure a 3-year policy which would require three annual premiums, which would be credited to an experience account balance. At the end of the 3-year period, the policy can either be renewed or cancelled, dependent on circumstances at that time.
If an existing trusts exists, contributions to the Trust can either be ceased and the Trust value frozen, or the guarantee can be used in combination with the Trust. This would result in lower payments being made to the Trust on an annual basis and therefore reducing the risk of over-funding.
Speak to Us
We understand how important Mine Rehabilitation Guarantees are for your endeavors. Lets meet in person to discuss what we can do for you.
Doulos Responsibilities
- Doulos is responsible for managing the relationship with the insured at all times.
- Doulos will be required to provide as a starting point the following documentation to allow the insurer to assess the risk:
- Latest audited financial statements
- Copy of the relevant parts of the environmental management
programme(EMP) - Details of life of mine
- Management accounts if audited accounts are older than 6months.
- Company information (vat registration number, company registration
number) - The exact land description of the mining site for which the guarantee is to
be offered.
Should any additional information be required to assess the risk, the intermediary will assist in obtaining this information.
Insurer Responsibilities
- The insurer will assess the risk based on the information provided and then provide the intermediary with an indication as to whether the insurer is willing to underwrite the risk or not.
- The insurer will assist the intermediary with any technical information required as well as assistance with presentations to relevant persons.
- The insurer will prepare a detailed quotation on all accepted risks.
- The insurer will prepare a policy document, which needs to be signed by the insured.
5. The insurer will report to the insured and/or the intermediary on a monthlybasis
as to the financial status of the insured contingency policy.
We trust the above is in order and hold ourselves available should you wish to discuss any portion of this document.
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